APM Chap 1,2,3

One of the strategic business units in the Scott Group is the ‘G&L’ chain of gyms and leisure centres.

G&L’s share of the total market in its country is 9%, but the market is quite fragmented and G&L’s largest competitor only has a market share of 11%.

Last year, G&L’s revenue increased by 12% following a successful marketing campaign, but the overall gym and leisure market only grew by 2% because it is reaching saturation point.

How should G&L be categorised, in terms of the BCG matrix?

Choose one or more:

• Cash Cow

• Dog

• Star

• Problem Child

Answer explanation

Dog

As its largest competitor has a greater market share than it (11% vs 9%), G&L has a relative market share of less than 1 (ie it is not the market leader.)

Although G&L’s enjoyed high growth last year, the market’s growth is slow, because it is approaching saturation point.

As a business unit with a low relative market share in a market which is only growing slowly, G&L should be classified as a dog.

Management information in an entity can be produced at three different levels: strategic, tactical and operational.

Which type of information is each of the following?

Match the correct level with the proper information.

Tactical Level Information-_____________

• A market growth forecast for the next 5 years

• An overtime rota for security staff

• A quarterly productivity report

Answer explanation

An overtime rota is used in daily operations, and one of the key characteristics of operational information is that is focuses on day-to-day planning and control.

Three of the characteristics of strategic information are: it has an external focus; it is forward looking; and it is long term.

A forecast of market growth for the next five years illustrates all three of these characteristics.

A quarterly productivity report contains tactical information. Tactical information is more detailed than strategic information, but not as detailed (or frequent) as operational information.

A professional service company uses external consultants to provide it with specialist advice in relation to certain of its service lines. The senior management team have asked for an additional performance indicator to be included in the monthly management accountants, showing consultants’ fees as a proportion of total cost.

Which of Porter’s five forces does this suggest the senior management team are most concerned about?

Choose one:

• BPOC

• BPOS

• Competitive Rivalry

• TNE

• TOS

Answer explanation

BPOS

The external consultants are suppliers to the firm. If consultants’ fees are a significant proportion of the firm’s total costs this would indicate that the consultants are important to the firm’s business (which will mean they have a high bargaining power). In addition, the firm may be wanting to monitor consultancy costs because they are concerned that costs in this area are increasing. This again could suggest that the consultants (suppliers) have a high bargaining power.

The managers in a bank were concerned about the length of the queues which were forming in its branches as customers waited to be served by cashiers. The managers decided to gather information about the way other companies control the length of their queues to see if the bank can learn from this and improve its queuing process.

As a result, the bank has compared its performance with a supermarket, a railway station and an airport – all of which are regarded as having very efficient queuing processes.

What type of benchmarking has the bank been undertaking?

• Competitive

• Functional

• Historical

• Internal

Answer explanation

Functional

Functional benchmarking involves comparing an organisation’s process performance to similar processes (ie in this case, queuing and customer handling) in other organisations which are not competitors but which use innovative or best practice solutions. The aim is to improve an organisation’s performance by incorporating aspects of the best practice demonstrated in the other organisations.

Competitive benchmarking would involve the bank comparing its performance against that of other banks, but in this case, it is comparing its performance with businesses in very different industries.

Internal benchmarking would involve the bank comparing the relative performance of different branches.

Historical benchmarking would the bank comparing its current performance with performance in prior periods.

The directors of Screen Co, a nationwide chain of cinemas, are reviewing the company’s performance in an increasingly competitive market. They have identified a number of factors and are seeking to analyse them.

The following factors are SWOT analyses.

Identify factor relating to Opportunity?

• A world-renowned opera company plans to stream performance live to cinemas.

• Independent market research has described Screen Co's customer service as inferior to many of its competitors.

• Screen Co has recently refitted all its cinemas with state-of the art audio equipment.

• The price of big-screen TVs and domestic sound systems have fallen dramatically

Answer explanation

In a SWOT analysis, strengths and weaknesses relate to internal factors, while opportunities and threats relate to external factors.

The opera company’s plans have the potential to increase demand for cinema across the market and is therefore an opportunity.

The market research highlights an internal weakness of Screen Co - namely its poor customer service.

The state-of-the-art audio equipment is an internal strength of Screen Co as it will enable it to differentiate itself in the market.

