Institute of Certified Management Accountants of Sri Lanka Strategic Level November 2014 Examination. Business Strategy and Policy (BSP / SL 2 402)

Transcription

1 Copyright Reserved Serial No Institute of Certified Management Accountants of Sri Lanka Strategic Level November 2014 Examination Examination Date : 23 rd November 2014 Number of Pages : 05 Examination Time: 9.30 a:m p:m. Number of Questions: 05 Instructions to Candidates 1. Time allowed is three (3) hours. 2. Total: 100 Marks. 3. Answer all questions in Part I and three (3) questions from Part II. 4. The answers should be in English Language. PART I Answer all questions Subject Subject Code Business Strategy and Policy (BSP / SL 2 402) Question No. 01 (40 Marks) PQR Ltd, a large distributing company operates three distinct SBUs engaged in the following businesses: SBU 1 Import and supply of a range of hotel equipment imported mostly from UK and considered to be of very high in quality, to the hotel industry. The customers include small and medium range hotels in the Western and the Southern regions and supplied effected by the company sales force. SBU 2 Importing and supplying corporate gifts such as high quality T-shirts, clocks, quality pens etc and the company clientele is mostly from the Financial and Insurance industries, having established such contacts over the years. Several important decision makers of leading corporates are the eventual recipients of these compliments given by Banks, Finance companies and Insurance companies in appreciation of the business relationships. These gifts are mostly given at the end of a calendar year during the Christmas season. SBU 3 Importing and supplying a premium brand of chocolates from Switzerland distributed through all leading supermarkets. The company is holding the sole agency rights for this brand of chocolates in the Sri Lankan market. Institute of Certified Management Accountants of Sri Lanka 1

2 The hotel industry is enjoying an era of tremendous growth as the number of tourists from many parts of the world has significantly increased. Yet one of the problems faced by the hotel sector is that most of these tourists are from extremely cost conscious segments of travellers, that drives hotels particularly those in the medium and small scale category, to operate low cost models. The company is utilizing its own fleet of vehicles to distribute the imported equipment. One of the constraints faced is in relation to the unavailability of vehicles to meet the flexibility of distribution requirements of the customers. The marketing manager of the SBU 1- M1, has suggested that the company should outsource the distribution fleet that will not only save precious capital requirements of the company but also help the company to solve the low capacity utilization of the fleet as the hotel industry is highly seasonal. Another suggestion by him to his CEO is for the company to explore sourcing equipment from cheaper markets such as from China and India as hotel equipment is not considered very important for the segments SBU 1 is catering in the hotel industry, compared to large hotels that are very conscious of quality of the equipment in their hotels. It was also mentioned that there will be no switching costs for the hotels in changing their equipment suppliers. These were amongst the suggestions by M1 at a recent meeting with the directors at the corporate headquarters to enhance the competitiveness of SBU 1 whose market share in the industry is considered low. He further emphasized the need to increase marketing expenditure such as holding regional seminars, participating in exhibitions and sessions of entertainment to the decision makers of the hotels supplied by SBU 1. Introduction of new products such as energy efficient equipment was another suggestion of M1 to increase competitiveness of SBU 1. Presenting his marketing plan M1 was confident of regaining market share superiority if his suggestions are implemented as the company has considerable reputation as a reliable supplier of hotel equipment with longstanding customer relationships. SBU 2 is headed by a CEO, an experienced Banker who has headed the marketing function of a commercial bank and values highly the importance of corporate ethics in every aspect of the business. The growth rate of this market is considered low even though SBU 2 enjoys a substantial share in the Banking/Finance and Insurance sector. However when one considers the total corporate gift market the market share, sales of SBU 2 is approximately 15% of Kamry Ltd, the market leader of the corporate gift market industry. SBU 3 operates under the leadership of an experienced marketer as its CEO. This unit has a substantial market share of imported chocolates marketed in the country. With the advent and consolidation of few leading Sri Lankan confectionary manufacturing businesses, imported chocolates are facing increased competition. Increased duty and other levies on imported luxury items are also affecting the competitiveness of these products and market growth rates for imported chocolates are expected to decline in the future as the quality of locally manufactured premium brands are almost matching the imported quality levels. Of the total corporate level sales, SBU 1 accounts for nearly 50% and the other SBUs account for 10% and 40% respectively. You have recently joined PQR Ltd as an Accountant in the group finance division operating from the corporate headquarters in Colombo 03, and the head of your division group finance manager, reports directly to the group CEO. Institute of Certified Management Accountants of Sri Lanka 2

