ACCA 2016 BPP PASSCARD p3

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CONTENT PROVIDER

ACCA Passcards
Paper P3
Business Analysis
Passcards for exams from
1 September 2015 – 31 August 2016

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Professional Paper P3
Business Analysis


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First edition 2007, Ninth edition Apr il 2015
ISBN 9781 4727 2707 7
e ISBN 9781 4727 2772 5
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the
British Library
Published by
BPP Learning Media Ltd,
BPP House, Aldine Place,
142-144 Uxbridge Road,
London W12 8AA
www.bpp.com/learningmedia

Printed in the UK by RICOH
UK Limited
Unit 2
Wells Place
Merstham
RH1 3LG

Your learning materials, published by BPP Learning
Media Ltd, are printed on paper obtained from traceable
sustainable sources.

Page ii

All rights reserved. No part of this pub lication may be
reproduced, stored in a retr ieval system or tr ansmitted, in
any form or b y any means, electronic, mechanical,

photocopying, recording or otherwise , without the pr ior
written permission of BPP Learning Media.
©
BPP Learning Media Ltd
2015


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Preface

Contents

Welcome to BPP Learning Media’s ACCA Passcards for Professional Paper 3 Business Analysis.
They focus on your exam and save you time.
They incorporate diagrams to kick start your memory.
They follow the overall structure of BPP Learning Media’s Study Texts, but BPP Learning Media’s ACCA
Passcards are not just a condensed book. Each card has been separately designed for clear presentation.
Topics are self contained and can be g rasped visually.
ACCA Passcards are still just the right size for pockets, briefcases and bags.
Run through the Passcards as often as you can during your final revision period. The day before the exam, try
to go through the Passcards again! You will then be well on your way to passing your exams.
Good luck!

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Preface

Page

Contents

Page

1

Business strategy

1

12

E-marketing

135

2

Environmental issues

7

13

Project management

151

3

Competitors and customers

17

14

Finance

167

4

Strategic capability

27

15

Human resource management

185

5

Stakeholders, ethics, culture and
integrated reporting

16

Strategic development

191

41

6

Strategic choices

53

7

Organising for success

73

8

Managing strategic change

89

9

Business process change

95

10

Improving processes

105

11

E-business

111


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1: Business strategy

Topic List
What is strategy?
Levels of strategy in an organisation
Elements of strategic management
The importance of context
The strategy lenses

This chapter gives you an overview of the fundamentals
of strategy and strategy formulation, and how they relate
to business analysis.


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What is
strategy?

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Levels of strategy
in an organisation

Page 2

Elements of
strategic management

The importance
of context

The strategy
lenses

STRATEGY: a course of action over the long term, including identifying the competences and resources
required, to achieve a specific objective and fulfil stakeholder expectations.

Areas for decision making

Strategic decisions

Long term direction

Complex

Scope of activities

Subject to uncertainty

Competitive advantage

Impact operational decisions

Adapting activities to fit business
environment

Affect whole organisation

Exploiting resources/competences
Expectations of key stakeholders

Four elements of mission
Purpose and planning
Values
Strategy
Policies and standards

Lead to change
GOALS:

General aim

OBJECTIVES: SMART and PRIME


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What is
strategy?

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Levels of strategy
in an organisation

Page 3

Elements of
strategic management

The importance
of context

The strategy
lenses

Three main levels of strategy in an organisation
1

Corporate

Overall purpose and scope, and how value will be added. Prioritisation and management
of stakeholder expectations. Allocation of corporate resources.

2

Business

How to compete successfully in par ticular markets. Combines with corporate strategy in
a small organisation. In larger organisations, strategies for strategic business units must

be co-ordinated with corporate strategy, and with each other.

3

Operational

How the component parts of the organisation deliver the higher-level objectives. Largely
created and delivered by business functions such as marketing, production, finance,
human resources management, and information systems.

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1: Business strategy


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What is
strategy?

