CIMA E3 Exam Questions and Answers

What is strategy? - ANSWER Strategy "A course of action, including the specification of resources required, to achieve a specific objective." CIMA: Official Terminology Levels of strategy - Johnson and Scholes - ANSWER Corporate strategy (Where) Business Strategy (How) Functional Strategy (Who) Arguments in favour of a strategic approach - ANSWER * Strategy helps minimise risk * Avoids short-term behaviour * Improves stakeholder perceptions * Encourages environmental analysis e.g. critical to react to change * Evidence indicates performance can be improved using strategic approaches * Integration and coordination of activities and processes Arguments against a strategic approach - ANSWER Difficult to plan when environment changing, uncertain or complex Encourages 'conformity' stifling innovation e.g. the corporate straightjacket Infrequently reviewed e.g. chosen long-term strategy may not keep pace with change Implementation often managed poorly Rational planning a complex methodology and costly for small businesses The rational planning process Advantages - ANSWER For transformational or radical change Copes with the uncertainfuture by providing longterm plans Helps integrate and coordinate complex organisations The rational planning process Disadvantages - ANSWER Rational planning can be too rigid and bureaucratic e.g. no use for the small business Rational planning can stifle innovation e.g. locked into plans No use for dynamic or uncertain environments e.g. plans quickly become 'out of date' Incremental planning approaches (logical incrementalism) Advantages - ANSWER Less complex and long winded Better for uncertainty or rapidly changing environments More frequent gradual adjustment e.g. easier to control and manage Greater frequency of planning to adjust plans to environmental change Incremental planning approaches (logical incrementalism) Disadvantages - ANSWER Too reactive, 'muddling through' Not suitable for transformational or radical change Lack of long-term direction e.g. 'strategic drift' may occur The entrepreneurial model (or freewheeling opportunism) Definition - ANSWER Henry Mintzberg referred to 'freewheeling opportunism' as an opportunistic strategy, dominated by the search for new opportunities, with bold and often high risk decisions that need to be made by the entrepreneur him or herself. Freewheeling opportunism is a top-down (centralised), informal and short-term approach to strategic planning. The entrepreneurial model (or freewheeling opportunism) Advantages - ANSWER * Focus on exploiting product and market opportunities e.g. 'never miss a good opportunity' * Less time consuming and complicated * Greater frequency of planning to adjust plans to environmental change * Better for uncertainty or rapidly changing environments The entrepreneurial model (or freewheeling opportunism) Disadvantages - ANSWER Organisation too reactive, 'muddling through' Not suitable for transformational or radical change Lack of long-term direction. Relies heavily of the judgement and experience of the founder e.g. one single individual Emergent strategies Definition - ANSWER Henry Minzberg, described emergent strategies as 'patterns or consistencies realised despite or in the absence of conscious intention by senior management'. Strategy emerges and is 'unanticipated'. Informal and bottom-up (decentralised approach) allowing strategic courses of action to be developed from both tactical and operational levels within the organisation. Emergent strategies Advantages - ANSWER · Quicker change or repositioning for the organisation e.g. lower strategic levels 'closer to the customer' · Tactical and operational levels an extensive source of innovative ideas · Greater motivation to other strategic levels · Supports culture of flexibility, learning and enterprise Emergent strategies Disadvantages - ANSWER Chaotic organisation that lacks control over planning Lack of long-term direction. Organisation too reactive, 'muddling through' Requires entrepreneurial skills from staff which may not exist Comparing and contrasting RBV to the Positioning Approach Similarities - ANSWER · Both ideas stem from the rational planning process. · Both can use centralised (rational planning) or decentralised (emergent) approaches. · Both aim to achieve competitive advantage e.g. ways to compete with rivals. Comparing and contrasting RBV to the Positioning Approach Differences - ANSWER Resource Based View (RBV) · Resource based approach · Inside out e.g. key internal resources for achieving success. · Organisation focuses on what it does best e.g. 