ACCA - SBL SOCIAL SCIENCE ALL SPLUTION LATEST EDITION 2023 GUARANTEED GRADE A+

What structure for Ethical considerations? Tucker's 5 Questions What structure for deciding strategy on public sector projects Public Sector Portfolio Matrix ACCA - 5 Skills? Commercial Acumen -Judgement - Awareness Analysis -Investigate -Enquire -Consider Communication -Inform -Persuade -Clarify Evaluation -Assess -Estimate -Appraise Scepticim -Probe -Question -Challange What model for environmental? PESTEL 5 Forces National What model for competitiveness? Porter 5 forces What model for national competitiveness? Porter's diamond What model for internal resources? M Model What model for outsourcing? Harmon's Process Strategy What model for Parent / Sub advantage? Ashridge Portfolio What model for E(Risk)M? COSO What model for performance? CSF - KPI's Balridge Balanced Score Card Benchmarking Boston Consulting Group Matrix What model for options for growth? Ansoff's Matrix What model for choosing a strategy? SAF S-uitable A-cceptable F-easable What model for assessing new project risk? Likelihood Vs Impact what system of accounting accounts for lifecycle Full cost accounting What is the purpose of Ethics? Convey values Control unethical practice Stimulate improved behaviour What are the components of an Ethics policy? E-mployees policies eg equal ops, training T-ransparent & Truthful to shareholders H-ow customers are treated (complaints procedures etc) I-nclude all stakeholders C-ompany Values S-ourcing + Procurement What are limitations to Codes of Ethics? Reduces ethics to a code. Need Personal integrity Incomplete - Cannot capture all dilemmas Regional variations Moral 'right' contingent on context Not legally enforceable What are ethical threats? Cultural Differences Not reported/discovered Internal Pressure Lack of competence Absence of leadership Lack of Governance Professionalism x 5 Integrity Objectivity Professional competence and due care Confidentiality Professional behaviour Public Interest increased economic certainty in the marketplace sound decision-making sound and transparent financial information comparability across different organisations and jurisdictions sound corporate governance Effective performance management Increased efficiency and better resource utilisation Ethical threats x 5 Self-interest Self review Advocacy Familiarity Intimidation (Management threat) Levels of Safeguards safeguards in the work environment, safeguards that increase the risk of detection specific safeguards to deal with particular cases. Two types of fraud Misstatement of financial position Misappropriation of Assets 3 x Pre conditions for Fraud Incentive - Broke Opportunity - Poor Controls Attitude/dishonesty - Ethics 3 x Deterrents to Fraud prevention - locked away detection - random checks response - prosecution - Legislation - Governance - NEDs, Audit committee - Risk Management - Awareness + controls - Ethical Culture What is whistle-blowing? A disclosure that is in the public interest 4 x Whistleblowing conflicts working group/family loyalties intimidation fear of consequences suspicion rather than proof. UK Legal protections for whistleblowers if... - a criminal offence, eg fraud - someone's health and safety is in danger - risk or actual damage to the environment - a miscarriage of justice - breaking the law, eg no insurance - someone is covering up wrongdoing Public Interest means...? - disclosure in good faith - reasonably believe information is substantially true - reasonably believe disclosure to the right prescribed person. Bribery definition offering financial or other advantage to perform a relevant function or activity improperly Any function of a public nature. Any activity connected with a business. Any activity performed in the course of a person's employment any activity performed by, or on behalf of, a group of persons. Bribery legislation Bribery Act 2010 Bribery Offences x 4 Bribing another person Receiving a bribe Bribing a foreign public official (FPO) (To gain financial advantage) A commercial organisation failing to prevent bribery. 