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Elements of
strategic management

Levels of strategy

in an organisation

The importance
of context

The strategy
lenses

Johnson, Scholes and Whittington’s model of strategy
Strategic position

Strategic choices

Environment
Opportunities
Threats
Complexity
Capability
Resources and competences
Strengths
Weaknesses
Stakeholder expectations
Purpose of strategy
Power/interest
Governance
Ethics

Made at corporate and
business levels
How to achieve

competitive advantage
Scope
Direction of development
Method of development

Strategy into action
Structuring
Processes
Relationships
Enabling
Management of resources
Change
Change management

Position

Choice

Action is not simply a linear model.

Need to recognise the interdependencies between position (analysis),
choice and action (implementation).


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What is
strategy?

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Levels of strategy
in an organisation

Page 5

Elements of
strategic management

The importance
of context

The strategy
lenses

The context of strategy
The organisational setting in which strategy is developed. Possible contexts include:
Small business

Limited product range, markets and resources (especially financial), but significant
pressure from competitors

Multinational

Diverse products, processes and markets, with significant resources and multiple
operations

The public sector

Constraints on funding, commitment to ser vice provision and the need to
demonstrate value

Not for profit organisation

Diverse sources of funds, strong underlying values and purpose

Intangible products

Product information, after-sales service, brand values, staff performance (for both
manufacturing and service companies)

Exam focus
Context is very important in the P3 exam. Question scenarios will provide context for the question requirements.
You must always consider the context of the question and make your answer directly relevant to it.
Page 5

1: Business strategy


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What is
strategy?

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Levels of strategy
in an organisation

Page 6

Elements of
strategic management

The importance
of context

The strategy
lenses

Johnson, Scholes & Whittington suggest that strategy, and the development of strategic thinking, can be
examined through three lenses.

1

Strategy as design

A rational, top-down process – rational managers, clear objectives.
Strategy is exclusively management’s responsibility, and the organisation's
role is to implement management’s plans.

2

Strategy as experience

An adaptation of what has worked in the past – based on e xperience,

assumptions, and decisions to satisfice rather than optimise. Strategies
develop in incremental and adaptive ways, and emerge from lower levels
of the organisation.

3

Strategy as ideas

Strategy based on innovation, diversity of ideas, informal interaction and
experimentation. Managers create the context and conditions for new ideas
to emerge, but must prevent strategic drift. Organisational culture must
support innovation.


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Page 7

2: Environmental issues

Topic List
The organisation in its environment
The macro environment
The competitive advantage of nations
The environment in the future
Competitive forces

Understanding the changing environment is one of the
key elements in both defining and developing strategy.
One possible definition of corporate strategy is 'seeking a
good fit with the environment'. To achieve that 'fit', an
organisation must have a thorough knowledge of its
environment.


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The organisation
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The macro
environment

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The competitive
advantage of nations

The environment
in the future

Competitive

forces

All organisations are open systems – they have a variety of interchanges with the environment (inputs and
outputs).
The environment can be divided into three
concentric layers:
Environmental element

Basis of analysis

Macro-environment

PESTEL
Key drivers of change
Scenarios

Industry or sector

Five forces (Porter)
Cycles of competition

Competitors and markets Strategic groups
Market segments
Critical success factors

Macro-environment
Industry or sector

Competitors and markets

The organisation


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The organisation
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The macro
environment

Page 9

The competitive
advantage of nations

The environment
in the future

Competitive
forces

The PESTEL framework is based upon six segments: political, economic, socio-cultural, technological, environmental
protection and legal.