'stick to knitting'. · Emphasis on internal appraisal e.g. unique assets or core competences. · Higher cost and time to exploit but long-term advantage. Differences · Market based approach · Outside in e.g. best external opportunities to exploit. · Organisation focuses on diversity and innovation. · Emphasis on external environment e.g. competition and customers · Less costly to exploit but shortterm advantage gained. Mendelow's stakeholder mapping model Definition - ANSWER Mendelows matrix is a way of prioritising stakeholders by 'subjective' mapping of them, in order to understand and resolve any issues or conflicts that may exist. This model prioritises by mapping which stakeholders should more likely considered and therefore 'satisfied' by the organisation. · Power e.g. bargaining power, right or ability to exert influence over the organisations strategic aims and the general way it conducts itself. · Interest e.g. interest in the activities or conduct of the organisation for varied reasons. Mission statements Definition - ANSWER A mission statement describes in writing the basic purpose of an organisation and what it is trying to accomplish. A mission statement is a brief description of an organisations fundamental purpose. Critical success factors (CSFs) - ANSWER Key organisational goals that if achieved will make the organisation more successful. Objectives - ANSWER A measurable goal with a clearly defined timescale to achieve it. Objectives should 'SMART' (specific, measurable, agreed, realistic and time bound. Key performance indicators KPIs (performance measures) - ANSWER Key performance indicators KPIs (performance measures) Objectives which have measurability and time scale. Game theory - ANSWER A branch of applied mathematics that can be used in social sciences, in particular it can be applied to the theory of competition in terms of gains and losses amongst opposing rivals. A mathematical framework is used for analysing different choices that rational players can make, when their pay-off depends on the combination of their choices, as well as all other players choices. PEST - Political Risk Examples of political risk within Countries - ANSWER · Outbreak of national war, civil war, unrest or riot. · Nationalisation of industries · Enforcement of international trade barriers · New regulations or legislation introduced · Restrictions on dividends or expropriation of assets out of a country. · Political instability PEST - Political Risk Ways an organisation can influence a government - ANSWER · Political donations · Employment of lobbyists · Appointment of civil servants or politicians as internal directors · Attendance at annual conferences or political meetings · Good relations with government upheld · Advertising or promotion to influence legislation change or sway public opinion · Unite with pressure groups that have common aims to the organisation Position audit - ANSWER A position audit is a systematic assessment of the current strengths and weaknesses of an organisation and is a prerequisite for strategic planning and implementation. · Resources · Products, brands and markets · Operating systems · Internal organisation · Current Results · Returns to equity and debt holders Benchmarking Definition - ANSWER "A continuous, systematic process for evaluating the products, services and work processes of an organisation that are recognised as representing best practice, for the purpose of organisational improvement." (Michael Spendolini) Benchmarking Types of benchmarking - ANSWER · Internal · Best practice or functional · Competitive · Strategic Benchmarking Process - ANSWER The process · Selecting what you want to benchmark · Consider benefits against the cost of doing it · Assign responsibilities to a team · Identify potential partners/known leaders · Breakdown processes to complete · Test and measure e.g. observation, experimentation or investigation/interview · Gather information · Gap analysis · Implement changes/programmes/communicate · Monitor and control · Repeat regularly Business process re-engineering (BPR) Definition - ANSWER Hammer & Champy (1993) defined the process of reengineering as the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service and speed. Business process re-engineering (BPR) The stages in a BPR exercise - ANSWER 1. Identify processes to be re-engineered 2. Understand, break down and analyse the process 3. Identify 'change levers' 4. Rationalise or eliminate process 5. Redesign process to operate in the most cost effective and efficient way 6. Reassemble, implement and manage change 7. Monitor and review Gap analysis Definition - ANSWER Gap analysis is a long range and quantifiable planning technique · Where the organisation is now · Where the organisation will be · Where the organisation wants to be Gap analysis Process - ANSWER 1. Set long-term strategic objectives 2. Forecast likely performance given its current state of affairs 3. Current forecasts are frequently updated 4. Periodically compare revised performance to target performance and identify measurable gaps. 5. Further strategic development required when a 'gap' exists Scenario planning Definition - ANSWER A strategic planning method for the preparation of flexible long-term plans. Scenario planning involves testing business strategies against 'alternative futures' in an attempt to build plausible views, when operating in conditions of high uncertainty. Scenario planning Process - ANSWER 1. Develop scenarios e.g. examine environment, key trends and uncertainties. 2. Develop strategies to match each scenario. 3. Identify core competences that are required for each scenario. 