This examination paper is designed to test candidates ability to demonstrate their understanding and application of the following key syllabus areas:

Transcription

1 General Comments This examination paper is designed to test candidates ability to demonstrate their understanding and application of the following key syllabus areas: Identify the impact of electronic commerce on the way business is conducted and to recommend an appropriate strategy. Evaluate and advise managers on the development of strategies for knowledge management, IM, IS and IT that support the organisation s strategic requirements, to evaluate the strategic and competitive benefits of IS/IT and advise on the development of appropriate strategies. Identify and evaluate IS/IT systems appropriate to the organisation s strategic requirements and recommend changes where necessary. Evaluate strategic options and strategic options generation in relation to a proposed IS investment. Evaluate acquisition and divestment strategies and their place in the strategic plan. Evaluate and recommend appropriate control measures. Evaluate the nature of competitive environments distinguishing between simple and complicated competitive environments and the use of PEST analysis & Porter s Five Forces model in assessing the external environment. Discuss the role of change management in a strategic context. Evaluate the product portfolio of an organisation and recommend appropriate changes to support the organisation s strategic goals and the management of the product portfolio. Evaluate strategies for response to competition and to discuss the qualitative approaches to competitive analysis. Identify problems in performance measurement and recommend solutions. Discuss business unit performance and appraisal. This examination, as usual, tested a wide range of syllabus areas. The Question scenario was designed to test a number of key skills including both quantitative and qualitative analysis. The main focus of this question was the impact of Information Systems strategies upon an organisation s business strategy and is a key theme that runs throughout all of the learning outcomes of this strategic level subject. Many candidates made a sound start to this question, demonstrating a good understanding of the benefits of e-commerce in answer to part (a). However, it was disappointing that a number of candidates made a poor start to the examination, by failing to read this question requirement carefully and discussing how Information Technology in general, not e-commerce, has impacted upon businesses. This recurred throughout many answers, with many candidates answering questions which had not been set by the examiner. In particular, questions (b) and (d) were most poorly answered, with candidates often not answering the question set. In part (b), which was answered badly by most candidates, many answers focused upon the technology used at each of the three managerial levels identified and not upon the impact of the IS strategy. Many answers focused upon specific systems such as Executive Information Systems, Management Information Systems and Decision Support systems etc, which is not what the question asked. Most answers failed to recognise that the focus of the question was upon the IS Strategy and not upon specific technologies. In part (d), again most candidates failed to answer the question set. Many failed to focus their answers upon the strategic and competitive benefits of the e-commerce system, instead focusing upon operational issues. Many answers also failed to focus upon the e-commerce benefits, instead focusing upon the accounting software. A number of answers also spent too much time discussing irrelevant technologies such as ERP, JIT and CAD/CAM, none of which are currently being used by AAA. Many candidates merely used this question as an opportunity to demonstrate their knowledge of manufacturing technologies, most of which was irrelevant to the question set. Candidates must only answer the question set by the examiner. The answer to part (c) was also very disappointing. This should have been a very straightforward NPV calculation, with most of the necessary information to complete the analysis provided directly in the table within the scenario. Candidates were required to do a few simple additional calculations to determine cash inflows and to identify the correct timings of cash flows. It was most The Chartered Institute of Management Accountants Page

