2012 Paper P3 QandA Sample Download v1

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Questions and Answers Paper P3: Business Analysis MAIN PAGE CONTENTS: SEC A CONTENTS: SEC B

ACCA Paper P3: BUSINESS ANALYSIS

Questions and Answers

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ACCA Paper P3 – Business Analysis – Practice Questions & Answers

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Syllabus Study Guide

The structure of the syllabus A Strategic position

Intellectual levels B Strategic choices

Learning hours C Strategic action

Guide to exam structure D Business process change

Guide to examination assessment E Information technology

Aim F Quality issues

Main capabilities G Project management

Relational diagram of main capabilities H Financial analysis

Rationale I People

Detailed syllabus

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ACCA Paper P3

Business Analysis Questions and Answers

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ACCA Paper P3

Business Analysis

Strictly Business Books

Case Study: Scenario

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STRICTLY BUSINESS BOOKS

ANSWER GUIDE

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The ‘current date’ for this scenario is March 2012

‘Strictly Business Books’ (SBB) is a mail order company that specialises in books on business, particularly related to finance, accountancy, information systems and human resource management. The company is organised on two sites. The company is based in a rural area; the distribution centre is situated near enough to a main road to enable delivery and distribution of inventory, and the administrative centre is in a similar situation just two miles away on the same road. Both sites are a long way from any urban centre.

SBB employs 68 staff to perform all the administrative and packing tasks. It has a catalogue of 4,800 titles, of which 80 percent are usually held as inventory. The operations director has set a target of 2,500 titles to form the company’s list, of which 95 per cent would also be held as inventory or available for dispatch within twenty-four hours. This target has been set because of the increasing problems with regards to the

‘guaranteed’ dispatch within 48 hours of an order. This strategy has caused concern with the board of directors who previously had encouraged growth in the number of titles available. Details of titles, inventory and orders are held on a bespoke database called ‘Book Manager’.

Financial statistics for the company are given in Table 1.

Table 1: Financial information on Strictly Business Books ($’000)

2009 2010 2011 2012 2013 (estimate) (forecast) Sales 13,100 16,250 15,000 14,500 13,000 Cost of sales 6,500 8,565 8,250 8,410 7,670 Gross profit 6,600 7,685 6,750 6,090 5,330 Marketing 550 715 705 710 650 Distribution 1,965 2,600 2,550 2,610 2,470 Administration 2,620 3,380 3,300 3,335 2,915 Net profit 1,465 990 195 - 565 - 705 Return on sales (%) 11.2 6.1 1.3 NA NA Net assets 3,000 3,350 3,200 3,200 3,200 Inventory 1,810 2,245 3,200 3,150 3,020 Employees 58 63 68 74 74 Customer analysis: Sales to retailers 65% Sales to schools and colleges 25%

Sales to others 10%

Much of the business is repeat business and consists of major retailers. Regular customers of SBB are placed on a permanent mailing list, and are sent every updated catalogue. Some customers, such as retailers, schools and colleges are ‘Account Customers’ who have a discount awarded to them. Because of the overhead, SBB keeps the number of Account Customers low.

Orders, received via e-mail, post or fax, are normally packed and dispatched within 24 hours, unless the titles are out of stock.

In 2009, SBB experimented with taking on-line orders over the Internet. The experiment has been quite successful, with 10 per cent of their business being carried out electronically. The only difference in the operation is that the orders are printed off each day at 15.00 hours and packed later that afternoon. The packers do not notice any difference between orders from the different methods of customer ordering. Currently the company’s website receives 250 – 300 hits per day; SBB would like to see it 1,000+ hits per day. They have bought a good dot com domain name, which increases the hit rate. They have recently installed software which manages ‘cookies’, so they can monitor customers who order on-line.

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There has been an unexpected side effect of this development: SBB have become aware that prospective customers are studying their on-line catalogue to identify titles, and then buying from companies such as Amazon and BOL (Books Online), who are selling the same titles at greatly reduced prices. The prices from Amazon and BOL are lower than SBB themselves have to pay for the books. The directors are

contemplating their response to this and their falling financial results. They have identified three options:

(i) Withdraw their presence from the Internet and revert to the traditional mail order practice they have built up.

(ii) Attempt to compete with the rival companies on price.

(iii) Buying the rights to as many titles as they can and branch out into publishing, so that the competitors

must buy from SBB rather than undercut them.

At a recent board meeting the directors briefly discussed the three options. Following this discussion the chief executive officer (CEO) suggested that, before making any final decisions concerning long-term business plans or strategies, a full analysis of the current situation should be conducted. The newly appointed information technology manager supported this motion, stating ‘The market is changing, now is the appropriate time to take stock of the company’s current position. Following an analysis the board will be better informed to make business plans and identify technology requirements to support the plans.’ The IT manager was given the task of performing the analysis and reporting back to the next board meeting with his results. The board has particularly asked him to concentrate on positioning the business to enable the development of opportunities for e-commerce.

Brief historic review of the development of Strictly Business Books’ technological infrastructure

2000 Company was founded. Limited number of titles aimed at a niche market. Fifteen staff supported by

paper based systems, electronic typewriters, orders received by post and telephone.

2001 Due to the success of the business more staff employed, introduction of twenty stand-alone personal

computers. Functions include, basic office software, desktop publishing, spreadsheets and accounting software.