The increase in availability of domestic televisions and sound systems makes it hard for cinemas to differentiate their offering. This is a threat to the market as a whole.

Answers in values only. (Clue-2 digit number)

Must use calculator

Answer explanation

42

Which of the following factors would be categorised as 'technological' in a PEST analysis?

Select all that apply.

• 
  A. The use of big data analytics to predict customer behaviour.

• 
  B. The level of protection given to individuals’ personal data.

• C. Tax incentives given to IT companies in order to stimulate local investment.

• D. Demand for the latest smartphone technology.

• E. New machinery that can automate a complex manufacturing production line.

Answer explanation

The correct answers are:

A. The use of big data analytics to predict customer behaviour.
E. New machinery that can automate a complex manufacturing production line.

Explanation:

Technological factors are those relating to the development and use of technology. Big data analytics and automated production lines are both examples of this.

The level of protection given to individuals’ personal data (B) is not based on the hardware and software but is a social and political issue.

The tax incentives (C) are a political move to encourage companies to behave in a certain manner.

Demand for the latest smartphone technology (D) is a social issue as it relates to consumers’ reactions to the new product, not the technology itself.

Vanessa, a qualified accountant, has been approached by a recruitment agency seeking both a traditional management accountant and a strategic management accountant. Vanessa is unsure which role to apply for.

Which behaviours relate specifically to a strategic management accountant role?

Select all that apply.

• A. Focussing solely on the achievement of internal performance targets.

• B. Linking performance measures to the corporation’s strategy.

• C. Focussing exclusively on financial information.

• D. Monitoring changes to the external environment.

• E. Analysing historic data in order to understand past performance.

Answer explanation

The correct answers are:

B. Linking performance measures to the corporation’s strategy.
D. Monitoring changes to the external environment.

Explanation:

A strategic management accountant provides information that is relevant to strategic planning and control. Unlike a traditional management accountant, the role monitors the external environment (D) as well as internal factors. It also seeks to link performance measures to the corporation’s strategy (B).

The sole focus on internal performance targets (A) is a traditional management accountant role. The strategic management accountant does not focus exclusively on financial information (C). Instead of attempting to understand past performance (E), the strategic management accountant is required to be forward-looking.

Sooks Co is a shoe manufacturer. Its shoes are currently mass-produced under the Sooks brand using low cost materials. However, sales have been discouraging and market research indicates that customers find the styles unfashionable. The directors have therefore decided to improve the brand’s image by using better quality leather in its products.

Identify which of Porter’s generic strategies best defines the directors’ revised strategy.

• A. Cost leader.

• B. Differentiation

• C. Differentiation focus.

• D. Stuck in the middle.

Answer explanation

The answer is: D. Stuck in the middle.

Explanation:

Sooks Co is currently a cost leader. The plan to use better quality leather is an attempt to differentiate (ie gain competitive advantage through the characteristics of its products).

However, the low sales are due to unfashionable styles being made. Therefore, improving the quality of the leather is unlikely to add value to the end consumer. This means that Sooks will incur higher costs due to the more expensive leather, but will find that customers will not be prepared to pay a premium for the leather due to the unfashionable design. This leaves it stuck in the middle

TBC Co is a premium airline operating long-haul flights between Europe and North America.

The board of TBC Co are considering different ways to improve performance management and, as part of this, have requested the identification of a range of critical success factors (CSFs) that could be considered as 'building' CSFs as opposed to 'monitoring' CSFs.

Which one of the following is an example of a building CSF for TBC Co?

• Ensuring the economic acquisition of jet fuel

• The % of revenue coming from new products

• Ensuring that profits margins are 10% higher than those of its rivals

• Maintaining an effective feedback mechanism with its customers

Answer explanation

The correct answer is: Maintaining an effective feedback mechanism with its customers.

This is a potential source of new ideas which should help TBC Co to build strategic capabilities so that it can adapt to changes in its external environment.

Notes on incorrect answers:

Ensuring the economic acquisition of jet fuel - this is a monitoring CSF and is more critical to a company following a cost leadership strategy.

The % of revenue coming from new products - this is a Key Performance Indicator, not a CSF

Ensuring that profits margins are 10% higher than those of its rivals - this is an objective, not a CSF.