2 disappointing to see, at this level, how few candidates were able to undertake this basic calculation correctly and even to determine the correct timings of cash flows. This is a technique practiced at all levels of the CIMA qualification and it is expected that candidates should be able to undertake a basic NPV such as this with little difficulty and few errors. It was encouraging to see good demonstration and application of knowledge of key syllabus areas by some candidates in the Section B questions, as would be expected at this level. The Section B questions were answered reasonably well by many candidates, and there was evidence of good levels of application of knowledge in Question 3 and Question 4. However, it was again evident in some answers that there was a serious lack of knowledge and understanding of some of the fundamental Business Strategy syllabus areas, particularly in Question 2 and Question 5. There are still some candidates who fail to apply their knowledge as required in the question and instead re-write everything they know about a particular model (in particular, the use of Porters Diamond in Question 5 and PEST in Question 3), which was not required. It was also disappointing to see how few candidates could adequately discuss the problems of divisional performance measurement and the problems associated with ROI and RI as measures of performance in Question 5. This again, is knowledge that should have been brought forward from previous CIMA study and candidates must be prepared to use and apply such knowledge at this level. As mentioned previously, some candidates still fail to review the question requirements carefully and as a result fail to answer the question set by the examiner. For example, in question 3(a), many candidates undertook a detailed PEST analysis, but failed to identify the benefits of such an analysis to BBB. Therefore they failed to answer the question set and were awarded few or no marks. Similarly in Question 4(b), the question clearly asked for the candidate to use the SFA framework to evaluate the three options, but many candidates failed to do so. Again, candidates were awarded few or no marks if they failed to use the SFA framework. In addition, an understanding of the verbs used in each question requirement and the associated depth of discussion and analysis is an important aspect in providing a sufficient answer. For example, in Question 2(b) many candidates failed to evaluate the comments made by the institutional investors in that they did not discuss whether or not the comments made were valid or correct. Most candidates merely undertook the basic market capitalisation calculations with no discussion of what these meant. Without this discussion, the candidate cannot undertake an evaluation. Overall, performance in this examination was below standard, largely due to the poor performance by many candidates in Question. Information Systems is an integral and often fundamental driver of modern business strategy and it is disappointing that so many candidates failed to demonstrate sufficient understanding of this area. The Chartered Institute of Management Accountants Page 2

3 SECTION A 50 MARKS ANSWER THIS QUESTION Question (a) Briefly explain how e-commerce has impacted on the way business is conducted. (5 marks) This requirement tests learning outcome B(v) evaluate the impact of electronic commerce on the way business is conducted and recommend an appropriate strategy and the syllabus content the impact of IT (including electronic commerce) on an industry. This question is designed to be an easy start to the examination. Candidates are expected to explain, in general terms, how e-commerce has impacted upon the modern business environment. Candidates are NOT expected to discuss how e-commerce would impact on the way AAA conducts its business. For a brief explanation of what E-commerce is, up to For each way in which it has impacted on business, up to Maximum Awarded 2 5 This question was generally well answered. Most candidates demonstrated a sound knowledge and understanding of e-commerce and could present a discussion on how e-commerce has impacted upon the modern business environment. However, many candidates failed to answer the question set, providing answers relating to general benefits of Information Technology and Information Systems, such as accounting packages, spreadsheets, CAD/ CAM etc. Many candidates also answered the question from the point of view of the impacts on the individual customer and not on businesses. For example, some candidates discussed the benefits to the customer of features such as price transparency and 24 hour availability. Clearly these features of e-commerce impact on businesses but some candidates failed to identify how these features would impact upon the businesses. A number of candidates also focused upon the impact of e-commerce upon AAA (i.e. how would AAA use e-commerce themselves). This was not appropriate as AAA has yet to implement e-commerce. Not focusing upon e-commerce specifically, instead focusing upon the general use of information technology Incorrect emphasis on the individual and not upon businesses Incorrect emphasis upon how e-commerce has impacted upon AAA The Chartered Institute of Management Accountants Page 3

