E3 - Enterprise Strategy Post Exam Guide November General Comments

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1 General Comments This examination paper was designed to test candidates ability to demonstrate their understanding and application of the following learning outcomes from the E3 syllabus: evaluate strategic options recommend how to interact with suppliers and customers recommend changes to information systems appropriate to the organisations strategic requirements evaluate alternative models of performance measurement recommend solutions to problems in performance measurement evaluate ethical issues and their resolution discuss the concept of organisational change evaluate the role of leadership in managing the change process evaluate the impact of the internet on an organisation and its strategy. Candidates are reminded that they must ensure they are familiar with the pre-seen material prior to the examination, as the unseen material for Question 1, presented to candidates on the day of the examination, builds upon this pre-seen information. An understanding of the context of the scenario organisation presented in the unseen and the main issues faced by the organisation presented therein clearly helps candidates to gain a better understanding of the overall themes which may be tested within the unseen material. The Question 1 unseen scenario was designed to test a number of key skills, including both quantitative and qualitative analysis. The pre-seen was based on Y, a company which manufactures and sells top quality confectionery. Y is a household name, particularly throughout Europe, with its fame being built on the very high quality confectionery products it sells through its own high street shops, on-line business, franchises and retail partners such as large supermarkets. The pre-seen material identified a number of areas relating to the E3 syllabus, including references to Y's aims, mission and its two strategic objectives. In addition the pre-seen material included reference to, corporate social responsibility aims and Y s future strategic developments. Within the unseen material, some of the areas introduced in the pre-seen material were further developed, through information and questions relating to the proposed sales development strategies and their impact upon the two strategic objectives identified in the pre-seen material. Candidates performed quite well on Question 1. Part (a) was reasonably well answered, as many candidates demonstrated a good understanding of the Ansoff directional growth matrix. Most candidates were able to apply the matrix successfully to Y's sales development strategies. Candidates who failed this question did so mainly because their answers failed to adequately focus upon how the proposed sales development strategies could assist Y in achieving its two strategic objectives. This was the main focus of the requirement and candidates are reminded that they must read each question requirement carefully to ensure that they are answering the question that has been set. Disappointingly, many candidates answered part (b)(i) of the question very badly, with very few scoring maximum marks. It was most concerning to see how many candidates failed to make a reasonable attempt at this question and also, the number of candidates who demonstrated a very poor level of understanding of the concept of contribution. This was a very straightforward calculation of a contribution per unit of limiting factor (CPULF), yet many candidates struggled to distinguish contribution from profit. This is just not acceptable at strategic level. Contribution is a fundamental concept of management accounting, particularly within short-term decision-making and there are no excuses for not being able to calculate it correctly. However, answers to part (b)(ii) were better and there was evidence of a high degree of application in candidates answers to this requirement. Candidates answers to part (c) were largely satisfactory. Some candidates answered the question very well, focusing directly upon how the most appropriate functions to be designed into Y s website The Chartered Institute of Management Accountants 2014 Page 1

2 could assist Y with its customer relationship management. However, some candidates provided very generic answers which were not directly related to optimising online customer relationships. Question 2 was the least popular question in Section B of the examination, and in general, most candidates who attempted this question did not perform well. Answers to part (a) were poor in most cases, as candidates largely failed to demonstrate a reasonable understanding of the specific features of a service business. Very few answers were directly applied to the scenario organisation. Answers to part (b) were also weak, with most candidates demonstrating limited knowledge or understanding of Fitzgerald and Moon s Building Block Model. As a result of the previous weaknesses, answers to part (c) were also poor, as few candidates had sufficient skill to assimilate the concepts addressed in the previous two requirements in order to present relevant performance measures for P. Question 3 was a popular question with candidates and was reasonably well answered by most of those who attempted it. In part (a) many candidates evaluated the scenario information well, in order to identify and discuss the ethical challenges. However, part (b) of the question was generally not well answered by many candidates, as very few demonstrated a sound understanding of the cultural web. In fact, a significant proportion of the answers completely ignored the cultural aspects relating to B. In part (c) many candidates completely missed the fact that the answers should focus upon M s actions and not on those of B or Mr Fox. Candidates are reminded to read the question requirements very carefully. Question 4 was a popular question and was well answered by most candidates. Part (a) was answered reasonably well, with a significant proportion of candidates providing a sound discussion of the relevance of customer segmentation to C. Part (b) was answered well, as most candidates provided a good range of well applied benefits to C of e-business. Part (c) was also generally well answered with many candidates demonstrating a good level of knowledge of Web 2.0 technologies. Overall, candidates performed reasonably well in this examination diet. There was evidence of evaluation skills and the application of syllabus knowledge in many of the answers. However, candidates must make sure that they answer the questions set, as there were several examples within this examination where candidates failed to be awarded marks because they failed to do this or they failed to write answers which were of suitable depth or adequately developed. Candidates must also make sure that they continue to apply the scenario information as much as possible within their answers. The Chartered Institute of Management Accountants 2014 Page 2