6 Principles for Controlling Bribery Proportionate procedures Commitment by management Risk assessment. Due diligence (high risk staff) Communication / Training Monitoring and review "Adequacy of procedures" is a matter for a court to decide. "hospitality" that is reasonable and proportionate is acceptable. Bribery penalties 10 yr imprisonment unlimited fines for companies What impact does company ethics have? Reduces risk Reputational Damage Lower finance costs Easy to find partners / funders Better employees Ethics = Commercial sense Tucker's 5 questions - Is it profitable? Compare courses of action - Is it legal? - Is it fair? - From what perspective - Is it right? - Depends on culture, religion etc - Is it sustainable or environmentally sound? What are the key concepts for Corporate Governance? Fairness Openness/Transparency Independence Probity / Honesty Accountability Integrity Judgement Reputation What is a Corporate Code of Ethics? Written Rules Supported by Management Aligns with Training What action should you take when faced with Ethical Dilemmas? Consider the facts of the situation Consider the ethical principles involved -Personal Ethics -Corporate Ethics -ACCA Ethics Consider the related fundamental principles -Tucker's five question approach might be of help Consider relevant internal procedures - Follow as required Consider alternative courses of action -Escalate internally -Grievance procedures. -Document actions taken -Escalate externally (auditor, legal advisors, professional body) Consider the consequences of each -To self, others, organisations, shareholders, public -Conflicts between stakeholders? -Effects of non-action Finally, disassociate from the issue. Legal advice re employment status or if implicated Statutory duty to report? eg AML Approaches to ethics x 2 Rules = Compliance Based - Systems - Audit - Disciplinary - Back and White processes - Difficult to make a complete list Principles = Integrity Based Principles Emphasis on management Stakeholders: What is the instrumental view? What is the normative view? Instrumental - We don't have to = no obligation Normative - Good and right thing to do >>>> 3. Governance <<<< What is Vision Vs Mission? Mission = Why the firm exists Vision = Where in 5 years Set by Board What is a strategy? Use of resources to gain competitive advantage in a changing environment to fullfill shareholder objectives What is the agency relationship? Owners = Shareholders Directors = Managers, but not owners Auditors = Check on Managers What are the costs of agency? Monitoring of agents -attending AGMs -reading reports + accounts -writing queries Results of comprised trust How to avoid Agency cost? Align Directors' interests with Company interests Why have governance? Investor Confidence Protect Stakeholders Transparency Accountability Reputation Integrity Honesty Responsibility Independence When should Institutional Investors intervene? Concerns over strategy Consistent underperformance (without explanation) NEDs not doing their job properly Internal Controls persistently failing Failure to comply with laws and regulations Inappropriate remuneration policies Poor approach to social responsibility (reputation risk) What are the OECD Principles of corporate governance? Clear basis for effective corporate governance framework = transparency and acceptance of responsibility Shareholders Rights = Agents act in shareholders interests Shareholder treatment = small or large treated the same Stakeholder rights recognised = Co-operation between org and stakeholders Timely and accurate disclosures Duties of the board = Monitor management = Accountable to company and shareholders Board tasks under OECD Monitor governance policy Appointment and monitoring of Directors Manage the 'agency problem' Reporting RISK Disclosures and Comms Guidance from International Corporate Governance Network (ICGN) Sustainable value is required Boards effective, diverse, experienced and accountable Culture supports ethical behaviour eg whistle-blowers Risk management aligned with shareholders' expectations Remuneration should be transparent and aligned appropriately with risk and other objectives Audit robust, effective and independent - internal and external Disclosure and transparency with stakeholders Shareholders' rights -protected -respected Shareholder have responsibilities too What approaches are there to Governance codes (and Ethics)? Rules Legal = penalties for non compliance Sarbanes Oxley Unambiguous = Inflexible Monitored by Judiciary Lots of rules! Total Compliance All breaches = "noncompliance" -Not subtle -Disproportionate time spent on small issues Sign-off of compliance Bureaucratic = Expensive -Value to shareholders of small companies? Can't foresee every ethical dilemma Tick Box compliance Framework Principles Expectation of compliance or explanation why not = not legal but not optional Firms decide