4 Question (b) Briefly discuss how a new Information Systems (IS) strategy might impact upon corporate, business and functional strategies. (8 marks) This requirement tests the learning outcome D(iv) evaluate and advise managers on the development of strategies for knowledge management, IM, IS and IT that support the organisation s strategic requirements and the syllabus content the purpose and contents of IM, IS and IT and the need for strategy complementary to the corporate and individual business strategies. This question examines the candidates understanding of the impact of and relationship between a new Information Systems strategy and the corporate, business and functional strategies of an organisation. Candidates are not expected to discuss Information Management (IM) or specific Information Technologies (IT), nor are they required to discuss the nature of decision making at the different managerial levels of the organisation. The examiner is looking for answers which focus specifically upon how a new Information Systems strategy might change/ improve/ determine/ influence the different levels of organisational strategy. For an explanation of IS as an implementation tool, up to For an explanation of IS as a change trigger, up to For each of the three levels of strategy, each at up to This question was not well answered by most candidates. Many failed to recognise that this question requirement focused upon the impact of a new IS strategy upon all levels of business. Most candidates answers placed far too much emphasis upon general discussions relating to corporate, business and functional strategies, with limited emphasis on the impact of a new IS strategy upon these. Some answers failed to discuss the impact of an IS strategy at all, instead providing detailed analysis of various technologies and systems used at the various organisational levels. It was expected that candidates would recognise that an IS strategy is a fundamental aspect of functional level strategy and therefore is an important implementation tool for the business and corporate level strategies. However, for many modern businesses, the IS strategy drives the overall corporate strategy, requiring major changes at business and functional level. Most candidates failed to identify these fundamental issues of a new IS Strategy and as such failed to provide a sufficient answer to this question. This is considered by the examiner to be a key aspect of the Business Strategy syllabus and it was most disappointing that so many candidates failed to identify and understand the integral link between IS strategy and business strategy. The Chartered Institute of Management Accountants Page 4

5 Failure to understand the important link between IS strategy and business strategy Answers focusing upon discussions relating to specific information systems such as EIS, MIS and DSS Discussions of decision making at the different managerial levels, with limited focus upon information systems and IS strategy The Chartered Institute of Management Accountants Page 5

6 Question (c) Prepare a financial evaluation of Project E. Note: You should ignore the effects of inflation and taxation. (2 marks) This requirement tests the learning outcome C(i) evaluate strategic options and requires the candidate to undertake a straightforward NPV calculation to appraise a proposed systems investment project. This should be a very straightforward Net Present Value calculation. Candidates are expected to identify the correct timings for both the cash inflows and cash outflows and to determine the correct revenue stream from the investment. This information needs to be presented in a logical and clear NPV format, clearly identifying the net cash flows, appropriate discount factors and the present values. All of the information required to do so is clearly set out in the scenario data. Outflows allocated appropriately (some leeway due to interpretation): T0 items T0.5 items (may be at T) T item T2-6 items must be in T2-T6 Inflows calculated correctly, using 50% mark-up (i.e. /3 of revenue) to get GP (), taking 0% of turnover or profit () and growth of 0% p.a. () Inflows timed correctly (T2-6) Cashflows summed correctly Correct discount factors (for 5%) PVs calculated/summed correctly NPV calculated correctly 3 2 The Chartered Institute of Management Accountants Page 6

7 The answers presented to this question were largely disappointing. Although many candidates earned sufficient marks to be awarded a pass mark, few answers were accurate and many were inappropriately presented or contained numerous basic calculation and presentation errors. Although most candidates were able to correctly identify the timings of the cash outflows, there were a number of candidates who could not correctly deal with cash flows occurring at T0.5. However, most errors occurred in calculating the cash inflows. It was most disappointing and concerning to see how many candidates were unable to correctly calculate a 50% mark up as being /3 of the revenue stream. This is basic accounting and should be something that candidates should be able to calculate easily at this level. However, most candidates did attempt to calculate 0% of the gross profit and then grow this by 0% p.a. The final NPV should have identified a slightly negative NPV, but most candidates calculated a positive NPV due to the incorrectly calculated cash inflows. However, candidates were not penalised for an incorrect final NPV if they had followed the basic NPV structure as outlined above. It was expected that most candidates would not find this question difficult, so it was very disappointing to see the poor quality of many answers. This is a basic and much used financial project evaluation technique and candidates must ensure that in future they are better prepared to answer such questions at this level. Poor / incorrect presentation Inability to recognise correct timings of cash flows Incorrect calculation of mark-up The Chartered Institute of Management Accountants Page 7

