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Summary CIMA E2 Notes
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Chartered Institute of Management Accountants Management Level E2E2 Managing Performance
Structure
A.Business models and value creation (30%)
1. The concept of business ecosystems
2. Alternative approaches to business models
3. Business models in digital ecosystems
B.Managing people performance (40%)
4. Leadership and management
5. & 6. Controlling performance 1 & 2
7. Building, leading and managing teams
8. Managing organisational relationships
C.Managing projects (30%) 52/60
9. The concept of project management
10.Project management: tools and techniques
11.Project leadership
Jack Gould 1 of 35
,Chartered Institute of Management Accountants Management Level E2
E2A1: The concept of business ecosystems
TRADITIONAL MARKETS
• Market: purchase/sale transactions of a commodity and formation of its price; many decisions of
supply side producers and demand side consumers of a commodity, to determine its price
• Traditional markets regarded as a mechanism that facilitates exchange of goods/services
between individuals or organisations (buyers/sellers), in an environment governed by the laws of
supply and demand; with a key assumption that entities operated out of individual self-interest
• Competition: 2+ parties strive for an goal which cannot be shared, where one’s gain is the other’s
loss; competition is often considered the opposite of cooperation
• Society: group of individuals involved in persistent social interaction, or large social group sharing
the same spatial/social territory; characterised by patterns of behaviour and relationships between
individuals who share a distinct culture and institutions
• Regulation: management of complex systems according to a set of rules and trends
Traditional approach to understanding markets
• PESTLE: organises analysis of business environment into broad categories, to help understand
opportunities/threats and to thus shape current and future strategic decisions
• Political influences • Social influences • Legal influences
• Economic influences • Technological influences • Environmental influences
• Porter’s 5 forces analysis: examines the competitive landscape by analysing 5 forces, and
assessing the strength of each force; relative strength determines profit potential of the industry
1. Threat of new entrants 3. Power of buyers 5. Rivalry among competitors
2. Threat from substitutes 4. Power of suppliers
• Porter’s 3 generic strategies: through which a company can generate competitive performance
1. Cost leadership 2. Differentiation 3. Focus
The impact of technology on traditional markets… the emergence of business ecosystems
• Traditional methods of understanding competitive markets must be updated to reflect disruption
caused by rapidly advancing technology, increasing globalisation, environmental change and
shifting consumer expectations; which provide opportunities/threats to business strategy
A.Drivers of the digital revolution: if organisations are to adapt to these opportunities and threats,
the key drivers of change must be understood:
• Mobile and internet penetration • Connected devices • Global accessibility
• Data analytics and the cloud • User interfaces • Increasing urbanisation
B.IBM’s “The New Age of Ecosystems”: fundamental change to business environments (from
traditional markets to business ecosystems): technology rapidly changing business environments:
• Connected and open: proliferation of mobile devices and internet access necessitates new
levels of trust and accountability
• Simple and intelligent: technology reduces complexity as data analytics drive decision making
• Fast and scalable: transactions increase in number and frequency, while the cost of
collaboration declines
C.Consumer expectations: these experiences with technology and resulting fundamental changes
to business are raising expectations and empowerment of consumer stakeholders:
• More information: providing greater choice and opportunity to influence organisations
• Higher expectations: of integrated, customised and sophisticated experiences that are simple
to use and widely accessible
• Decreasing brand loyalty: as consumers have less patience and are more willing to switch
D.Impact on organisations: firms must therefore rethink how their business environment operates,
how they partner, and how they interact with customers; in order to constantly reinvent their
goods/services offerings if they are to satisfy these changing expectations
E.Idea of the business ecosystem: is thought to help businesses navigate this rapidly changing
environment to create new business models; they must embrace the concept, mechanics and
implications of ecosystems, and revise methods used to analyse competitive markets
BUSINESS ECOSYSTEMS
• Business ecosystem: a complex web of interdependent enterprises and relationships aimed to
create and allocate business value: economic communities supported by interacting participants
• Complex web: a network of interlinked companies, with ranging stakeholder groups
• Interdependent enterprises: are involved in the delivery of a specific product or service through
both competition and cooperation to grow sales and survive
• Relationships aimed to create and allocate value: this network of organisations & individuals will
dynamically interact, collaborate and evolve capabilities to build value and improve efficiency
Jack Gould 2 of 35
,Chartered Institute of Management Accountants Management Level E2
• Ecosystem participants (organisations & individuals): interact/operate together and out of