what is required Cheaper to administer Direct funds to comply with principal issues Monitored by Stock Exchange Principles theoretically cover more edge cases Assumed market/shareholders will penalise poor performers - remove investment - remove Directors Easier for smaller companies - tailored compliance Easier for developing countries (lack of resources re audit + NED etc) Inefficient = always "explaining" What approaches are there to supervision of the Board? Unitary Boards Two Tier Boards Describe a Two Tier Board Supervisory Chair Employee reps Long Term Strategy Management CEO Day to day operations What are the advantages and disadvantages of a Two Tier Board? Advantages Separation of Duties Broad representation (eg employees) Independent discussions Disadvantages Information flow Power and role confusion Slower decisions Possible stalemates Describe a Unitary Board Exec + NED Exec = operations NED = Guidance All vote What are the duties of directors? -fiduciary duties in best interest of company -use powers appropriately (statute + case law) -avoid conflicts of interests -exercise a duty of care What is the objective of the UK Governance Code? Management: -effective -entrepreneurial -prudent To deliver: long-term success What are the main principles of the UK Governance Code? Leadership - Effective Board for Long-term Success - Division of Roles (Chair + CEO) - Chair meads the Board - NEDs challenge (and vote) Effectiveness >50% NEDs (2 x NED if small company) Exec Directors via Nomination Committee (NEDs only) Sufficient capacity Induction + Training Timely Information Annual evaluation of Boards own effectiveness Directors re-elected at intervals Accountability Present a balanced and understandable assessment of of company's position and prospects Determine significant risks Maintain sound internal controls Establish formal and transparent reporting, controls and risk management. AUDIT COMMITTEE (NEDs) Remuneration Sufficient to attract quality, bit not overpaying Most remuneration related to Corporate and Individual performance Formal and transparent process for developing remuneration policy Relations with shareholders Responsibility for engaging shareholders Use AGM to encourage participation What is the role of a CEO? Lead the company - prioritise shareholder interests Develop and implement polices/strategies for shareholder value Assume full responsibility Manage all resources -monitor results -ensure operational and risk controls Oversee management team -interface between board board and staff -Assist appointment of directors Communicating with significant stakeholders, suppliers and regulators What is the role of the Chairman? Leadership of Board Ensures effectiveness of Board Represents company to investors and stakeholders Public face of organisation co-ordinates NEDs Ensuring board receives accurate and timely information Chairman's Statement Conveys important strategic messages Inform shareholders about Legal rights and responsibilities of Directors - Breach = criminal prosecution What Disclosures need to be made? Contracting with own company Substantial Property transactions Loans How are Board Directors dismissed? Retirement -AGM, every 3 years -Longest serving director retires first = phased retirement -Replaced in orderly manner Termination - Death - Resignation - Not seeking re-election (see above) - Bankruptcy - Disciplinary procedures Disqualification -Wrongful trading (when insolvent) - Improper records - Failing to file (3+ defaults in 5 years) - Failing to file tax returns and pay How are Board Directors dismissed? Retirement -AGM, every 3 years -Longest serving director retires first = phased retirement -Replaced in orderly manner Termination - Death - Resignation - Not seeking re-election (see above) - Bankruptcy - Disciplinary procedures Disqualification -Wrongful trading (when insolvent) - Improper records - Failing to file (3+ defaults in 5 years) - Failing to file tax returns and pay How to ensure NED independence? Not employed by co within 5 years No material business relationship with Co in last 3 years No remuneration (except director's fee) No family ties within Company No cross directorships Retire after 9 years - familiarity Advantages of NEDs -Monitoring excesses of executives. -External expertise -Perception: Co more trustworthy -Improved communication with shareholders -Independent view Compliance with corporate governance code Disadvantages of NEDs Lack of trust = board problems Quality: few