8 Question (d) Evaluate the strategic and competitive benefits to AAA of the proposed e-commerce system. (5 marks) This question examines the learning outcome B(vi) evaluate the strategic and competitive benefits of IS/IT and advise on the development of appropriate strategies and the syllabus content the impact of IT (including electronic commerce)on an industry. This is a difficult question. It is designed to test the candidates understanding of the strategic importance to AAA of investing in the proposed e-commerce system. Candidates are expected to focus upon the e- commerce system only and not the proposed accounting system. The question also clearly asks for strategic and competitive benefits. Therefore, candidates are expected to identify and discuss these two issues separately. The answers must focus upon the actual strategic level and competitive benefits of the e-commerce system and not upon the operational level changes to activity that may occur as a result of the system. The answer also should not consider other additional systems not yet introduced, such as ERP, JIT and TQM. The answer must focus upon the proposed e-commerce system only, and not on the proposed change to the accounting system. For each benefit, evaluated, up to (2 marks for each benefit, a further mark for evaluation) 3 5 This question was not well answered by most candidates. Very few candidates achieved a pass mark for this requirement, mainly as a result of failing to answer the question set. Most candidates failed to focus upon the competitive and strategic level benefits, instead focusing upon operational level benefits such as time taken to process orders and the improvement to information organisation and presentation. A further weakness was the lack of evaluation of the benefits presented. Many candidates identified benefits such as access to a wider market place by using e-commerce, but failed to evaluate the impact this could potentially have on AAA s future business growth. Most candidates identified a range of benefits but failed to evaluate these benefits. A further weakness of many answers was the failure to focus upon the e-commerce system. Many candidates provided lengthy discussions relating to the benefits of improved accounting software, in terms of improved financial reporting and decision making, but this is not what the question asked. Candidates must be careful to only answer the question as set by the examiner and must read the question requirements more carefully. Unnecessary discussions relating the accounting software Lack of focus on strategic and competitive benefits Poor / no evaluation of benefits identified The Chartered Institute of Management Accountants Page 8

9 Question (e) Advise AAA, based on your answers to parts (a) to (d) above, whether or not to invest in the proposed e-commerce and accounting project. Note: You are not required to reproduce the detail of your arguments from earlier parts of this question. (4 marks) This requirement tests learning outcome D(v) identify and evaluate IS/IT systems appropriate to the organisation s strategic requirements and recommend changes where necessary and the syllabus content non-financial measures and their interaction with financial ones. This is a straightforward question, requiring the candidate to make a final recommendation based upon the analysis presented in their answers to parts (a) to (d) above. The candidate should also review the NPV calculation prepared in part (c) of the answer to provide quantitative evidence on which to base their decision. For a conclusion or summary of arguments, up to For a valid recommendation, up to This question was generally well answered. Most candidates correctly concluded that the project should be undertaken, even though it has a negative NPV. Most candidates recognised that the long term strategic benefits of e-commerce far outweighed the short term financial cost of the project. The main weakness of some answers to this question was that some candidates presented a final recommendation, but failed to explain or justify this decision. No conclusions or summary arguments presented based upon the answers to parts (a) to (d) Decision made purely on the NPV calculation The Chartered Institute of Management Accountants Page 9

10 Question (f) Discuss how AAA might use its e-commerce system to increase the volume of business from reverse engineering projects. (6 marks) This requirement tests learning outcome D(iv) evaluate and advise managers on the development of strategies for knowledge management, IM, IS and IT that support the organisation s strategic requirements and the syllabus content the purpose and contents of IM, IS and IT strategies and the need for strategy complementary to the corporate and individual business strategies This should be a straightforward question. Candidates are not expected to have any detailed knowledge of reverse engineering, as sufficient detail to answer this question is presented in the scenario. The focus of the answer should be upon how the e-commerce system could be used to increase and promote the reverse engineering facility. For each valid point made, up to 2 6 This question was generally not well answered by candidates. Most seemed to misunderstand the question requirement and provide a discussion of introducing CAD/ CAM systems and the creation of large databases of components. Again, many candidates failed to identify the role of e-commerce in promoting reverse engineering, and instead focused upon other types of information technology and systems. This appeared to demonstrate both a lack of understanding of the potential role of e-commerce and an inability to read the question requirement. Lack of focus on the potential of e-commerce Too much focus upon other non-relevant technology and systems The Chartered Institute of Management Accountants Page 0