2002 Due to the increase in business and limitations of the building space on the original site SBB

purchased another site in the same locality. The second site housed the management and administrative personnel.

2003 Implementation of an inventory recording system. This was purely a system that recorded the

inventory levels of the inventory and produced periodic lists of inventory levels. All inputs to the system were manual.

2004 40 more PC’s were purchased, each site purchased a local area network.

2005 A new IT department was created bringing the existing IT/IS staff formally together. A business

analyst headed this department supported by two analyst/programmers and two operations personnel. The original IT staff were recruited from within the company.

2006 A bespoke integrated inventory reordering software package was developed. The package used an

Oracle database as its platform. This package included modules that performed the basic inventory control function, produced purchase orders, produced various management reports and integrated with the existing accounts package.

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2008 The PC’s and LAN’s were updated to work in a Windows NT environment.

2009 The company experimented with the Internet, establishing its own site and receiving orders via the

Net. The electronic ordering system is not integrated with the inventory management system. No further development has taken place.

2012 Present. The company has encountered problems with maintaining permanent IT staff. The target of

ten specialist has rarely been met. Currently the department has eight personnel; five permanent and three contract staff. The company has recently appointed an IT director.

Required:

(a) (i) Construct a strengths, weakness, opportunities, threats (SWOT) analysis for Strictly Business

Books using the information given in the scenario. (10 marks)

(ii) Select the elements from the SWOT analysis produced in (a) (i) above, which will make most

contribution towards the development of an information systems strategy, particularly supporting the early improvement of e-marketing (including e-commerce), within Strictly Business Books. For each element chosen, explain its significance in the formulation of the IS strategy.

(10 marks)

(b) Figure 1: The Value Chain (From Porter, M., ‘Competitive Advantage’ )

(i) For each primary activity in Porter’s Value Chain (Inbound logistics; Operations; Outbound

logistics; Marketing and Sales; Service) briefly describe the activity and suggest an appropriate information strategy that could support the activity within Strictly Business Books. ( 8 marks)

(ii) From the point of view of the Board of Directors, discuss the impact of the need to develop a

range of new IS systems to support e-commerce on the four support activities in Porter’s Value Chain (Infrastructure; HR management; Technology Development; Procurement). ( 8 marks)

Firm infrastructure Human resource management

Technology development Procurement Inbound logistics Operations Outbound logistics Marketing and sales Service Primary activities Secondary activities

A

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(c) A general framework for combining the development of business strategy and information systems strategy can be shown as a three stage process:

1. Position audit Where we are First stage

2. Choices Where do we want to be Second stage

3. Action Going to get there Third stage

(i) Discuss the relationship between the business strategy and the information systems strategy in

the second stage, ‘Where we want to be’. Your answer should include different approaches for developing the IS strategy alongside the business strategy. Make reference to Strictly Business Books where appropriate. ( 6 marks)

(ii) During the action stage, ‘Going to get there’, there may be a requirement to review and make

changes to the major business processes in Strictly Business Books. Briefly recommend a model that can be used to guide implementation planning and explain why changes may be required. ( 8 marks) (50 marks)

A

A place for everything, everything in its place.

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Case Study: Answer Guide

ACCA Paper P3

Business Analysis

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STRICTLY BUSINESS BOOKS

Tutorial note: This model answer is considerably longer and

more detailed than would be expected from any candidate in the examination. It should be used as a guide to the form, style and technical standard (but not in length) of answer that candidates should aim to achieve. However, this answer may not include all valid points mentioned by a candidate – credit will be given to candidates mentioning such points.

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The Plan and Answer : part (a) (i)

Ask yourself …. What is being examined here? The question requires a conventional SWOT analysis.

Reading the question shows that the company is in a competitive environment

Some of the critical success

factors for this company relate to

information systems

Make sure to bring IT into your review Strengths Weaknesses Answer plan format Established customer base (although it is eroding) Reasonably efficient customer ordering system Appointment of two senior IT managers bodes well The company is using customisation software (‘cookies’) The company’s warehouse is located close to a main road Cost reduction is possible E-marketing could improve the sales position The website hit

rate is lower than required The online ordering system is not integrated with the inventory system Staff retention problems in the IT department Opportunities Threats

Sales are falling

Gross margin is falling because costs of sales are

increasing

Other costs are increasing per $1 of sales The website could be improved Vulnerability to customer switching Marketing expenditure does

not add value

Inventory turn is reducing An intention to increase staff although sales are falling Planning is everything

Q

The financial statistics reveal problems

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Strengths

- The company has an established customer base although it is eroding. In the most recent year (2011) sales dropped by 7.7% ($1,250/$16,250) and are expected to fall by another 13.3% ($2,00/$15,000) during 2013. Details concerning which customers are being lost and why are essential for this review. The fact that most of the sales are repeat business suggests that the company’s customers are satisfied with the service provided and are reasonably loyal.

- The company appears to have an efficient customer-ordering and dispatch system, even though there are obvious gaps and disconnects between the two sites.

- The fact that the company has recently appointed both a new IT manager and IT director bodes well in this respect. The appointments indicate that management recognise the importance of upgrading the customer ordering process to streamline the two systems and remove such inefficiencies between the two sites.

