Institute of Certified Management Accountants of Sri Lanka Strategic Level May 2016 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 May 2016 Examination Examination Date : 15 th May 2016 Number of Pages : 06 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) XYZ Finance Company is a long standing, medium-sized financial services organization operating in the Registered Finance Companies Sector (RFC sector). It has established fifteen (15) branches in all major cities in the country. The RFC industry sector is intensely competitive with branches of several finance companies often located in close proximity to each other in most major towns. At present, XYZ Company offers only the financial products in the form of Leasing and Hire-Purchase, the traditional products of a typical finance company. The great majority of business contracted is in relation to vehicles, of which over 60% account for three wheelers. The company takes pride in its ability to serve a customer in less than forty eight hours. The most time consuming process in concluding a transaction credit evaluation. The Chairman of the company, Mr. Mahendran who assigns high priority for such customer-centric deliverables believes that this is because of the ability of the strong network of selected agents who canvass business opportunities for XYZ coming from the same locality and hence have an intimate knowledge of their respective client bases, and strong coordination between different departments that he has always advocated and promoted. Such collective knowledge helps XYZ to make speedier decisions in their credit evaluations. The size of a financial institution is usually measured by its balance sheet size, which is simply the total assets of the institution. With a view to bringing in more orderliness in the structure of the financial industry and mainly in the registered financial company sector to which XYZ belongs, the Central Bank of Sri Lanka (CBSL) requires all companies operating in this sector to achieve a minimum asset level of Rs. 10 billion by the end of financial year 2016/2017. Mr. Mahendran received this circular from the CBSL on the 2 nd April 2016 and convened a meeting of all senior sectional heads of the company for an emergency meeting on the following day with a view to brainstorm how the company can come to terms with the CBSL requirements and become a Rs.10 billion asset company by the stipulated date, namely the end of financial year 2016/17. Institute of Certified Management Accountants of Sri Lanka 1

2 Looking at Mr. Sunimal the head of finance of XYZ, the Chairman inquired about the current gap between CBSL specified minimum assets level and the company s current level. Though the company had to go a long way to finalize the financial statements for the year 2015/16, from the discussions that followed based on management accounts, it appeared that the company s current levels as on the end of the previous financial year may be in the region of Rs. 6bn. It was decided and resolved at the meeting that the company will do everything possible to achieve the required asset level of Rs. 10bn by April 2017 that will help company to achieve the CBSL threshold total asset requirements and a top level steering committee was appointed to come up with a strategy to achieve this important milestone. Jitendra, the management accountant of the company, assumed duties a few of months ago immediately after attempting the final examination of CMA. He reports directly to Mr. Sunimal the company s head of finance who is responsible for all finance-related functions as well as the company s newly created strategic planning responsibilities. By virtue of Jitendra s exposure to contemporary strategic management concepts, Sunimal has included Jitendra to represent him in the multi-disciplinary steering committee that also includes CEO of the company and the chief operating officer together with the head of marketing. As it happens in most long range planning situations, Jitendra who has already acquired a reputation for his number crunching skills was appointed as the coordinator of the committee. The committee decided to carry out their first planning session in a quiet and distant location close to one of its outstation branches. During the first brain storming exercise of the inaugural planning session, the group reached a consensus on some items of information as listed below: - Growth rates of leasing and hire-purchase markets are expected to decline as a result of the rising vehicle prices as well as the negative sentiments of the national level decision makers, who are constantly receiving complaints of vehicle congestion in major towns. - Ever increasing desire for Sri Lankan consumers and households to own an automobile and the increasing trend of female driving. - Increasing cost of living as well as expert forecasts indicating rising interest rates. - Heightened advertising by all competing firms. - Inability to differentiate financial products as they are carefully regulated by the CBSL - Strong trend of increasing tourist arrivals that is aided by the country s developed road network and other infrastructural facilities. - A Commendable past record in building customer relationships backed by high levels of customer loyalty and retention. - A Strong financial and tax incentives for small and medium scale enterprises announced in the last budget. - Relationships with different types of vehicle dealers who play an important role in developing leasing /HP business opportunities as they can route business leads since customers often buy such products through leasing/hp. - Carefully managed with hands-on leadership, XYZ is a profitable company with accumulated reserves and high levels of short-term deposits. Given below is an extract of the company s organizational structure: Institute of Certified Management Accountants of Sri Lanka 2

3 You are required to: State the Threats and Opportunities confronting XYZ that you will identify during your external environmental analysis in relation to XYZ Finance Company, as per the facts given in this case study. (Present your answer where each threat or opportunity is appropriately classified under applicable categories, of a typical external environmental analysis). (06 Marks) (c) (d) (e) (f) Assuming you are Jitendra, the management accountant, briefly explain a possible framework that the steering committee can apply to ascertain the possible growth options available to XYZ in their quest to satisfy future CBSL requirements and achieve the specified growth levels. Also graphically illustrate your answer and correctly label the different options available. (02 Marks) Forward one specific growth option that XYZ can adopt under each of the options, other than through diversification, mentioned in your above discussed framework, to increase current business levels (in a finance company, the increasing levels of business is measured by the volumes of annual investments done in relation to different financial products offered by the finance company). (06 Marks) Explain the meaning of diversification in relation to corporate level strategy and briefly discuss different growth options available to a company under diversification. Discuss one possible growth option available to XYZ under each such option for growth, to increase its business volumes. (15 Marks) Explain the concept of core-competency, taking an example from XYZ and reason out why you have identified this as a core-competency. (05 Marks) To develop and implement any new product, IT capability is such an important factor in a financial institution as it is necessary to report all details on a timely basis as well as to do all complicated calculations for a faster customer service. Assuming that the company has developed a new product named Product Z and needs to introduce this in the company s island-wide network, the company has been advised by its software provider to establish a matrix organizational structure incorporating an organizational position Project manager IT-Product Z until the successful introduction of the product as, IT is a very important success factor in introducing a new product and requires careful attention of all concerned. Briefly discuss what is meant by a matrix organizational structure and present a diagrammatical presentation of XYZ s recommended organizational structure on the basis of the software providers advice. (06 Marks) (Total 40 Marks) End of Part I Institute of Certified Management Accountants of Sri Lanka 3