4. Use of strategies developed if key trends and uncertainties turn out to be true. The concept of foresight Definition - ANSWER Foresight has been described as the art and science of anticipating the future and planning prudently for it. · Think tanks · The Delphi model · Scenario planning · Brainstorming · Visioning · Morphological analysis Corporate appraisal (SWOT analysis) Definition - ANSWER A corporate appraisal is a 'critical assessment of the strengths and weaknesses, opportunities and threats (SWOT analysis) in relation to the internal and environmental factors affecting an entity in order to establish its condition prior to the preparation of the long-term plan.' (CIMA) Corporate appraisal (SWOT analysis) The TOWS approach - ANSWER · SO Strategies e.g. match core competences or Strengths to Opportunities · ST Strategies e.g. use Strengths to avoid Threats · WO strategies e.g. take advantage of Opportunities by addressing Weaknesses · WT strategies e.g. minimise Weaknesses and avoid Threats Michael Porter's competitive generic strategies Dimensions - ANSWER Competitive Scope / Competitive advantage Michael Porter's competitive generic strategies Broad Target / Low cost - ANSWER Cost Leadership Offering a product or service at the lowest price due to having the lowest cost per unit in the industry. Michael Porter's competitive generic strategies Broad Target / Differentiation - ANSWER Differentiation Offering a product or service with certain characteristics or features that are unique and distinct relative to the competition. Michael Porter's competitive generic strategies Narrow Target / Low Cost - ANSWER Cost Focus Market segmentation and cost leadership strategy pursued. Michael Porter's competitive generic strategies Narrow Target / Differentiation - ANSWER Differentiation Focus Market segmentation and differentiation strategy pursued. The Ansoff matrix Dimensions - ANSWER Products / Markets (Exiting & New) The Ansoff matrix Existing Market / Existing Product - ANSWER Market Penetration The Ansoff matrix Existing Market / New Product - ANSWER Product Development The Ansoff matrix New Market / Existing Product - ANSWER Market Development The Ansoff matrix New Market / NewProduct - ANSWER Diversification Business process outsourcing (BPO) Definition - ANSWER A form of outsourcing, the contracting of operations and responsibilities of a specific business function (process) to a third-party service provider. Commonly referred to as 'back office outsourcing' because it involves the outsourcing of internal business functions e.g. finance, human resource management, legal, information technology, even the 'offshore outsourcing' of call centers by companies today. Business process outsourcing (BPO) Benefits - ANSWER · Economies of scale · Reduces the complexity of internal management · Management can focus on its core competencies · Greater flexibility of using the outsourcer · Increase speed, improve efficiency and cut cost Business process outsourcing (BPO) Limitations - ANSWER Loss of strategic control Organisation more vulnerable due to over reliance Loss of competitive advantage Internal redundancy Risk to the security of information Failure of outsourcer to meet service levels Offshore outsourcing Definition - ANSWER Offshore outsourcing is BPO contracted outside the company's country. Examples from the UK and US, have included overseas development of information technology e.g. programming or software development, customer call centers, processing insurance claims, and even research and development. In either case the process is performed in another country to where the product or service is actually developed or manufactured. Strategic Supply chain management Definition - ANSWER Strategies to achieve greater integration of the supply chain from raw material to the ultimate final sale and disposal of a finished product or service. Effective supply chain management can be crucial for an organisation to gain competitive advantage e.g. higher quality, lower cost, quicker delivery etc. A supply chain is an example of a supply network, raw materials, components, finished goods and services, are procured as a product passes through a chain of processes that supply one another and at each stage 'adds value' to the customer in some way. Strategic Supply chain management The strategic supply wheel illustrated by Cousin's - ANSWER · Portfolio of relationships e.g. high collaboration with suppliers · Skills and competences e g. develop skills internally · Strategic performance measures e.g. monitor and control supply chain · Cost-benefit analysis e.g. over strategic approaches · Organisational structure e.g. support effective supply chain management Strategic Supply chain management Supplier sourcing strategies - ANSWER · Single sourcing e.g. source from one supplier only. · Multiple sourcing e.g. source service from many suppliers simultaneously. · Delegated sourcing e.g. purchasing decisions are outsourced. · Parallel sourcing e.g. a combination of two or more of the above. Strategic Supply chain management The three elements of supply chain management - ANSWER · Responsiveness · Reliability · Relationships Strategic Supply chain management IT to facilitate greater integration of supply chain - ANSWER · Bar coding · Electronic tagging · Materials Requirement Planning (MRP I) · Route masters · Electronic Data Interchange (EDI)