- - The company has software allowing customisation (‘cookies’) . Cookies allow the company to (1) personalise its website for an individual customer, (2) use an online operating and ordering system and (3) track visits to the website. This will be extremely useful for market research purposes.

- The fact that the company’s warehouse is located close to a main road (delivery infrastructure) is also a strong point in the company’s favour.

Weaknesses

- The company’s financial statistics reveal problems.

- Sales are falling (already mentioned) and costs are increasing.

- In 2009 the gross profit was 50.4%, by 2011 it had fallen to 45%. It is estimated that the gross profit for 2013 will drop further to 41%. This reveals that the company’s cost of sales are increasing, presumably because of rising purchase costs.

- The other costs – marketing, distribution and administration – are also increasing per $1 of sales.

Strengths Established customer base (although it is eroding) Reasonably efficient customer ordering system Appointment of two senior IT managers bodes well The company is using customisation software (‘cookies’) The company’s warehouse is located close to a main road Weaknesses The financial statistics reveal weaknesses

Sales are falling

Gross margin is falling because costs of sales are

increasing Other costs are increasing per $1

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- It is worrying that the company intends to spend marginally more on marketing during the current year (2012) although sales are estimated to fall.

- Inventory turn was 50 days in 2009 [(1,810 x 365)/13,100] but had stretched to 78 days by 2011 and the forecast position for 2013 is 85 days. A reducing inventory turn indicates the possibility of slow-moving stock, dormant stock or even obsolescence. The fact that stock outs are fairly common merely emphasises that dormant and slow-moving stock items might be the problem.

- Another worrying feature is that management intend to increase staff even though sales are forecast to fall.

- The company’s website attracts fewer visitors than is wanted. The drawing power (‘magnetism’) of the web might suggest content and content management problems. These problems might be resolved by the new high-powered IT management team. At the moment the company lacks competitive advantage due to not having competence in the critical success factors required for online selling.

- The web-based ordering system is not integrated with the inventory management system causing gaps and disconnects which cause operating inefficiencies. The point has been

raised above.

- There are staff retention problems in the IT area. These type of people must be looked upon as part of the ‘primary internal market’ and as such provide the company with essential deep skills and competitive edge. The root causes of staff dissatisfaction must be identified and dealt with quickly.

Opportunities

- The company has the opportunity to better utilise its website. Effective application of cookies, and electronic cataloguing should help attract and retain customers.

- We see that the company is probably suffering from high rising costs of books for resale and should therefore consider ways in which web-enabled e-procurement might be used to address this problem. For example, SBB might find that electronic B2B

marketplaces can be used for competitive effect. Marketing

expenditure does not add value

Inventory turn is reducing An intention to increase staff although sales are falling

The website hit rate is lower than required The online ordering system is not integrated with the inventory system Staff retention problems in the IT department Cost reduction is possible Opportunities The website could be improved

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- Opportunities might exist to reduce costs. We have already considered waste caused by gaps and disconnects and there may be opportunities to redesign processes to reduce costs caused by these weaknesses in the operating work flows.

- The company’s marketing is not effective at this time. E-marketing could be used with much more effect. For example, a bespoke customer relationship management system designed to improve market and product positioning through online market research would not only enable the company to improve its competitive stance but also help to reduce its internal administration costs.

Threats

- The company is vulnerable to customers switching to other online providers. Online

retailers, who form the major part of SBB’s customer base, are now able to switch very quickly in order to obtain lower prices. They would be involved in such tactics as web surfing, spot buying and reverse-auctioning. Web-technology and online selling increases SBB’s exposure to this significant risk.

E-marketing could improve the sales position Threats Vulnerability to customer switching

The Plan and Answer : part (a) (ii)

Ask yourself …. What is being examined here? The question requires you to interpret the implications of the SWOT analysis Suggestions as to how SBB might improve its competitive position

are important here

Make sure to bring IT into your answer. Your

answer should draw from the SWOT

analysis

Integration of online ordering and the inventory

management system Use of e-procurement to reduce the price of books and obtain benefits Answer plan format Use of e-marketing to build the customer base IT staff recruitment and retention

Q

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We have just seen that SBB suffers from its lack of competence in the important fields of online marketing and selling. The early introduction of e-marketing (which encompasses e-commerce) will be a significant element of SBB’s IS strategy. The following implications of the SWOT analysis are particularly relevant in this context.

Integration of the web-based ordering system with the inventory management system

As SBB incorporates improved web-enabling technologies into its operations it will be essential that these online activities are integrated into the day to day workflows of the company – rather than being treated as a ‘technological add-on’. A coherent IS strategy must therefore provide for the integration of an effective customer relationship management system with the company’s back-office systems, particularly linking customer orders with inventory files and processing systems.

Use of e-procurement to reduce the prices of resale books and obtain other benefits

Research shows that many organisations have made considerable steps in achieving competitive advantage through investing in web-enabled e-procurement systems.

E-procurement relates to the use of IT to improve all activities involved with obtaining items from a supplier; this includes purchasing, also inbound logistics such as transportation, goods-in and warehousing before the item is used or sold. The benefits of E-procurement and associated digital workflows are reduced costs, decreased order cycle time, along with improved service, greater customer responsiveness, improved supplier relationships and better collaboration with suppliers.