11 SECTION B 50 MARKS ANSWER TWO QUESTIONS FROM FOUR Question 2(a) Explain the term conglomerate diversification. (3 marks) This requirement tests learning outcome C(i) evaluate strategic options and the syllabus content acquisition and divestment strategies and their place in the strategic plan. This should be a straightforward question, requiring the candidate to briefly explain a term used within the syllabus. As this question is only worth 3 marks, candidates are expected to provide short answers only. Clear definition of conglomerate diversification. For each point clearly made in clarification of the term up to 2 marks 2 3 This question was generally well answered. Although Question 2 was the least popular question in the examination, for those candidates that chose this question, most scored a pass mark for this requirement. A basic definition only, with no clarification or explanation of the term The Chartered Institute of Management Accountants Page

12 Question 2(b)(i) Evaluate the comments made by the institutional investors that the Board has destroyed value. (3 marks) This requirement tests the learning outcome D(i) evaluate and recommend appropriate control measures and syllabus content assessing strategic performance. This question requires candidates to evaluate whether the comment made by the institutional investors is correct. Candidates are expected to use the information provided in the question to calculate the market capitalisation of the three separate divisions and compare this with the current market value of CCC. The candidate can then form a judgement as to whether the Board has destroyed value. Calculation of market capitalisation for each division Numerical demonstration that group does not add value Interpretation of figures from perspective of institutional shareholders Concluding remark regarding adding/destroying value ½ ½ 3 This question was reasonably well answered by candidates. Many candidates correctly calculated the market capitalisation of the three divisions and compared this to the current market value of CCC. However, few candidates then went on to determine how these calculations could be used to evaluate whether the Board of CCC has destroyed value. Very few candidates interpreted the figures from the perspective of the institutional investors, despite the comment referred to in the question being made by them. No interpretation of the figures in terms of whether the Board has destroyed value The Chartered Institute of Management Accountants Page 2

13 Question 2(b)(ii) Evaluate the suggestions made by the institutional investors that the company should take the opportunity to dispose of the real estate division, reduce costs by closing the group headquarters and relocate the board and treasury functions to one of the divisional headquarters. (7 marks) This requirement tests the learning outcome D(i) evaluate and recommend appropriate control measures and syllabus content assessing strategic performance. Candidates are required to evaluate separately each suggestion made by the institutional investors. The first suggestion made is to dispose of the real estate division. Therefore, candidates are expected to evaluate the viability of this proposal based upon the earnings of the division and its market potential, compared to the other divisions. Candidates are also expected to evaluate the viability of closing the group headquarters and relocating the board and treasury function, in order to reduce costs. Each of these issues should be discussed separately and the candidate is expected to provide a discussion on whether these proposals are suitable to CCC as a group and to explain why. Recognition of potential risk from shareholders Evaluation of each suggestion, up to 3 marks for each, maximum of 7 7 This question was not well answered. Most candidates failed to address the requirement, with many focusing only upon the possible disposal of the real estate division. Most candidates correctly recognised that the real estate division is providing 30% of the earnings of the group and, in terms of market potential, has both the highest p/e and the most confident comments from its management. However, relatively few candidates then went on to say that it would therefore be inappropriate to dispose of the real estate division. Most candidates provided a very superficial analysis of the possibility of relocating the board and treasury functions, with most answers suggesting that this must be done in order to cut costs, but providing no explanation of why or how this could be achieved. Answers focusing only on disposal of the real estate division No / limited evaluation of the reality of relocating the head office and treasury functions The Chartered Institute of Management Accountants Page 3