Political/legal factors

Economic factors

Governments oversee framework in which business
operates eg physical, social and market infrastructure.
Many aspects of business activity are subject to legal
regulation:

These operate in both a national and inter national
context. Relevant factors include:

Contracts
Employment
Health and safety
Tax
Other aspects are regulated by supervisory bodies. The
EU is a significant influence.
Political change and political
risks affects the planning
activities of many businesses
Page 9

Inflation rates
Employment rates
Interest rates
Tax levels
The business cycle

Growth/fall of GDP
Savings levels

Exchange rates
International trade
Capital markets

Government policy

Fiscal policy (taxes, borrowing, spending)
Monetary policy (interest rates, exchange rates)
Size and scope of the public sector
2: Environmental issues


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The macro
environment

Social factors

Demography is the study of human population and
population trends (eg birth rate, average age, ethnicity,
death rate, family structure, social structure and wealth).
Demographic changes have clear implications for patterns

of demand. They also affect availability of labour. Can also
affect recruitment policies.
Culture in society provides a framework for understanding
beliefs and values, and creates patterns of human activity.
It influences tastes and lifestyles.
Affects:
Marketing - may need to adapt products/services for a
particular market
HR - cultural differences in recruitment
Business must be particularly aware of cultural change.

Page 10

The competitive
advantage of nations

The environment
in the future

Competitive
forces

Technological factors
Many strategies are based on exploiting technological change
(eg Internet and e-commerce). Others are defences against
such change (eg emphasising service or quality when a
competitor introduces a major technical development).

Technological developments affect all aspects of
business (especially IT developments)

New products and services become available
New methods of production and ser vice provision
New ways of selling (e-commerce)
Improved handling of information in sales and finance
New organisation structures to exploit technology
New media for communication with customers and within
the business (eg Internet and email); facilitates business
becoming global


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Environmental protection
Pressure coming from many quarters:
Green pressure groups
Employees
Corporate Social Responsibility

Legislation
Environmental risk screening

Possible green issues for businesses to consider:
Consumer demand for environmentally friendly
products

Scarcity of non-renewable resources

Greater regulation by governments and
international bodies

Opportunities to develop new environmentally
friendly products and technologies

Sustainability of operations

Businesses may be charged for the external cost
of their activities
Page 11

2: Environmental issues


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The organisation
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The macro
environment

Page 12

The competitive
advantage of nations

The environment
in the future

Competitive
forces

Four aspects of globalisation are key drivers of change in the macro environment:

1

Market globalisation

Converging tastes; improving communications.

2

Cost globalisation

Economies of scale are a major source of cost adv antage; purchasers
search globally for lowest-cost suppliers.

3

Government policy

Increasingly sympathetic to free trade.

4

Global competition

High levels of international trade encourage global competition. The
existence of global competitors and global customers in an industr y
encourages firms which currently only trade in one country to expand
to be able to compete more effectively.


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The macro
environment

Page 13

The competitive
advantage of nations

The environment

in the future

Competitive
forces

Porter identifies four determinants of national competitive advantage on an industry basis. He refers to them as
the 'diamond'.

Firm strategy, structure and rivalry
Cultural factors, management style, time horizons and capital markets all help determine orientation and
capability. Domestic rivalry leads to competitive strength.

Factor conditions
Endowments of inputs to production
Basic: natural resources, climate, labour unsustainable for competitive advantage
Advanced: infrastructure, technical education, hightech industries - promote competitive advantage

Demand conditions
Buyers in the home market set fundamental
parameters such as market segments, degree
of sophistication, rate of growth and rate of
innovation. Early saturation of the home
market will encourage a firm to export.

Related and supporting industries
Success in related industries gives mutual support. Strong home suppliers make the industry more robust.
Rivalry creates supplier specialisations. Clusters of related industries derive strength from their links.
Page 13

2: Environmental issues

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The organisation
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The macro
environment

Forecasting
Sound knowledge of the environment requires some
element of forecasting. The past is not necessarily
a good guide to the future, but in simple, static
conditions time series analysis and regression
analysis can be used.
Economic forecasting uses leading indicators to
assess future economic conditions.
A scenario is a detailed and consistent view of how
the environment might develop in the future.
Macro scenarios consider possible futures overall.
Industry scenarios look in more detail at a single
industry.