Use of e-marketing to build the customer base

E-marketing can be used to identify customers’ needs and wants; anticipating the demand for digital services and therefore the allocation of appropriate resources; and satisfying customers through the electronic channel. E-marketing can be used to attract customers (‘magnet’), retain customers (‘sticky’) and encourage them to extend their purchases (‘elastic’). Obviously, SBB needs to improve its website hit-rate and better customise its services.

IT staff recruitment and retention

The company’s failure to retain permanent IT staff is a major obstacle to the implementation of a consistent and coherent on-going IS strategy. Emphasis should be placed on recruiting only those applicants who are likely to behave, acquire skills and show attitudinal commitment in line with the requirements of SBB. Competency frameworks can be used to specify the skills and qualities required of potential employees. Reward systems need to be designed in line with competency and results. The new IT management will be held responsible for achieving these goals.

Due regard should given to Harmon’s ‘Strategy-process Matrix’. There might be scope to reduce the human resources problem by outsourcing non-critical activities.

Integration of online ordering and the inventory management system Use of e-procurement to reduce the price of books and obtain benefits Use of e-marketing to build the customer base IT staff recruitment and retention

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- The primary activities in the lower half of the value chain, show in sequence the activities performed by the organisation in converting raw material inputs to finished products and them selling and delivering them to customers. These are grouped into five generic categories of activities.

Inbound logistics

- These are the activities concerned with receiving, storing and handling raw material (purchases) inputs.

- An appropriate process redesign at SBB would be the implementation of an Inventory Control module linked to an integrated accounting package. This would remove an obvious gap and disconnect within the work flow. Such a system would include the use of a bar-code reading system and database management system. A full enterprise management system (ERM) would accomplish this goal as well as achieving other important benefits.

Operations

- Operations are concerned with the transformation of resources into finished goods or services.

- A Sales Order Processing module, incorporated to link in as part of a sophisticated customer relationship system (CRM) would not only be used to automatically link orders being received and the despatch of the books required, but would provide many other competitive advantages, such as managing the e-mail list, data mining for

customer patterns, personalisation, providing online customer services, etc. all of which will enhance the customers shopping experience.

The Plan and Answer: part (b) (i)

Ask yourself …. What is being examined here? This question examines your knowledge of the primary activities (lower half) of Porter’s

Value Chain The question specifically requires suggestions as to how SBB’s information systems can be improved.

Consider work flows activities Operations Answer plan format Outbound logistics Marketing

and sales Service Inbound logistics Inbound logistics Primary activities Operations

Q

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Outbound logistics

- Outbound logistics are concerned with storing, distributing and delivering products (finished goods) to the customers.

- Outbound logistics for SBB involves the distribution of books to customers. An online order tracking service would be a relevant add-in to the CRM.

Marketing and sales

- These activities handle communications with the customer.

- A strong CRM system would provide SBB with (1) accurate customer selection and high-value customer targeting, (2) customer acquisition by improving the customer’s buying experience, (3) customer retention by using electronic techniques to keep its customers, and (4) customer extension by getting customers to increase their depth of buying or range of books.

Service

- Service covers all of the activities which occur after the point of sale.

- Still a further part of the CRM would be a customer tracking system, that records the details and status (pending, resolved, etc.) of customer service queries.

Each of these five primary categories will be vital to the competitive advantage of SBB. Outbound

logistics

Marketing and sales

Service

The Plan and Answer : part (b) (ii)

Ask yourself ….

What is being examined here?

Now you are examined on the

secondary activities (upper

half) of Porter’s Value Chain

Again the question specifically requires suggestions as to how

SBB’s information systems can be

improved. Work flows activities

are important here as well Technology development Answer plan format Human resource management Firm infrastructure Procurement

Q

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Questions and Answers Paper P3: Business Analysis MAIN PAGE CONTENTS: SEC A CONTENTS: SEC B

Support activities involved in competing in an industry can be divided into the four generic categories also shown in Figure 1 (in the question). Each category of support activity is divisible into a number of distinct value activities that are specific to a given industry.

Procurement

- This refers to the function of purchasing inputs used in the company’s value chain, not to the purchased inputs themselves.

- We have seen that SBB might be able to employ e-procurement. As part of this strategy the company’s website could be used to facilitate an extranet link with supply-chain partners thus participating in an electronic supply-chain value system. Companies have used such strategies to form virtual supply-chains, as is the case of Amazon which is competing against SBB.

Technology development

- This relates to the other activities. All the value activities embody technology, be it know-how, or technology involved in the work flow streams.

The improvement of SBB’s e-marketing position will require significant technological expertise in areas such as website content design and management and system security. It is probable that some outsourcing will be required.

Human resource management

- HRM consists of activities involved in the recruiting, selecting, training, development and compensation of all the personnel employed in the company. HRM supports both individual primary and support activities (e.g. recruitment of sales managers) and the entire value chain (e.g. labour negotiations).

- Although not ‘big bang’ the change in processes will be significant and may begin to transform the company’s cultural paradigm. Most people working in the company will be affected, but none so much as in the IT areas. Effective HRM will be particularly

important in the IT department.

Firm infrastructure

- Firm infrastructure consists of a number of different activities including general management, planning, finance, accounting, legal and quality management.