4 Part II Answer any three (3) questions Question No. 02 (20 Marks) You have recently assumed duties as the Accountant of Mid Summer Electrical Distributors (Pvt) Ltd (MSED) located in Homagama. It is owned by a wealthy business family from Ratnapura, and reports to the General Manager, an electrical engineer by profession. The company s main product line is manufacturing and marketing electrical panels required by manufacturing organizations, a market that is enjoying growth prospects. During the discussion sessions to prepare the forthcoming annual budgets of the company, the general manager made the following statement during his introductory remarks addressing the senior managers of the company. We are a family company owned by our founder, his wife and two sons and therefore is different to most other large competing firms that we meet in our market place. We must be very cost-conscious and our principal objective is ideally to maximize our profits. As long as we are a profitable company I fail to see why so much importance is placed on growth as an important corporate objective emphasized in some of the management seminars that I recently attended. I am sure our Accountant will enlighten us on these. You have also observed during the six- month stay in this company, the top management mostly concentrates on short-term targets and less emphasis on development of some desirable long term objectives. You are required to: Critically comment on the General Managers assertions that the principal objective of MSED need to be taken as profit maximization. Also briefly explain what is meant by growth and the general managers comments on the importance of growth for the company. (12 Marks) In the event you have been successful in convincing the owners and the general manager that it is time for the company to develop some long term strategic plans, list and briefly discuss the areas that you will consider appropriate that SMED should attempt setting some long term objectives other than in relation to profitability. (08 Marks) (Total 20 Marks) Question No. 03 (20 Marks) You are the senior Accountant of a large export-oriented organization, manufacturing and marketing confectioneries of Sri Lankan origin to a few European countries. The markets are considered very competitive and volatile. Currently your area of responsibility is financial accounting, export-related documentation and compliance with statutory requirements, equipped with a with a staff strength of nearly fifteen personnel. The CEO and Chairman of the company is Ranil. Recently at an informal discussion with one of your colleagues he mentioned that you are the leader in your department and your CEO is the leader of all of you in the company. Hence leadership roles of both of you are identical. Institute of Certified Management Accountants of Sri Lanka 4

5 You are required to: Briefly define the concept of organizational leadership. (03 Marks) (c) There is no real difference between a being manager and a leader. Discuss and evaluate the above statement. (10 Marks) Define and briefly discuss the role of organizational culture in strategy implementation. (07 Marks) (Total 20 Marks) Question No. 04 (20 Marks) You have just joined a management consulting firm and have been assigned to a team that is required to advise a medium-sized organization that is planning to be engaged in importing and distributing electrical equipment through an island wide agency network. The exact terms of reference of the assignment are to advice on a suitable organization structure to effectively implement the company s strategy. You are required to define what is meant by an organizational structure and list the areas and very briefly discuss each of these that your team needs to advise your client organization. (Hint: Focus on the elements that are needed to be included in designing an appropriate structure for an organization) (10 Marks) In the Finance department that you function as an Accountant, certain plans are underway to practice job rotation of accounting executives, as required by the company s human resources policy. Your superior, the Finance Director, discussing this change initiative with you has sought your advice as to what are the possible individual reasons why these executives might resist the proposed change. You are required to list these areas. (10 Marks) (Total 20 Marks) Question No. 05 (20 Marks) PQR Company is a company formed by ABC group of companies to import and distribute a premier brand of gents clothing from USA and plan to distribute these through appointment of island-wide network of distributors. The group is engaged in other items of imports as well and PQR is the separate SBU incorporated to carry out this line of business. The capital allocated to this venture from the corporate treasury is Rs. 20 million and a comprehensive financial plan has been compiled that include a forecasted profit and loss account, balance sheet and a cash flow forecast for a time span of three financial years. Also the financial forecasts are supported by divisional or functional budgets such as sales budget, purchasing budget, inventory budget and so on. The general manager is answerable for achieving the final forecasted profit. ABC is a highly disciplined organization that places heavy reliance on budgetary control mechanisms to control its diverse range of activities and the Chairman of the group monitors activities of each SBU through a monthly meeting that discusses financial results, analyzed under the different functional divisions, with all applicable variances with the budget. Eventually all what we do boils down to rupees and cents is a popular comment by the Chairman to all his divisional heads. Institute of Certified Management Accountants of Sri Lanka 5

6 You are required to: Critically comment on the effectiveness of the Control function that is in operation to manage activities of the PQR organization. (05 Marks) Recommend improvements to the control system practised at PQR and suggest a specific type of control that you can cite under each such additional improvement that is recommended to the existing system. (15 Marks) End of Part II End of Question Paper Institute of Certified Management Accountants of Sri Lanka 6