mutual self-interest to produce greater value for mutual benefit of the ecosystem as a whole:
• Be part of one or many • Play different roles in • Evolve their roles in the
ecosystems different ecosystems ecosystem
Goals of business ecosystems
• A thriving ecosystem is that which contains participants who have developed patterns of behaviour
that streamline the flow of ideas, talent and capital throughout the system. Its goals are:
• Create strong barriers to entry for new competition
• Provide mechanisms to leverage technology to achieve excellence
• Drive new collaborations to address rising social and environmental challenges
• Harness creativity and innovation to lower the cost of production
• Accelerate the learning process to share insight, skills, expertise and knowledge
• Create new ways to address fundamental human needs and desires
• Key characteristics business ecosystems share with traditional markets:
• Participants: individuals or organisations in the environment, defined by:
• Role: the participant’s function
• Reach: the range of activities participants are able to pursue in the environment
• Capability: the participant’s ability to extend activity or interactions through the environment
• Interactions: goods or services exchanged among participants, defined by:
• Rules: explicit or implicit principles governing conduct within the environment
• Connections: linkages across the environment; such as data, knowledge or products
• Course: speed and direction at which content or value is exchanged among participants
• Key characteristics distinguishing business ecosystems from traditional markets:
ecosystems exist because participants acting together can deliver more value/mutual benefit as a
whole compared to the sum of the individual participants acting independently
• Orchestration: formal (via explicit rules) or informal (via culture) coordination, management and
arrangement of interactions among participants
• Mutuality: reflects an enhanced level of coordination with formally or informally shared ideals,
standards, or goals compared to traditional markets
VALUE CREATION AND VALUE CAPTURE IN A BUSINESS ECOSYSTEM
Value creation Value capture
What? Act of bringing something of value into existence Act or process of appropriating or allocating value
Tends to be networked and mutual; partners must collaborate Influenced by ecosystem complexity and the
Ecosystems to deliver something of mutually beneficial value to all intensity of orchestration; reflecting a networked and
participants dynamic process of exchange
Traditional
Linear and incremental Additive and sequential
markets
• Understand how value is created in the ecosystem, then • Direct via transactions: participants facilitate an
identify and exploit opportunities: yet maintain flexibility in the exchange of value for goods/services rendered
organisation’s role and interactions with other participants • Indirect via an orchestrator: allocation of
How?
• Develop competencies and leverage common synergies: the payment to participants within the ecosystem
more essential/unique the activity, the more sustainable the thereby incentivising continued participation
position/role of the organisation • … or a combination of both
Strategies to capture value
• Organisations develop and pursue varying strategies, as a result of facing different circumstances
due to the nature of their ecosystems. These differences are driven by the:
• Level of complexity: the number and diversity of participants, sophistication of activities, and
range and nature of relationships in the ecosystem
• High complexity: environment with high barriers to entry and a low threat of new entrants;
suggesting the participant’s role is relatively secure as their capabilities are difficult to replicate
• Low complexity: environment with low barriers to entry and a high threat of new entrants;
suggesting the participant’s role is vulnerable as their capabilities are easy to copy
• Extent and formality of orchestration: extent of influence over others in an ecosystem, formality
of interactions, and degree of enforceability and compliance
• Tight orchestration: orchestrators are able to influence behaviour across the entire ecosystem;
interactions are rules-based with orchestrators able to enforce their will over others
• Loose orchestration: no individual has significant influence across the ecosystem; absence of
strong regulation with limited ability for participants to enforce their will over others
Jack Gould 3 of 35
,Chartered Institute of Management Accountants Management Level E2
The spectrum of ecosystem archetypes
• Shark Tank (low complexity, loose orchestration): creates a turbulent environment; participants
fend for themselves, identifying opportunities, aligning capabilities and making connections
• Lion’s Pride (high complexity, tight orchestration): induces a winner-takes-all mentality; threats of
new entrants are low due to relative complexity of activities, orchestration tends to be formal
• Hornet’s Nest (high complexity, loose orchestration): promotes fragmented competition; simpler
ecosystems with most value transferred directly by means of payment for specific activities
• Wolf Pack (low complexity, tight orchestration): promotes collaboration; while low barriers to entry
suggest relatively simple activities, tight orchestration implies a sophisticated overall environment
PARTICIPANTS AND THEIR ROLES
• Key questions: ecosystem participants co-evolve their capability/role over time, aligning with the
directions set by central companies; they must consider 3 key questions:
1. What is the participant’s precise role of the participant within the environment?
2. What is the participant’s reach throughout the environment?
3. What is the participant’s capability or key value proposition?
• Consumer expectations: ecosystems reflect interaction and collaboration between participants
to create an opportunity to provide a differentiated experience in line with consumer expectations
• Organisations must embrace data analytics to underpin customer experiences and pursue social
media to promote collaboration; while minimising barriers to partnering with other participants
• Importance of collaborations: ecosystems provide a new mind-set to capture a profound shift in
the economy and business landscape, with collaborations assigned increased significance:
• Ecosystems enable and encourage the participation of diverse range of organisations
• Participants interact and co-create in increasingly sophisticated ways that would historically
have hard to formally coordinate
• Participants are bonded by some combination of shared interests, purpose and values which
incentives collective protection of the ecosystem
• The rise of business ecosystems is fundamentally altering the key success factors for companies
CHALLENGES OF REGULATING ECOSYSTEMS
• Speed of change: effective regulation depends on regulators understanding business offerings,
their efficacy, and potential unintended consequences; constant innovation makes this difficult
• Innovators find ‘back doors’: innovators seek loopholes; regulation must be rethought to ensure
it protects public interests and is socially beneficial; yet is flexible enough to not stifle innovation
• Ecosystems are constantly evolving: regulation is complicated by the sheer diversity of
competitors; a major objective of regulation is preserving an even playing field for competition
• Innovations cross lines of jurisdictions: regulatory decisions are complicated as traditional
market boundaries and distinctions between digital/physical goods/services are blurred
MEETING CUSTOMER NEEDS IN THE DIGITAL ERA
What does the digital customer want? (World Economic Forum/Accenture analysis)
• Contextualised interactions: customers expect a product/service that is tailored to their needs
• Seamless experience across channels: through marketing, research. purchase and delivery
• Anytime, anywhere: expectation of accessing real time information about a product/service
• Great service: fewer instances of customers remaining loyal to a provider following poor service
• Self-service: customers are prepared to invest more time into fulfilling their exact demands
• Transparency: digital customers expect full transparency regarding a product/service before they
commit to a purchase; and are protective of their personal data, and whether or not it is shared
• Peer reviews and advocacy: customers attach greater importance to independent reviews of
products/services than to marketing information, hence poor reviews can have a disastrous impact
Keeping ahead of customer expectations
• Design thinking: rather than designing a single product/service that can be marketed to many
customers, there must be a shift to design many experiences for one customer
• Experiential points: monitor how customers behave and record their reaction to new
experiences, in order to continuously innovate products and develop prototypes
• Prototyping: a first generation product that is only 80% ready can provide vital feedback
• Brand atomisation: offerings should be designed to be more widely distributable
Jack Gould 4 of 35
,Chartered Institute of Management Accountants Management Level E2
E2A2: Alternative approaches to business models
• Business model: depicts not only how a business creates value, but also how it delivers value
• How the firm is structured, the markets in which it operates, how it engages with those markets,
main products/services, main categories of consumers, and main distribution methods (KPMG)
• Stories that explain how firms work, including how they make money and how they deliver value
to customers at an appropriate cost (Magretta, 2002)
• How the entity generates or preserves value over the longer term (FRC)
• Reasons to use the concept of a business model:
1. Legal and regulatory requirements in certain jurisdictions
2. The means by which firms create long-term value and success to identify opportunities
3. To provide a framework to respond to operating environment disruptions
• The Strategy Journey 2020 (Christian & Choo): 5 models to provide tools and techniques for
businesses to navigate their strategy journeys/different stages of a business lifecycle
• Mission Model: describes the core purpose of an enterprise providing focus on achieving the
target mission, while enabling the business to pull followers towards its future vision
• Business Model: describes what constitutes and drives the business, giving the means to make
profit and grow value; encompassing customers, value propositions, and details of growth plans
• Value Model: describes what constitutes value for the business/customer, encompassing where
value is created, exchanged between stakeholders, and how to find opportunities to create value
• Operating Model: describes how the business runs to support the design, build, testing and
delivery of its value propositions; its capability to operate at cost to achieve business outcomes
• Transformation Model: describes the effort in time, resources, costs, and the governance of the
business transformation journey, as capabilities change and value delivery/growth are improved
Traditional business model (CIMA)
A.Define value: who firms create value for and what counts as value for them
• Value: is at the heart of business models and may be (non-)financial, (in)tangible, short/long
term, and is not limited to the past (may affect the future); value goes beyond shareholder value
to creating shared value and is about meeting the needs of a range of ecosystem participants
B.Create value: how firms source resources and turn them into outputs desired by customers
C.Deliver value: how firms find ways to deliver value to those customers it was created for
D.Capture residual value: how firms capture value for themselves and their stakeholders
• Stakeholders: any person or group that can affect or be affected by the policies or activities of
an organisation; or have an interest in the strategy of an organisation
A. DEFINING VALUE
Stakeholder analysis
1. Identify the relevant stakeholders and with whom they seek to create value; to understand the
sources of risks, disruption and influence over the objectives of business decisions
• Mendelow’s (1991) matrix: designed to track interested parties and evaluate their perspective,
by assessing stakeholder influence in terms of:
• Power: amount of influence the stakeholder has on the business
• Interest: if the stakeholder is actively interested in performance
1. 2.