Infrastructure, unlike other support activities, usually supports the entire chain and not individual activities.

- Efforts to improve the e-marketing of SBB will require a new infrastructure to support it. An ERM system for example, provides an infrastructure of systems that produces the communications, integrations and reports required for an effective e-marketing strategy. Technology development Human resource management Firm infrastructure Procurement

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Where we want to be

The business-alignment approach

- An essential part of any IS strategy is consideration of how IS strategy supports change. Competitive advantages comes not from technology (IT) or from systems (IS), but from how the information is collected, stored, analysed and applied.

- In the business-alignment approach, a top-down approach is used to review how information systems can be used to directly support a business strategy. Alignment models focus on aligning the information system’s plans and priorities with organisational strategy and business goals.

- Linking information systems to business objectives and critical success factors (CSF) is one approach for using the alignment approach

The business-impacting approach

- In the business-impacting approach, a bottom-up approach is used to determine whether there are new opportunities from deploying information systems that may impact positively on business strategy. New hardware and software technologies are monitored by the IS manager and other managers to evaluate whether they can achieve competitive advantage.

Value chain analysis

- We saw previously that Value Chain Analysis is another method that can be used for the impact approach. For example, this might identify the need for SBB to use e-procurement which it can use as part of an effort to reduce costs and increase efficiency as part of a business strategy. This technique has merit in that it not only considers internal use of IS, but also how they can be used to integrate with external organisations such as suppliers, perhaps through innovative methods such as marketplace exchanges.

The Plan and Answer : part (c) (i)

Ask yourself …. What is being examined here? The question is looking at the relationship between business strategy and information system strategy.

You are required to briefly discuss

different approaches for

developing IS strategy Your answer can be based on

the three main approaches for developing IS strategy with business strategy also in mind

The business impacting approach Answer plan format The value-chain analysis approach The business-alignment approach The business-alignment approach The business impacting approach The value-chain analysis approach

Q

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Going to get there

The Seven-S model may be an appropriate framework

- McKinsey’s Seven-S model might prove an appropriate framework for planning the implementation of the IS strategy. The model focuses on strategy, structure, systems, staff, style, skills and shared values which combines the rational and hard elements of change with the emotional and soft aspects. It is an excellent diagnostic tool, but would also guide the type of organisational change called for in SBB.

Flexibility is essential

- Although the plans to be implemented are basically hard by nature, they have been agreed on the basis of ex-ante knowledge. Such knowledge, by implication is based on assumptions, often guesswork. For this reason, the plans need to be designed for flexibility, possibly incorporating contingency (or ‘soft’) plans.

Competitive pressures may call for change in the original plans

- SBB faces all Porter’s Five Threats, particularly so with substitutes (e-book readers are now coming on stream in the market place), the power of buyers (large retail chains), the power of suppliers (the suppliers of books to SBB) and rivalry within the market. The possible adverse force of new entrants also cannot be overlooked. SBB will have to make allowances in its plans for possible moves by competitors.

The Plan and Answer : part (c) (ii)

Ask yourself …. What is being examined here? The question is concerns the implementation of an information systems strategy.

The Seven-S model is a useful framework for planning what is

required.

There is scope here to mention different frameworks: Seven-S,

Porter’ ‘5-Forces’ and PESTEL Flexibility is essential Answer plan format Competitive pressures may call for

change The Seven-S model Technologic al change may lead to a rethink The PESTEL model will help Business and information systems strategies must remain complementary The question is mainly concerned with changes that can occur while

the strategy is running. The Seven-S model Flexibility is essential Competitive pressures may call for

change

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Technological change may also lead to a rethink

- Technological change is often quick and usually dynamic in its impact, particularly so in the information systems fields. Such change may force SBB to rethink its IS strategy, or at least part of it. The example of technology surrounding electronic-books (e-books) has already been mentioned above.

The PESTEL model will help to monitor the macro-environment

- SBB will need to continually monitor its macro-environment, and the PESTEL model will be useful in this context. In general terms, PESTEL analysis aids (1) environmental monitoring, (2) future position monitoring, (3) the formulation of strategic change plans, and (4) the evaluation of strategic change proposals.

- The use of this model should enable the management of SBB to identify and respond to change, particularly technological change, proactively.

Business strategy and information systems strategy must remain complementary

- When changes are made to one or both of the business and information systems strategies, it is important to ensure that they remain complimentary. For example, a change in SBB’s business strategy (perhaps to focus more on mail order only) would require a significant change in the company’s IS strategy.

Technological change may lead

to a rethink

The PESTEL model will help

Business and information systems strategies must remain complementary

Some terminology used in this

answer is explained on the

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Terminology and concepts used in this case study

(Not part of the answer)

Electronic procurement (e-procurement) is ‘the electronic integration and management of all procurement activities including purchase request, authorisation, ordering, delivery and payment between a purchaser and a supplier’. (D Chaffey, ‘E-Business and E-Commerce Management’ [Prentice Hall])

Turban, Lee and King ‘Electronic Commerce: A Managerial Perspective’ (Prentice Hall) summarise the benefits of e-procurement as follows:

 Reduced purchasing cycle time and cost.