appropriately qualified NEDs Liability: Poor remuneration and liability in law might = fewer NEDs Why is insider trading bad? Not in shareholders best interests Why should Directors be remunerated well? What are some components of Director's Remuneration? Attract Retain Motivate Basic Salary Short long term bonuses Share Schemes Pension / Termination Pension Contributions Other benefits -Car -Property What are some benefits to the firm of a decent remuneration package? reduces Agency Costs - Director's aims aligned to firm of capital, n on equity, mic value added, t share, ue and t growth Composition of Committees - Audit - Remuneration - Risk - Nomination (Sarbanes Oxley) Audit - 100%NED Remuneration - 100%NED Risk - Majority NED Nomination - Majority NED What are some problems with Not-For-profit organisations? Multiple objectives + conflicts (A&E Vs Surgery) Measuring Outputs -(Patients "feeling well") Financial Contraints -limits to source of funds and ability to spend Political + Public Scrutiny -Greater than commercial -Onerous legal requirements Little Competition + Incentives -Sometimes monopoly services (eg hospitals) What are the "3 E's" Efficiency Effectiveness Economy What is the axes on the Public Sector Portfolio Matrix? What are the components? Public Need Vs Value for Money Back-Drawer - No interest = discontinue Golden Fleece - reduce or educate to increase interest Political Hot-Box - Popular but not value for money. Reduce or educate to decrease public interest Public Sector Star - Fund and increase What are: Strategic Fit Strategic stretch Strategic architecture Strategic Fit Strategy to meet market needs Strategic stretch Stretching competencies to create new opportunities eg. Apple - computers to music to phones to iPads to TVs? Strategic architecture Logistics of buying and servicing What are core competencies? What is strategic architecture? Core Competencies Resources which give a competitive advantage Strategy Strategic Architecture Combination of Resources What are the 3 levels of strategy? Corporate - Start, change or Stop direction - Divisional decisions (stop product X) SBU - Different market Competitive Advantage Create new opportunities Meet local needs Operational >>>> 4. Integrated Reporting <<<< What is INTEGRATED REPORTING? Not just financials!!!! -Environment -Policies -People -Ethics -Society -Projects - .......Finances! We are responsible! Shows how VALUE created over the short, medium and long term Concise communication of strategy, governance, risks and performance re VALUE CREATION Links VALUE CREATION to 6 CAPITALS and External Environment Aims of INTEGRATED REPORTING Board = effective decisions Investors = actionable information Encourage integrated thinking and practice What are the 6 Capitals of INTEGRATED REPORTING? Financial -Cash -Borrowing Manufactured - Fixed Assets (new? investment?) Intellectual -Investment in R&D, innovation, human resources and external relationships -Impacts competitive advantage. -Brand and reputation Human -Knowledge, skills and experience of workforce Social and relationship -Resources created between stakeholders -Public, Government etc -Trust Natural capital Resources used to provide a return Waste + Recycling What are the common elements of INTEGRATED REPORTING OOSBOPGPB BOOOPS-PG Overview and external environment Outlook Opportunities and risks Business model = Resilent? Strategy and resource allocation Performance Governance Basis of preparation Metrics Why included What is FULL COST ACCOUNTING? Includes company activities, environmental, economic and social costs What is Triple Bottom Line Accounting? PPP - Planet - People - Profit All can be enhanced What are two impacts of ENVIRONMENTAL REPORTING? Direct Impacts Manufactoring Indirect Impacts Supply Chain - Very hard! What is the Global Reporting Initiative - GRI? Standardised Environmental Reporting Framework ie BEST PRACTICE What are the benefits of Environmental Reporting? Demonstrate accountability to society, govt, suppliers Strengthen accountability to shareholders Demonstrate responsiveness to threats to ethics -poor waste management Gain, maintain or restore legitimacy after environmental errors Convenient place to re-assure re environmental risks and management Systems and knowledge can lower costs and increase efficiency What is the Eco-Management and Audit Scheme (EMAS)? EU AUDIT Certification Evaluate Report Improve ...environmental practice What are the EMAS steps Contact local competent body