Page 14

The competitive
advantage of nations

The environment
in the future

Competitive
forces

Scenario construction (Mercer)
1

Identify drivers of change

2

Arrange drivers in a viable
framework

3

Produce 7-9 mini-scenarios

4

Group mini-scenarios into 2-3
comprehensive scenarios

5

Write up the scenarios

6

Identify issues arising, and what they
mean to the business


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The macro
environment

Page 15

The competitive
advantage of nations

Competitive
forces

The environment
in the future

Porter says that five forces together determine the long-term profit potential of an industry

2
1 Bargaining power of
suppliers

Depends on:
Number of suppliers
Threats to suppliers'
industry

4

Suppliers seek higher prices
Page 15

Rivalry among current competitors
Depends on:
Market growth
Buyer's ease of switching
Spare capacity
Exit barriers
Uncertainty about competitor's strategy

Number of customers
in the industry
Scope for substitution
Switching costs
Selling skills

Threat of new entrants

This is limited by barriers to entry
Scale economies
Product differentiation
Switching costs
Access to distribution
Patent rights
Access to resources

5

3 Bargaining power of
customers

Depends on:
Volume bought
Scope for substitution
Switching costs
Purchasing skills
Importance of quality

Threat from substitute products
A substitute is produced by a different
industry but satisfies the same needs

Customers seek lower prices
2: Environmental issues

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Notes


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3: Competitors and customers

Topic List
Competition dynamics
The marketing mix
Customers and segmentation
Understanding the customer

A detailed knowledge of both competitors and customers
is very important for strategy development. In particular,

the cycle of competition and cr itical success factors are
very examinable.


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Competition
dynamics

Page 18

The marketing
mix

Customers and
segmentation

Understanding
the customer

Cycle of competition
Encirclement
Simultaneous flank
attacks

Contraction

Concentrate on most
desirable markets

Incumbent

Flank
Neglected segment
area of technology

Head-on
Identical
marketing
mix
Challenger
Attacks

Incumbent

Guerilla
Aggressive, short
term moves

Flanking
Defends
secondary
markets

Bypass
Unrelated products,
new areas, technical

advances

Position
Change nothing
Pre-emtive
Attack first

Challenger
Defences

Mobile
Broaden and
diversity markets


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Industry life cycle
Inception
Product
characteristics
Competitors
Buyers
Profits

Technology
Production
processes

Basic, no standards
established
None to few

Growth

Maturity/shakeout

Decline

Standardised product with
little differentiation
Competition increases,
weaker players leave
Early adopters, prosperous, More customers attracted Mass market, brand
curious must be induced
and aware
switching common
Negative – high first mover Good, possibly starting to Eroding under pressure of
advantage
decline
competition
No standards established
Technologies become
Technology is understood
more standardised

across the industry

Varied quality but fairly
undifferentiated
Few remain. Competition
may be on price
Enthusiasts, traditionalists,
sophisticates
Variable

Small scale batch
production.

Overcapacity. Production is
reduced

Specialised distributors

Improved design and
quality, differentiated
Many entrants

Mass production.
Distribution networks
expanded

Long production runs.
Cost efficiency critical

Technology is understood

across the industry

Exam focus point
For an organisation's strategy to be successful, it needs to be appropr iate to where its industry or products
are in their lifecycles.
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3: Competitors and customers


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Competition
dynamics

Product
Design
Features
Quality and reliability
After sales service
Trade off between price and value
offered to customer

Page 20

The marketing

mix

Customers and
segmentation

Place

Understanding
the customer

Promotion

Market channels
Logistics
Direct distribution or use of
intermediaries?
Speed of delivery

Advertising (on line; off line)
Sales promotion
Direct selling
Public relations

Marketing mix
Price
Luxury or necessity?
Competitors' prices
Quality connotations
Discounts
Payment terms

People
Service and service
provider are inseparable
in service marketing
Front-line staff embody
the service
Customer satisfaction?

Processes
Efficiency; standardisation;
automation
Queuing and waiting times
Capacity management
Information gathering and
processing

Physical evidence
Evidence of ownership
for services
(intangibility)
Design and specification
of service environment