 Enhanced budgetary control (achieved through rules to limit spending and improved reporting facilities).  Elimination of administrative errors (correcting errors is traditionally a major part of a buyer’s workload).  Increased buyers’ productivity (enabling them to concentrate on strategic purchasing issues).

 Lowering prices through product standardisation and consolidation of buys.

 Improving information management (better access to prices from alternative suppliers and summaries of spending).

 Improving the payment process (this does not often occur currently since payment is not always integrated into e-procurement).

(A diagram showing members of a typical value network is shown on the next screen.)

Enterprise Resource Management systems (ERMs) have evolved from process re-engineering projects. ERMs integrate (or attempt to integrate) all data and processes of an organisation into a single unified system. A typical ERM system will use multiple components of computer software and hardware to achieve the

integration. A key ingredient of most ERM systems is the use of a single, unified database to store data for the various system modules. ERM systems typically attempt to cover all the basic functions of an organisation, regardless of the organisation's business or mission. Examples of modules in an ERM which formerly would have been stand-alone applications include:

A workflow is a depiction of a sequence of operations, declared as work of a person, work of a simple or complex mechanism, work of a group of persons, work of an organization of staff, or machines. Workflow may be seen as any concept of real work, segregated in workshare, work split or whatever types of ordering. The flow being described often refers to a document that is being transferred from one step to another.

A workflow is a model to represent real work for further assessment, e.g., for describing a reliably repeatable sequence of operations. More conceptually, a workflow is a pattern of activity enabled by a systematic organization of resources, defined roles, energy and information flows, into a work process that can be

documented and learned. Workflows are designed to achieve processing intents of some sort, such as physical transformation, service provision, or information processing.

Workflow concepts are closely related to other concepts used to describe organizational structure, such as silos, functions, teams, projects, policies and hierarchies.

The term workflow is used in computer programming to capture and develop human to machine interaction. Workflow software aims to provide end users with an easier way to orchestrate or describe complex processing of data in a visual form, much like flow charts but without the need to understand computers or programming. In terms of e-business, Workflow Management (WFM) is the ‘automation of a business process, in whole or part during which documents, information or tasks are passed from participant to another for action, according to a set of procedural rules’. (The Workflow Management Coalition)

E-Procurement

Enterprise Resource Management (ERM)

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Questions and Answers Paper P3: Business Analysis MAIN PAGE CONTENTS: SEC A CONTENTS: SEC B Core value chain activities Fulfilment Sell-side intermediaries Suppliers Buy-side intermediaries Upstream value chain partners

Downstream value chain partners

Value chain integrators Value chain integrators

Finance Human resources Admin Inbound logistics Manufacturing Product warehousing

Includes IS partners, for example:  Strategic outsourcer

 System integrator

 Internet service provider (ISP)  Wide area network (WAN) provider  Application service provider (ASP)

An ASP is a provider of business applications such as e-mail, workflow or any business application on a server remote from the user. A

The diagram shows some of the partners that characterise a value network.

 Supply-side partners (upstream supply chain) such as suppliers, business to business (B2B) exchanges, wholesalers and distributors.

 Partners that fulfil primary or core value chain activities. The number of core value chain activities that will have been outsourced to third parties will vary with different companies. (In the virtual organisation all core activities may be outsourced.)

 Sell-side partners (downstream supply chain) such as B2B exchanges, wholesalers, distributors and customers.

 Value chain integrators or partners who supply services that mediate the internal and external value chain. These companies typically provide the electronic infrastructure for a firm and include strategic outsourcing partners, system integrators, ISP/WAN providers and ASP providers.

The value network emphasises:

 The electronic interconnections between partners and the organisation and directly between partners that potentially enables real-time information exchange between partners.

 The dynamic nature of the network. The network can be modified according to market conditions or in response to customer demands.

 Different types of links can be formed between different types of partners. For example, EDI links may be established with key suppliers, while e-mail links may

Members of the value network of an organisation

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Questions and Answers Paper P3: Business Analysis

www.tonysurridge.co.uk CONTENTS: SEC A

MAIN PAGE CONTENTS: SEC B

Gaps and disconnects

Harmon refers to different specific approaches that organisations employ when they redesign processes as

process redesign patterns. He cites one common pattern as what he terms the ‘gaps and disconnects’

pattern. The pattern assumes that inefficiencies arise because of handoffs between departments or functional groups. (P. Harmon, ‘Business Process Change’ [Morgan Kaufmann])

Booch, Grady, Rumbaugh and Jacobsen point out that many of the major problems one finds in any process result from a failure of communication between business silos. Marketing fails to hand the new product specifications to manufacturing in time. Manufacturing makes changes in the product that will save production costs, but prove unpopular with customers and Sales feels it has been blindsided. Rummler and Brache also put a lot of emphasis on aligning the goals and measures managers use when they evaluate activity outcomes. They found as many disconnects in the management process as in the processes themselves.

The gaps and disconnects approach puts a lot of emphasis on carefully analysing how the existing process is done before beginning to look ways to improve it. (Booch, Grady, Rumbaugh, and Jacobsen, ‘ The Unified Modeling Language Users Guide’ [Addison-Wesley])

This is a term of derision that suggests that each department on an organisation chart is a silo and that it stands alone, not interacting with any of the other departmental silos. (It is a metaphor drawn from the large [standalone] grain silos that one sees throughout the U.S. Midwest.)