2. Prioritise and rank the stakeholders on the following attributes; to establish benefit to the firm
• Power: ability to impose their will
• Legitimacy: according to the norms and values of the firm and society
• Urgency: the need for immediate action in light of a stakeholder claim
3. Establish and identify the needs of high-priority stakeholders
4. Formulate value propositions that meet the needs of high priority stakeholders
B. VALUE CREATION
• Key elements: within the boundaries of cost control, there are 5 key elements that must connect
and align to create value at an appropriate cost
Jack Gould 5 of 35
,Chartered Institute of Management Accountants Management Level E2
1. Partners: firms build relationships, earn trust and reward contribution with suppliers, staff, and
other high priority stakeholders; giving access to markets, resources and technologies
2. Resources: firms use relationships with their suppliers to source and secure the right resources
(inputs)- that are available long term - to make products/services that satisfy customers
3. Processes: firms design, develop and deploy processes to convert resources to goods/services
(outputs); high quality processes lead to improved cycle times, productivity, quality and costs
4. Activities: firms and partners engage in activities that use processes to convert resources into
good/services; they depict what is done, where know-how, skills, learning and culture combine
5. Outputs: resources are converted into outputs (products, services, experiences) via activities,
which aim to meet the customer value proposition, appealing to different customer segments
C. DELIVERING VALUE
• Firms deliver value to, and earn revenue from, customers only when they receive/use the goods/
services; thus firms must understand different customer segments and channels to reach them
• Customer segments: based on any aspect of demographics
• Traditional segmentation focuses on variables such as:
• Geographic • Demographic • Psychological • Behavioural
• Value-based segmentation assess and target customers in terms of revenue they generate,
cost of establishing/maintaining relationships and potential profit of segments, which must be:
• Measurable and • Mutually exclusive • Substantial
meaningful • Stable • Easy to understand
• Channels: firms deliver value to customers through communication, distribution and sales
channels; all of which have been expanded by technological advances
• Multi-channel integrated buying journey: channels must be integrated, enabling a seamless
shopping experience with personalisation of customer needs across different channels; failure
to connect across all channels erodes brand reputation and competitive advantage
D. CAPTURING RESIDUAL VALUE
• Value is captured when revenue earned from delivering value exceeds cost of creating value,
resulting in a surplus, the size of which depends on market conditions, decisions when defining
value and success in executing those decisions
• This surplus value is shared with stakeholders who contributed to the value creation process
• Cost model: established when defining value; influenced by the value proposition to customers
and partnerships that firms use to create and deliver value. Total cost driven by 4 key factors:
• Efficiency of the processes • Resources consumed during activities
• Levels of activity • Price paid for resources
• Revenue model: revenue is earned when goods/services are delivered to customers:
• Pricing policy: price charged should reflect the customer segment, market conditions and
regulatory control
• Collection policy: dictates the speed at which revenue is converted to cash; terms of trade
• Sharing residual value: based on creating shared value, comprising shareholder value + value
delivered to other stakeholders, the priorities of which depend on the operating environment, ie:
• Government: tax strategy • Executives: performance related pay; capital structure
• Shareholders: dividend policy • Firms: retained income for (re)-investment opportunities
CIMA business model
• The traditional business model has been affected by significant changes in technology and
operating environments, and as a result the firm’s strategy
• Alignment: different parts of the model must connect to each other and align, both with each
other and to the operating environment; misalignment will affect organisational performance
Jack Gould 6 of 35
, Chartered Institute of Management Accountants Management Level E2
E2A3: Business models in digital ecosystems
DIGITAL DISRUPTION/DISRUPTIVE TECHNOLOGY