Initial environmental review -Sets benchmark -Identifies direct/indirect impacts ‣ Energy efficiency ‣ Material efficiency ‣ Water ‣ Waste ‣ Biodiversity ‣ Emissions Define environmental policy and environmental program. Implement the environmental management system. Measure and Audit effectiveness. Repeat for continuous improvement Prepare environmental report for stakeholders achievements and progress towards best practice. EMS and Report verification Apply for EMAS register Use EMAS registration to demonstrate to customer, suppliers and investors your commitment to environmental care and improvement Describe ISO 14000 International standards on environmental management. Guidance on -Development of EMS -Environmental auditing. -Qualification criteria for environmental auditors. -Audit program review and assessment material. -Performance targets -Life-cycle issues. Supports EMAS, but not accredited Provides STANDARD metrics >>>>> 6. Strategic Planning <<<<< What is the RATIONAL MODEL of strategic planning? (Linear Model) Where are we? Where do we want to be? What are our options? Which option do we choose? Implement Control Review POSITION -Mission -Stakeholders -Internal Appraisal - Assets, IP, Skills, Resources -External Appraisal - Environment -Opportunities -Threats CHOICE Objectives Strategic Options (all of them) Strategic Choice (prioritise) Actions Implementation of Strategic Choice Strategic Control back to MISSION back to POSITION -----NB----- -Changes to market -Changes to workforce -Changes to environment -Changes to tech What model describes strategic planning as non-linear? Describe this model and its advantages Johnson, Scholes and Whittington Position Choice - Action Circular, need flexibility Every action has immediate reaction What is LOGICAL INCREMENTALISM? What are the disadvantages? Information is never perfect and can never be known, especially 5 yrs in advance Evaluation of options is difficult, time consuming and expensive Bounded rationality = can't know everything Therefore small changes is best. Small changes do not match leaps in tech. eg electric cars, digital cameras What is FREEWHEELING OPPORTUNISM? "Anti-planning" "Entrepreneurial" Feels planning is "restrictive" Responsive to quick changes Bored easily = Struggle to build mature enterprises High Risk - May regret not planning May miss other opportunities What are the advantages of Strategic Planning? Establishes long-term objectives and activities - gives security for staff, investors and metric for performance measurement Better coordination eg Sales + Production = security Patience Long term = investment R+D Pro-active Management - lobbying for change etc - advertising - training workforce Forward Looking Anticipation > Surprise What are the DISADVANTAGES of Strategic Planning? Too much planning! (Planning is less risky than action) Inflexibility to changes in market, tech, environment Expensive (time and money) >>>> 8. Rational Model in Detail <<<< What is the Mission? Overall Purpose May include: -Values -Culture -Ethics etc What are the stakeholders? Why are they in conflict? Shareholders Vs Employees Dividends - Wages Customers Vs Employees 24 hr trading Public Vs Shareholders Noise - Profitability Lenders Vs Shareholders Low Risk - High Risk What are Direct & Indirect stakeholder claims? Direct = has a voice Indirect = no voice - small customer - the environment - future generations - distant supplier/customer = needs representations (pressure group) Describe Mendelow's Matrix? Power VS Interest Minimal Effort Keep Informed Keep Satisfied (unlikley to take action eg doctors) Key Players - NB what if in conflict? What laws support stakeholders rights Employees - H&S, Employment Law, Grievances Customers - Trading Standards Govt - Taxes, Environmental Suppliers - Creditor protections What is the name given to action ABOVE and BEYOND legal minimums? What are the pro's and cons? Corporate Social Responsibility Good publicity "Good place to work" Vs. Expensive! Profit = Stability, R+D etc Profit = Higher Taxes = Public good Shareholders can give to charity if they want Directors' legal authority to make non-essential payments? Which beneficiaries? Who decides? Describe Carroll's pyramid P-hilanthropic - good citizen E-thical L-egal E-conomic Pro's and Cons of Carrolls Pyramid Easy to understand Hierarchy Emphasises profit Ethics first? Too simple? Easy to ignore What is human capital reporting? People are asset, not expense - Needs effective management - Need safeguarding - Impairment = drop in motivation What aspects need reporting Economic Social Ecological >>>> 9. Environmental Analysis <<<< 1. Macro - PESTEL 2. Market 3. Organisation What are the different scales of Environmental influence? What models are used for Macro scale Environmental Analysis? PESTEL Drivers for Change Porter's Diamond Describe PESTEL PESTEL Political - Brexit, EU changes, Political changes Economic - Interest Rates, Taxes, Economy, FX Social - Ageing population (recruitment, pensions), fashions, cheap air travel. Technological - Banking, retail, publishing, media, phones, medicine, Ecological - Carbon emissions, pollution, global warming, recycling Legal - H&S, equality, regulation, minimum wage What are the Drivers for Change? Tech Internet distribution, iTUnes, Amazon, Kindle Industry Convergence Airlines + hotels + carhire Phone + Internet + TV International Reach Global Markets (single R+D) Global supply chain (cheapest labour) New entrants cannot easily compete on global basis What is Porter's Diamond? Why do countries have reputations for specific products? Factor Conditions Climate, national resources Advanced Factors - Infrastructure, Legal, education (eg engineering) Demand Conditions Home demand -Scottish Tweed -UK Legal and Financial Structure + RIVALRY BMW, Mercedes, Audi, VW, Porsche Home competition = good products No MONOPOLIES! Related and Support industries Intel - chips Apple, Del - Hardware MS, Oracle - Software Also Education What is Strategic Drift? Non alignment with environment + competitors = irrelevance Describe Strategic Drift So, the environment changes... Incremental Change -Firm keeps up with changes Strategic Drift -Firm does not (or cannot) innovate Flux Panic + Attempt at Change Transformation or Death What examples from PESTEL could cause Strategic Drift? Political New regulations New laws Minimum Wage Spending Priorities Economic Increasing energy costs + not updating machinery Social Ignore customers environmental concerns Tech Ignore Social Media Environmental Ignore public concerns Legal Failure to prepare What is Scenario Planning? Only considering believable and internally consistent futures. ie, use combinations of factors = reduces number of total scenarios to consider What are the steps to SCENARIO PLANNING? 1. Identify SCOPE - Time, department, country 2. Identify highest impact factors = PRIORITISE!!!! 3. Identify plausible outcomes for each factor 4. Identify internally consistent combinations of factors 5. Effects of these scenarios 6. What is the response? 7. Confirm assumptions and scenarios in light of responses What are the advantages of SCENARIO PLANNING? Challenges managers and stakeholders to look forward Challenges assumptions about the future, and drivers and forces Forces consideration of unimagined possibilities and tests rationale for current strategies Does NOT forecast the future. Results in several outcomes + a planned response Encourages interal communication and planning (requires broad input) Identifies and evaluates 'weak signals'. (possibly disruptive factors), early facebook = disruptive possibilities for advertising What are the disadvantages of SCENARIO PLANNING? Time-consuming Requires expert analysis = expensive NB include favourable and unfavourable scenarios and plan for both >>>> 10. Competitor Analysis <<<< What does PORTER'S 5 FORCES consider? INDUSTRY attractiveness for LONG TERM success Use for Competitor Analysis What are PORTER'S 5 FORCES? Rivalry Perfect Competition - no control over market price to Monopoly (does not mean anyone wants your product) -Use takeovers -Reduce prices to drive rivals out of business -Govts wary of monopolies Buyer Pressure - Build in Switching costs - Long Term contracts (profit Vs security) Supplier Pressure -could raise prices -could be acquired by competitor -Use multiple sources -acquire own company New entrants - can enter with special deals which undercut = Need high barriers to entry -Regulations and licences -High Capital -Technical Expertise -Unique (patented) products Substitutes sudden new tech = new substitutes Old industries have to update to maintain market share >>>> 11. Capabilities <<<< What is the resource audit? Mo Model Men Money Markets Materials Management Make-up Machinery What are the components of CAPABILITY? Resources - What you have + Competencies - How you use what you have What is STRATEGIC CAPABILITY? Capability that gives: STRATEGIC ADVANTAGE - over COMPETITORS - over