The reverse, downward or Dutch auction is initiated by the buyer and are more common on B2B (electronic) marketplaces. For these auctions the buyer sets the rules and the timing. Hence, the buyer places a request for tender or quotation and many suppliers compete, deceasing the price, with the supplier whom the buyer selects getting the contract. This will not necessarily be the lowest price since other factors such as quality and capability to deliver will be taken into account.

Companies may use reverse auctions to:

- rationalise suppliers in a particular spending category; - source new components in an area they are unfamiliar with.

The reverse auction can be compared with the conventional forward, upward or English auction. These are the types of auctions available on consumer sites such as eBay. For these auctions, the seller sets the rules and timing, and then invites potential bidders. Increasing bids are placed within a certain time limit and the highest bid will succeed provided the reserve (minimum) price is exceeded. (Chaffey)

The interactive nature of the web combined with e-mail communications provides an ideal environment in which to develop customer relationships, and databases provide a foundation for storing information about the relationship and providing information to strengthen it by improved, personalised services. (Chaffey)

The mnemonic ‘WE DO E-CRM’ on the next screen describes the management opportunities offered by e-CRM.

Silo

Reverse auctions – sometimes used in e-procurement

Customer Relationship Management (CRM)

29

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What is e-CRM?

CRM is Customer Relationship Management. The online approach to CRM is often known as ‘e-CRM’ or ‘electronic customer relationship management’. We can say that e-CRM involves the following

management opportunities:

W

Web site used for customer development from generating leads through to conversion to an online or offline sale using e-mail and web-based information to encourage purchase.

E

E-mail marketing to support upselling and cross-selling.

D

Data warehousing/mining systems to improve segmentation and targeting.

O

Online service quality to ensure that first-time buyers have a great customer experience that encourages them to buy again.

E

E-mail list quality (coverage of e-mail addresses and integration of customer profile information from various databases to enable targeting).

-

C

Customer service facilities (such as Frequently Asked Questions, Call-back and Chat support) that help achieve conversion to sale.

R

Referral to the ‘Next-best product’ automated online system based on personalisation or mass customisation.

M

Multichannel customer experience as customers use different media as part of their buying process and customer lifecycle.

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Content management

Content is the design, text and graphical information which forms a web page. Good content is the key to attracting customers to a web site and retaining their interest or achieving repeat visits. A Content

Management System (CMS) is software used to manage creation, editing and review of web-based content.

A Virtual Organisation can operate without a physical identity (this is an online business, e.g. Amazon.com).

Brick and mortar companies can also dovetail concepts of the virtual organisation into the business. For example, Many brick and mortar companies also have websites that enable e-commerce. This may include outsourcing many of the business functions like marketing, operations management and new product development. This also includes collaborating with suppliers and competitors in certain situations. The virtual organisation can be a temporary network of independent companies--suppliers, customers,

competitors, linked by information technology to share skills, costs, and access to one another's markets. It will have no hierarchy nor vertical integration. Also known as a cooperative agreement between two or more businesses entities to combine their resources in order to achieve a shared goal. By bringing in additional partners, unlimited skills and resources can be pooled. Partnerships are usually temporary and are dissolved once a common goal is achieved. They do not have corporate offices and usually have no bricks or mortar tied to them.

A virtual supply-chain network is based on a number of virtual organisations operating together in the supply- chain.

The significant thing is that virtual organisations operate without clearly defined physical boundaries between different organisations or functions.

Workers in the primary internal market include those with important and scarce skills which are specific to a particular organisation; an organisation would be anxious to retain such workers and develop their potential, and it would be such employees who would form the focus of application of the full range of HR activities (Bratton & Gold, 2003).

There are now wide variations in recruitment and selection practices, reflecting an organisation’s strategy and its philosophy towards the management of people.

Employees seen as part of the primary internal market become the focus for the ‘bundle’ of human resources (HR) practices (Cooke, 2000) intended to bring about increased motivation, an increased acceptance of responsibility, deepened skills and greater commitment, providing the organisation with a competitive edge. Such employees become part of the an organisation’s core workforce, recruitment and selection representing the entry point activities.

Seen in this way, emphasis may be placed on admitting only those applicants who are likely to behave, acquire skills and show ‘attitudinal commitment’ (Guest, 1989) in line with the requirements of an organisation’s

strategy. Many organisations have developed competence frameworks and used them to specify the skills and qualities required of potential employees (Roberts, 1997). Such frameworks have allowed organisations to adopt a range of sophisticated recruitment and selection techniques in order to identify and admit the ‘right’ people.

Approaches to the recruitment and selection of employees forming the secondary internal market could be subject to less screening at the point of entry, attention being paid mainly to the possession of the required skills. Such employees might be recruited and selected by cheaper methods but still, perhaps, with a connection to organisational strategy via the specification of competencies.

Virtual supply-chain

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Section B:

Specimen

questions

ACCA Paper P3

Business Analysis

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Salim Brommer is the Marketing Director of Ashkol Furniture Supplies, a medium-sized company which specializes in manufacturing office furniture. The company makes its products in India, so benefiting from relatively low labour costs. However it has recently experienced intense competition from suppliers who have even lower cost bases. Salim has decided that his company will benefit if he focuses on those customers who can provide higher profit margins.