3 You are required to: Briefly explain the primary responsibility of the CEO of a subsidiary in a situation such as of PQR Ltd that consists of several SBUs (Strategic Business Units). Mention two advantages of having SBUs in diversified business situations. Briefly explain the components of the mission of a strategic business unit. Demonstrate the application of these components in relation to SBU 2 of PQR Ltd. (d) Critically examine the mission of SBU 2 of PQR Ltd. (e) Examine the meaning of an opportunity in relation to a strategic analysis and mention two opportunities you will expect to find if you are doing a strategic analysis for SBU 1 (your answer needs to be restricted to facts as specifically mentioned in this case study). (f) (i) Define the term Industry, a term that you are likely to encounter when attempting an external analysis in strategic management. (ii) Briefly explain the principal idea of Michael Porter s Five Forces Model (You are not required to list or explain the five forces in this model). (iii) Examine the contribution of the bargaining power of the suppliers, one of the five forces as per the Five Forces Model, in relation to the industry level competition of SBU. (g) Currently the corporate level of PQR Ltd is facing some constraints in regard to availability of financial resources and hence has requested from the office of the group finance manager to come up with a model that will facilitate allocating resources between different SBUs of the company. Demonstrate the application of the Boston Consultancy Matrix (BCG) in this situation; (i) (ii) Briefly discuss the concept of BCG matrix in dealing with a situation as one mentioned above. Comment on the balance of the portfolio of businesses of PQR Ltd using the concepts of BCG matrix. (Total 40 Marks) End of Part I Part II Answer any three (3) questions Question No. 02 (20 Marks) You have joined as an Accountant attached to the planning division of a large construction organization- ABC Ltd engaged in building and marketing a range of flats aimed at middle class families. This is a joint venture company between a leading Sri Lankan company and a Chinese conglomerate. Currently operating in Colombo district, the company also plans to expand its activities to other major cities in the future. Importing some materials from China is considered a distinct advantage for the venture as it enables to keep construction costs low in respect of certain finishing material, fixtures and fittings. The planning team is in the process of finalizing the strategic plan of the company for the calendar year Institute of Certified Management Accountants of Sri Lanka 3

4 You are required to: (d) State four factors or forces that will influence the economic well-being of the housing industry from the point of view of ABC Ltd. Briefly explain how each of these forces you have mentioned under above will impact the company s business prospects. (08 Marks) Explain what is meant by socio-cultural forces in macro-environmental analysis and the possibility of such forces being applicable when expanding the activities outside Colombo. (05 Marks) Political forces too can have a profound influence upon the businesses, particularly in relation to joint ventures between business enterprises of different countries. Mention any two issues that can be classified under political factors or forces. (03 Marks) Question No. 03 (20 Marks) Organizing is considered as one of the primary functions that make up the management process in an organization. Successful implementation of a given strategy is more likely when the company is suitably organized and supported by an appropriate organizational structure. You are required to: Explain the meaning of Organizing. (03 Marks) Explain what is meant by an Organizational Structure. (03 Marks) Briefly explain the meaning of Coordination. (d) Differentiate between Responsibility and Accountability. (e) (f) Delegation of authority is an essential mechanism for effective strategy implementation. Briefly explain the meaning of delegation and discuss two principles that are useful for delegation of authority. Subdividing the work and assigning it to specialized groups within an organization is called departmentalization. Explain what is meant by Functional Departmentalization (may be alternatively referred to as functional organization or functional organizational structure ) and mention two disadvantages of this form of departmentalization. Institute of Certified Management Accountants of Sri Lanka 4

5 Question No. 04 (20 Marks) Nearly 40 years ago Professor Robert N. Anthony of Harvard Business School popularized the three level control frameworks, consisting of the levels namely: - Strategic Control - Management Control and - Operational Control You are required to: Define and distinguish between Management Controls and Operational Controls in an organization. (10 Marks) Provide an example of each of these two controls mentioned in above, from an organizational situation that you are familiar with. Budgetary control is a very popular mechanism of exercising controls in most organizations. Briefly discuss three problems with over-relying on budgetary controls. Question No. 05 (20 Marks) Explain Prof. Michael Porter s advice for a firm to obtain competitive advantage. (08 Marks) Briefly explain the reason for referring to Porter s strategic framework as Generic Strategies. State four ways, that will help a company looking to pursue a cost leadership strategy. (d) Explain the concept of a hybrid strategy. (03 Marks) (e) Explain what is meant by focused differentiation. (03 Marks) End of Part II End of Question Paper Institute of Certified Management Accountants of Sri Lanka 5