LONG TERM What types of STRATEGIC CAPABILITY are there? Threshold - Minimum to stay in business Additional - give competitive advantage What is a critical success factor? Must do this well to succeed Where does Additional Capability come from x2 Unique resources -Usually IP (Most other assets can be bought) Core Competencies -Advantageous USE of resources (eg apple supply chain) -Difficult to define and copy -Design, production, hardware etc What are KPI's? Measure Critical Success Factors SMART What is the Balanced Score Card? Related to Critical Success Factors Financial - Shareholders Customer - Clients Internal Business - Quality Learning & Growth - Ability to change and grow What is a Position Based strategy? What is a Resource Based strategy? Position Based Strategy Is REACTIVE!!! -What's happening in Environment (use PESTEL etc)? -React to this -But... Could lead to new areas with no competence Resource Based Strategy -Combine Unique Resources + Core Competencies into a winning combination -That is difficult to copy -But.... Ensure still relevant and needed by market What resources are there? Must Have...: -Money -Manpower (HR) -Management (Can be critical for growth) -Machinery (Assets) -Markets (Customers) -Marketing -Materials -Make (Brand) -Methods (Know-how) -MIS (information technology) At planning stage, either: -Owns resources -Has capacity to acquire >>>> 11. Internal Analysis <<<< Describe Porter's Value Chain Primary Activities (Direct Costs) -inbound logistics -operations -outbound logistics -marketing and sales -service Support Activities (Indirect Costs) -firm infrastructure -technology development -human resource management -procurement Margin/Profit All costs appear on the chain so...... Where does the added value come from? -Provide something clients can't or won't do -Convenience -Unique resource -High Risk (defer risk) -Economies of scale Need to excel at these!!!! NB: Can costs be allocated better across activities? ie training instead of production = efficiency What are value networks? Why are these important? Interconnected suppliers all add value to the chain All have their own individual value chains = Firm is DEPENDENT in chain to succeed Value to customer is dependent on value provided by sub-suppliers (eg using BOSCH components) What is the Boston Consulting Group Matrix (BCG)? Describe the BCG Portfolio Analysis = Analyse more than one product Market Growth Vs Market Share (relative to largest) High Growth/Small Share "Problem Child" Can't compete with others' economies of scale Either leave or growth = INVEST!!! NB: R&D + "Invest Margin" = Cash Negative!! becomes... High Growth/High Share "Star" = Good economies of scale But... v attractive = high competition = defend market share INVEST! (Cash Flow Neutral) becomes... Low Growth/High Market Share "Cash Cow" Less attractive = Low competition Initial expenses written off Less need to defend (Cash Positive, but declining) Separately... Low Growth/Low Share "Dog" Leave or sell What is INVESTING THE MARGIN? What BCG sector is the related to? Reducing selling price to win market share = Negative Cashflow BCG = Problem Child High Growth + Low Market Share What is a good strategy for BCG? Get a balance between Cash Cow and Problem Childs = Use cash flow to invest in new products A portfolio of only Cash Cows will not last long Describe some problems with BCG? 1. Emphasis on Market Share Care with niche products (Porsche low share of "cars") = need to define "Market" carefully 2. Care with boundary conditions What is "Low Growth" or "Low Market Share"? This is a guide only. = Can't use to define actions such need for R&D 3. Market share or growth are inadequate Share = Competitive Strength (eg Brand, location) Growth = Risk? Competition? Describe SWOT Internal Strengths - eg Production Weaknesses - eg IT System External Opportunities - eg Competitor in distress Threats - eg Interest Rates Opportunities - Build on strengths - Strengthen weaknesses Threats - Use strengths to overcome threats (Brands) - strategies to minimise effects of weaknesses. How to improve SWOT Analyses? Link to ACTION Link to other analyses: -Porter 5 Forces -PESTEL -Life Cycle -BCG >>>>> 13. Determining Strategy <<<<< How to determine strategy? 1. Choose Generic -Cost leadership -Differentiation -Focus 2. Choose Strategic Direction -Market penetration, efficiency gains, consolidation and withdrawal -Market Development -Product development, and -Diversification. 