He has decided to target domestic customers in Europe. Increasingly private households, particularly those with computers, are converting spare rooms into office-style areas. Additionally there has been a noticeable trend towards working from home. This saves employers incurring the costs of office provision, and also employees save on travel and can also work at times convenient to themselves. However Ashkol has no experience of dealing with these types of customer. The company now needs to develop a suitable marketing strategy to succeed in this new area and maintain a sustainable competitive advantage.

Required:

(a) Using a suitable model of your choice develop a marketing approach which Salim might use to

enter this new market. (12 marks)

(b) Discuss how strategies can be used to create and sustain competitive advantage. (8 marks) (20 marks)

Ashkol Furniture Supplies: Question - 1 of 1

A

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Questions and Answers Paper P3: Business Analysis MAIN PAGE CONTENTS: SEC A CONTENTS: SEC B Ask yourself …. What is being examined here? The question is examining your knowledge of marketing The question requires a suitable model – The ‘Marketing Mix’ model would seem

appropriate here

The examiner said

The marketing mix The product Place

Needs to be focused Quality may have a

high priority here The style of furniture needs to match household furniture Domestic houses require compact furniture Planning is everything A European presence would require a good distribution network Stock must be made available locally Customers will want to see examples of products, layout and workmanship before buying

Price will be used as a competitive

tool The price must not

be so low that purchasers question the

quality Remember, marketing involves:

- segmentation (targeting) - buyer behaviour analysis - positioning the marketing mix - repositioning the marketing mix as

time goes on

Salim needs to develop an appropriate marketing mix for entry into Europe The mix comprises

four elements – name them: p, p, p, p The mix is integrated and each element mutually reinforces

the others Example: high quality demands a high price (customer

perception)

Design and installation services

would support the product

Price

‘There are a number of approaches which can be used in answering this question. Candidates might focus on aspects such as market and environmental analysis or on segmentation, targeting and positioning. Marks will be awarded as to how appropriate their approach is to improving the situation for Ashkol. However it is expected that most

candidates will apply the marketing mix model, the most commonly used to this scenario’.

Ashtok will need showrooms in major centres These will be centres for supply

and marketing

Householders will not be able to offset the purchase

against tax (as in the case of

corporate purchases) Ashtok should take

care not to price itself out of the

market

Perhaps have a competitive price for the furniture but charge a premium for design and installation

Showrooms will be part of the promotional element in the mix

Promotion Advertisements in furnishing or household style magazines could attract new customer groups Mailing lists might be appropriate There would be advantages of promoting the company’s products on the world wide web

Ashkol Furniture Supplies: Answer - 1 of 4

This will be an expensive facility: cost-benefit analysis will be Answer plan format

The Plan and Answer : part (a)

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(a) It would appear that Salim needs to develop an appropriate marketing mix to facilitate the entry into this

new European market segment. This mix usually comprises four elements – product, place, price and promotion. These need to be integrated together, to mutually reinforce the impact of a marketing offensive and not in isolation where one aspect may counteract the influence of another. For example the

development of a luxury brand image (promotion) will be harmed if a price strategy concentrates on a low or a ‘penetration’ price.

The product needs to be focused on a domestic/household market. A utilitarian office approach may not fit in well with the prevailing household image. Quality may have a higher priority here. The style of the furniture will also need to match the furniture in the rest of a household – there may need to be a choice between classical and modern styles. Furthermore size may be more critical. Houses are frequently smaller than offices so the furniture may need to be more compact. It may be advantageous not only to supply the finished products but the company could add value by providing both design and installation services. This, of course, will require a stronger European presence. This could be achieved by having a good distribution network (place). Although the products are manufactured in India because of the lower costs, the customer will be looking for a presence locally. Stock must be available locally so as to avoid delays in order processing. This will provide reassurance. Furthermore potential customers will wish to see examples of the products, layout and workmanship before they commit themselves to purchase. Ashkol will need to have a number of showrooms in major centres where business is expected. Not only will these be depots for supply but they will also act as centres for marketing. This will be an expensive facility, offsetting the cheaper labour costs. The company will have to ensure that these new markets can generate sufficient revenue to compensate for these increased costs.

These showrooms will be part of the promotion element of the mix but they will have to be complemented by other media activities. Advertisements in furnishing or household style magazines could attract new customer groups. It may also be possible to buy mailing lists of people who work from home. Directors of small companies and self-employed individuals frequently receive direct mail from financial institutions about banking services and also offers from IT suppliers. Why not information about office furniture and other services? The company should also be aware of the benefits of promotion by using the world-wide web.

Price also needs to be considered as a competitive tool in this new venture. The price must not be so low

that prospective purchasers question the quality of the product. However it must also be remembered that in certain circumstances this furniture cannot be offset against tax as a cost as it can in a bona fide company transaction. Therefore the company needs to be careful not to price itself out of the market. They have to be aware of what competitors are offering. It may be sensible to have competitive prices for the furniture but charge a premium for the design and installation work.

[ The Examiner said: ‘There are no precise solutions as to how the marketing mix is to be determined. Candidates may propose different approaches. These will be accepted, assuming that there is an inherent logic in their application and that they are not inconsistent with a candidate's premises and the objectives of the company’]