14 Question 2(c) Identify and evaluate alternative methods available to the Board for the disposal of the real estate division, should it decide to do so, and recommend the method of disposal most appropriate to CCC. (2 marks) This requirement tests learning outcome C(ii) evaluate the product portfolio of an organisation and recommend appropriate changes to support the organisation s strategic goals and syllabus content acquisition and divestment strategies and their place in the strategic plan. This should be a straightforward question. The information to answer this question is indicated by the syllabus content, and candidates are required to identify the possible alternative methods of disposal and to evaluate their appropriateness for CCC as viable methods of disposal. Candidates must also remember that they have also been asked to make a final recommendation as to which method of disposal should be used, and this must be suitable and justified, based upon the arguments presented within their evaluation. For each disposal method accurately described and related to the scenario, up to 3 marks For a clear justified recommendation based on evaluations made, up to This question was not well answered by most candidates. Many answers demonstrated a lack of syllabus knowledge, with many candidates being unable to present more than one or two relevant methods of disposal. Many candidates also presented very confused descriptions of disposal methods and most failed to evaluate these in terms of their appropriateness to CCC and the real estate division. A further weakness was that although most candidates provided a final recommendation, very few provided a clear justification for this recommendation. Poor syllabus knowledge of disposal methods No recommendations provided The Chartered Institute of Management Accountants Page 4

15 Question 3(a) Discuss how conducting a frequent and thorough environmental analysis would help the Board of Trustees of BBB. (4 marks) This requirement tests learning outcome A(iii) evaluate the nature of competitive environments distinguishing between simple and complicated competitive environments and the syllabus content PEST analysis & Porter s Five Forces model and its use for assessing the external environment. This question clearly asks for a discussion on the benefits of conducting an environmental analysis. It does not require the candidate to undertake a detailed PEST analysis or Five Forces analysis. Therefore, answers should focus upon how environmental analysis could help BBB to exploit the opportunities within its environment and to reduce the threats. There are a number of relevant opportunities and threats for the candidate to discuss within the scenario material. For general benefits of environment analysis, to BBB, each at up to 2 marks For valid,embedded examples for how knowledge of a Five Forces force will help, up to 2 marks for each For valid,embedded examples for how knowledge of a PEST factor will help, up to 2 marks for each This question was reasonably well answered by most candidates. Many candidates correctly used either PEST or Porter s Five forces as a framework to structure their answer. The main weakness of some answers to this question was the lack of focus upon HOW environmental analysis could benefit BBB. A number of answers merely undertook a PEST or a Five Forces analysis without sufficient focus upon the benefits of such an analysis. The scenario information clearly identified a range of opportunities for and potential threat to BBB and candidates were expected to identify how environmental analysis could address these specific issues. Therefore those candidates that merely undertook a PEST or Porter s Five forces analysis without any reference to how these could help BBB were awarded a fail mark for this question. Candidates must read the question requirements more carefully. Undertaking a PEST/ 5 Forces analysis without any reference to how it could help BBB address its opportunities and threats. The Chartered Institute of Management Accountants Page 5

16 Question 3(b) Explain the concept of foresight and two techniques for the development of foresight. (5 marks) This requirement tests learning outcome A(iii) as in part (a) and syllabus content qualitative approaches to competitive analysis. This question should be straightforward. Candidates are required to firstly explain the term identified in the scenario and then to provide an explanation of TWO techniques used to develop foresight. The question is only worth 5 marks, so candidates are not expected to provide lengthy discussions of these techniques. For a definition of foresight For each well explained foresight technique, up to 3 marks each 4 5 This question was generally well answered. Most candidates provided a correct definition of foresight and were able to identify and describe two methods of foresight. Confused descriptions of methods of foresight, often confusing scenario analysis with gap analysis Some candidates merely discussed financial techniques such as budgeting and forecasting The Chartered Institute of Management Accountants Page 6