3. Choose how to grow -Organic - internal -Merger/acquisition What are Porter's Generic Strategies? Focus Vs Competitive Advantage Cost Leader Low Cost - very tight controls (their only strength), possible global (low costs) Usually large companies (efficiencies + scale economies) High Profit -Ordinary Product - Lots of competitors - vulnerable to tech breakthrough -Prices set by market (ie competitors) -Margins of scale - eg RYANAIR -- Stuck in the Middle -- NB (not one of Porter's 3 strategies) As above but not the leader = High Costs = Low Profits - no resources to invest in LONG TERM - risk of squeezed out by reduced prices from competitors Differentiator High Cost (perhaps better quality components) High Profit Good, unique, targeted products - can set prices - eg Apple Focus Focus on small segment of market (either small co, or only one segment is profitable) Then... ... either cost leader or differentiator but usually Niche products = Focus + Differentiator higher prices NB: Not of interest to large companies due to size of segment = can't apply economies of scale Why is a Generic Strategy required? To gain competitive advantage + Earn good profits = Worth risk to shareholders + resources to invest in R&D PPE Training What is Ansoff's Matrix for? Strategic Direction Summarises ALL possible options for growth Describe Ansoff's Matrix Markets: Present - New Vs Products: Present - New Present Markets + Present Products Cost Cutting - Efficiencies Withdrawal Consolidation - Mergers Penetration - Market Share LOW RISK - LOW RETURN LOW INVESTMENT Present Markets + New Products Product Development HIGHER RISK - HIGHER RETURN + No Guarantees!! New Markets + Present Products Business Development HIGHER RISK- HIGHER RETURN + No Guarantees!! New Markets + New Products -Related Diversification -Unrelated Diversification (see below) HIGH RISK - UNKNOWN RETURN Types of ANSOFF MATRIX Diversification Unrelated = Conglomerates - "Provides stable returns" - But why not diversify portfolios? - "Synergy" - Combine departments (IT, admin) - But... Different suppliers, financing, IT, marketing - Management by parent inexperienced Directors - Only works if acquires badly managed firm Related Horizontal Integration SAS Airlines + Radison Hotels Cross-Selling Backward Vertical Integration -Acquire Supplier -Supplier tends to relax -Stuck with one supplier (what if other is more innovative) -Diverts capital from core activities -Increases gearing (variable costs become fixed) -No guarantee management will succeed (different industries) But... -Assurance of supply (can't be undercut, can undercut competitors) -Some efficiencies, but many suppliers share data and integrate very well anyway -Secrecy -Differentiation - Can define exactly how components are supplied (although not unusual) -Generally better to have a group of suppliers and choose based on price/service Forward Vertical Integration -Acquire Customer What is UPSTREAM and DOWNSTREAM? Upstream = Supplier Downstream = Customer >>>> 16. Methods of Growth <<<< What are the characteristics of Mergers Vs Organic Growth Mergers -Quick -Already functions (new product/market) -High and Immediate Capital -Higher Risk (unknown entity) -Cost of Goodwill (worth it?) -High Disruption (personnel, new boss, new processes) - Info asymmetry. (Seller knows more) Organic Growth -Slow -Spread Capital -Substantial Risk (risk from developing new markets products) -No knowledge purchased -No Goodwill cost -No disruption, in fact visibly increased opportunities for staff Describe Joint Ventures Two firms share Capital, Resources, Staff Used for Large Projects -High Capital -High Risk -Need mix of Skills Choose partners carefully Define: -Expectations -Profit Sharing -Exit Describe Licensing Production in multiple locations Save transport costs Low risk for production set up in new locations Describe Franchising Allows set up in Franchisors name Benefit of brand Benefit of supply chain Secure market + volume Security = Lower risk Lots of rules More risk than expected virtually an "employee" Describe Strategic Alliance Alternative to Merger Used if monopoly not allowed (eg legally) Such as airline "Star Alliance" >>>> 17. Strategic Choice <<<< What is Strategic Choice? What model can be used? Ensuring strategic decision is correct! Johnson andScholes Describe Johnson and Scholes Suitability Align with Vision, Mission, Strategy Build on strengths Guard against weaknesses Benefit from Opportunities Align with changing markets, competitors CONTINUED..