• Digital disruption: when new digital technologies affect the value of the industry’s existing goods
and services, forcing firms to re-evaluate and adjust to the market; however can offer benefits:
• Can contribute toward increasing • Can help business • Assists in evolving and
customer satisfaction grow improving the workplace
• Disruptive technology: modern technology can represent an opportunity or a threat to business
ecosystems; disruptive technology fundamentally changes existing industry business models:
• AI: semi autonomous vehicles disrupting the car industry
• 3D printing: dental crowns, surgical implants, prosthetics etc disrupting the healthcare sector
• Blockchain: digital forms of money (cryptocurrency) and Fintech disrupting the finance industry
SURVIVING DIGITAL DISRUPTION
• Accenture Technology Vision (2015) 5 emerging trends shaping the digital landscape of business:
• The Internet of Me: users placed at centre of digital experiences via personalised apps/services
• Outcome economy: customers more attracted to outcomes than just products; which firms are
more able to measure
• Platform (r)evolution: global platforms easier to establish/run; and huge potential for innovation
• Intelligent enterprise: use of data enables companies to become more innovative and efficient
• Workforce reimagined: humans and smart machines effectively working together
Myths of digital transformation to overcome
1. Organisations that are not digital already have missed their chance: existing companies simply
need to leverage their assets to adapt their business model
2. Becoming a digital business is an administrative exercise focusing on achieving operational
efficiencies: technology is not only used to cut costs but can also be used to increase revenue
3. Digital transformation can be successfully achieved just by creating a digital unit led by a Chief
Digital Officer: it must be driven by from the top (ie CEO), to achieve buy-in from all employees
THE ROLES AND RESPONSIBILITIES OF THE BOARD AND SENIOR LEADERSHIP
• To take advantage of digitisation, or survive digital disruption, leadership must demonstrate:
• Inspirational leadership: digitisation is an exercise in change management; leadership must
energise the workforce and inspire confidence that digitisation is the way forward
• Competitive edge: leadership must persuade people to take on a new mind-set; to adopt an
inquisitive attitude, to innovate, experiment and learn from failures
• Establishing a strategic direction: digitisation may require a different strategy
• Influence external parties: there is greater uncertainty of outcome; leaders will need to be
persuasive and articulate a compelling value proposition
• Collaboration: the organisation must see itself as part of the wider ecosystem; which requires
careful thought on who to collaborate with, and how each part of the ecosystem will contribute
• Business judgement: deciding on what sort of business model to adopt
• Execution: people and technology must be work in harmony to produce the desired outcomes
• Building talent: it will be critical to identify the skills needed in staff, and to manage recruitment/
training to ensure the business has such skills
STRATEGIES TO BUILD DISRUPTIVE DIGITAL BUSINESS MODELS
• Firms looking to become digital enterprises face 2 main challenges:
• The business model that previously worked has been disrupted and no longer works as desired
• The business must be willing to disrupt itself to create a viable business model for the digital age
World Economic Forum White Paper: Digital Enterprise 3 step plan
1. Innovate on the periphery: rather than the core business, to keep investment to a minimum
2. Hire digital savvy individuals: such teams work with a low profile in the organisation
3. Copy successful firms: the most holistic approach
World Economic Forum: methodologies to develop new business models
• Scenario-based design: creates future business models in response to disruptive industry trends
• Epicentre-driven design: uses strengths/weaknesses of existing business model to generate ideas
• Unorthodox design: forms business model by challenging existing industry logic
• Customer-centric design: builds business models through the perspective of the customer
• Mirrored design: creatively imitate business model patterns from other industries
World Economic Forum: ‘Digital Transformation of Industries’ (DTI) - 5 approaches
• Build new business models: when an opportunity is related to the company’s core business
Jack Gould 7 of 35
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