17 Question 3(c) Discuss the difficulties that BBB might, as an organisation, experience in developing a process of environmental analysis. (6 marks) This requirement tests learning outcome D(vi) discuss the role of change management in a strategic context and syllabus content change management in a strategic context. Again, this should be a straightforward question. Using the information provided in the scenario, the candidate is required to identify and discuss the difficulties for BBB of developing a process of environmental analysis. Most of these difficulties can be found directly in the scenario material and relate to BBB s methods of operation and management style as a charitable organisation. No specific knowledge or understanding of charitable organisations is required to answer this question, as all of the information required to answer this question is in the scenario material. For each well described difficulty, up to 2 marks 6 6 Examiner s comments This question was well answered by most candidates. Most candidates identified the main difficulties presented in the scenario material and were able to discuss why these were particular problems for BBB. Most candidates correctly discussed the laissez faire management style and the poor use of information technology as major issues for discussion. Insufficient depth of discussion of the difficulties/ presentation of a list of difficulties as presented in the scenario with no additional discussion The Chartered Institute of Management Accountants Page 7

18 Question 4(a) Describe the Suitability, Feasibility and Acceptability (SFA) framework as used for evaluating strategic options. (6 marks) This requirement tests learning outcome C(i) evaluate strategic options and syllabus content strategic options generation. This question requires the candidate to describe a well known strategic level framework. Candidates are required to describe each of the three criteria separately and must clearly identify how each one tests the viability of a strategic option. For a full description of each of the criteria, up to 2 marks each 6 6 This question was well answered by most candidates. Most were able to provide a definition of the three criteria, although some candidates did confuse the three. However, some candidates provided only a basic and brief definition of each of the criteria and failed to adequately describe how each one tests the viability of a strategic option. Brief answers lacking a full description of each of the criteria The Chartered Institute of Management Accountants Page 8

19 Question 4(b) Using the SFA framework, evaluate the strategic options identified by the founders. (2 marks) This requirement tests learning outcome C(i) evaluate strategic options and syllabus content strategic options generation. This question clearly requires the candidate to use the SFA framework to evaluate the three strategic options presented in the question scenario. Therefore candidates are expected to evaluate each of the three strategic options and discuss their suitability, acceptability and feasibility. Candidates are not required to make a final recommendation in this part of the answer. For evaluation of each of the three stated options, using the SFA framework, up to 5 marks 5 2 This question was answered well by most candidates. Many correctly used the SFA framework and were able to adequately discuss each strategic option using the three criteria. However, some candidates failed to use the SFA framework at all and some candidates confused the three criteria, in particular suitability and acceptability. Some candidates discussed suitability in terms of suitability to stakeholders rather that suitability to achieve objectives. However, overall this question was generally well answered. Not using the SFA framework to answer the question Confusing suitability with acceptability The Chartered Institute of Management Accountants Page 9

20 Question 4(c) Identify and evaluate one other strategic option that the founders might pursue. (5 marks) This requirement tests learning outcome C(ii) evaluate the product portfolio of an organisation and recommend appropriate changes to support the organisation s strategic goals and syllabus content management of the product portfolio. Candidates are required to identify a further strategic option that DDD might pursue, other than those three presented in the scenario. There are a number of possible options that DDD might pursue and candidates must present valid arguments both for and against the option they identify. Candidates should not repeat the options already presented to them in the scenario. Again, candidates are not required to make a final recommendation in this part of their answer. Identification of any reasonable alternative option For evaluation of the identified option, up to 4 marks 4 5 This question was generally not well answered by candidates. Very few recognised the most obvious option to improve cash flows open to DDD, that of reducing the number of products in development from the current level of 2, to a level that is more manageable and cost effective. Most candidates merely recommended finding an alternative venture capital company or another biotech company. These options are not sufficiently different to those presented in the scenario. Some candidates did correctly consider the possibility of government funding or attempting to float the company earlier. Some candidates incorrectly suggested a bank loan, despite the scenario clearly stating that this was not a viable option. The main problem with the answers to this question was that few candidates adequately evaluated their suggested option. Most merely stated an alternative but failed to then identify the pros and cons of this strategic option. Not providing a different strategic option to those already presented in the scenario Limited evaluation of the strategic option The Chartered Institute of Management Accountants Page 20

21 Question 4(d) Recommend the most appropriate strategic option based on your analysis above. (2 marks) This requirement tests learning outcome C(i) evaluate strategic options and syllabus content strategic options generation. This is a straightforward question, requiring candidates to make an appropriate recommendation based upon the arguments presented in parts (b) and (c) above. For a clear recommendation based on the above evaluations 2 2 Most candidates provided a clear recommendation based upon their answers to parts (b) and (c) of the question and therefore were awarded pass marks for this question. The Chartered Institute of Management Accountants Page 2

22 Question 5(a) Advise the Board on what information would be required to assess the suitability of an acquisition target. (5 marks) This requirement tests learning outcome A(v) evaluate strategies for response to competition and syllabus content qualitative approaches to competitive analysis. Candidates answers should focus upon the suitability of the acquisition target company and not the country in which it is situated. Therefore, a detailed analysis of the neighbouring country, using Porter s diamond is NOT required. The answer should focus primarily upon the required characteristics of the target company, which could include some discussion of specific national issues, such as culture or infrastructure. For each well argued element relating to the target company, up to two marks each 5 5 This question was not well answered by many candidates. The main problem was that very many candidates failed to read the question requirement carefully enough and failed to answer the question set. The question clearly asks for an assessment of the suitability of the acquisition target i.e. the company and not the country which it is in. Many candidates provided a detailed analysis of the country using Porter s Diamond, which was largely irrelevant if not applied in some way as to its relevance in relation to the target company. Many candidates clearly saw the word country within the scenario and immediately (but incorrectly) assumed that this was a Porter s diamond analysis. Candidates must take more care when reading the question requirements and only answer the question set. For those candidates that did recognise that the question related to the acquisition target company most scored well, discussing issues such as cultural differences, management styles, financial considerations, control issues and resourcing considerations. Use of Porter s diamond to discuss the country and not the target company The Chartered Institute of Management Accountants Page 22

23 Question 5(b)(i) Discuss the difficulties that EEE may experience with the performance measurement of its divisions, post acquisition. (6 marks) This requirement tests learning outcome D(iii) identify problems in performance measurement and recommend solutions and syllabus content business unit performance and appraisal. The answer to this question should focus upon the difficulties of performance measurement in different companies in different countries and NOT upon specific post acquisition difficulties. The answer should focus upon difficulties relating to measuring performance of companies operating in different countries with different trading conditions and different cultures. Candidates are also expected to discuss the difficulties of using ROI and RI as performance measures and their possible effects upon divisional managerial behaviour within EEE. For each difficulty well explained in the context of the scenario, up to 2 marks each 6 6 This question was not well answered by most candidates. Many candidates answered this part of the requirement, discussing only the difficulties of using ROI and RI as performance measures. Many candidates also focused their answers upon post acquisition difficulties, rather than on the difficulties in measuring performance of different divisions in different countries. Too much discussion on the problems of using ROI and RI as performance measures, without considering the problems of measuring performance in different countries. Focus on post acquisition issues The Chartered Institute of Management Accountants Page 23

24 Question 5(b)(ii) Discuss the disadvantages that EEE may experience if it chooses to use ROI as its primary performance measure. (4 marks) This requirement tests learning outcome D(iii) identify problems in performance measurement and recommend solutions and syllabus content business unit performance and appraisal. This should be a straightforward question for candidates, based upon knowledge of a well known performance measurement technique and syllabus content. ROI should be a very familiar performance measure to candidates and it is expected that they should have no difficulty in identifying and discussing the disadvantages of this particular performance measure. For each well explained disadvantage of ROI, up to 2 marks each 4 4 This question was generally well answered. Most candidates had a sound knowledge of the problems associated with ROI as a performance measure. The Chartered Institute of Management Accountants Page 24