3 SECTION A 50 MARKS ANSWER THIS QUESTION Question 1(a) Evaluate, using Ansoff's product / market directional growth matrix, the extent to which Y's sales development strategies could assist in achieving its two strategic objectives. (18 marks) This question examines learning outcome C1(b) 'evaluate strategic options' and is designed to test candidates' ability to apply the Ansoff directional growth matrix. For requirement (a) candidates are expected to apply the Ansoff directional growth matrix to the sales development strategies highlighted in the unseen material. However, more importantly, candidates should also ensure that their answers fully consider how each of these strategies would assist Y in the achievement of its two strategic objectives (as presented in the pre-seen material). Therefore a mere presentation of an applied Ansoff matrix would not be sufficient to pass this requirement. For each sales development strategy evaluated Up to 3 18 This question was reasonably well answered. Many candidates demonstrated a good level of knowledge and understanding of the Ansoff directional growth matrix and made an attempt to apply it in relation to the sales development strategies outlined in the unseen material. However, some answers went little further than this, which was not sufficient to pass this requirement. In order to pass this requirement, candidates were expected to evaluate the extent to which the sales development strategies presented in the unseen could assist Y in achieving the two strategic objectives presented in the pre-seen material. Many candidates did make a reasonable attempt at this part of the question and those that did scored well. However, some candidates answers were weak, largely because they failed to adequately explain the points they made. For example, some candidates merely made the statement that a particular sales development strategy would/would not assist in achieving the strategic objectives, but failed to explain how or why. Candidates must explain every point they make, as unexplained points are awarded no marks. Common errors: Failure to use the unseen material to answer the question in regard to the sales development strategies presented. Failure to consider the sales development strategies in relation to the achievement of the two strategic objectives. Poor explanation/ justification of points made in relation to the Strategic Objective s achievement. The Chartered Institute of Management Accountants 2014 Page 3

4 Question 1(b)(i) Calculate: the optimum production mix and resulting contribution for the next 3 months, assuming that Z and Q both place orders with Y, but priority is given to fulfil Z's order in full. the optimum production mix and resulting contribution for the next 3 months assuming that Z does NOT place an order with Y, allowing Y to manufacture Q's order only. (12 marks) This question examines learning outcome C1(b) 'evaluate strategic options'. For requirement (b)(i) candidates are expected to demonstrate their knowledge and understanding of the concept of contribution and contribution per unit of limiting factor (CPULF), in order to calculate an optimum production mix for Y. This should be a strightforward calculation, providing that candidates calculate the correct contribution per unit in order to be able to successfully rank the three products based upon the CPULF. It is important that candidates undertake all elements of the requirement, as it asks for the optimum production mix and the contribution from the optimum production mix for firstly, an order for Z, followed by Q and secondly, an order for Q only. Optimum production mix (Z and Q), including CPULF and ranking: 3 marks for CORRECT CPULF and ranking 1 mark for 3000 units of each product for Z order 1 mark for 6000 units of Product 1 for Q order 1 mark for 6000 units of Product 2 for Q order 1 mark for 800 units of Product 3 for Q order Contribution from this optimum production mix contribution from sales to Z (72000) contribution from sales to Q (92000) 2 marks for combining these and working out 3 months total Production mix for order to Q only 2 marks for recognising that 6000 units can be made for all 3 products Contribution from order to Q only 1 mark for contribution for 6000 units of each product (432,000 for 3 months) 12 The Chartered Institute of Management Accountants 2014 Page 4

5 This question was not well answered. This was highly disappointing, considering that contribution is a fundamental concept of management accounting. It is highly concerning to see how many candidates could not distinguish correctly between profit and contribution. A significant proportion of candidates could not correctly calculate either contribution or contribution per unit of limiting factor. This is just not acceptable at this level and there are no excuses for such poor performance on this question. Some of the calculations were so badly wrong and misconceived that it was hard to decipher exactly what the candidate was trying to do. A small proportion of candidates made no attempt at all at the calculation. Common errors: Little/ no understanding of contribution Inability/ failure to calculate contribution per unit of limiting factor Calculations based upon profit and not contribution The Chartered Institute of Management Accountants 2014 Page 5

6 Question 1(b)(ii) Evaluate the operational and strategic implications for Y of fulfilling an order to supply Z in full fulfilling an order to only supply Q (14 marks) This question examines learning outcome A1(e) 'recommend how to interact with suppliers and customers'. For requirement (b)(ii) candidates are expected to discuss the relative merits and difficulties of the proposals outlined in part (b)(i). Candidates are expected to discuss the operational and strategic issues relating to both proposals. Candidates are expected to make reference to their calculations from part (b)(i) above but this is only a minor part of this answer. Therefore candidates will not pass if they merely discuss their calculations. Evaluation of supplying Z in full Evaluation of supplying only Q Up to 8 Up to 8 14 This question was well answered by many candidates. Most answers included a wide range of relevant points relating to both supply to Z and supply to Q only. Most candidates correctly discussed the implications of branding if Y supplied the luxury chocolates to Z and the implications on the relationship with Q. Most candidates also correctly discussed the long term benefits of supplying to Q. Many candidates also linked their answers back to the achievement of the strategic objectives. Very few candidates made reference to the calculations they had carried out in part b(i) but this did not detract from the quality of the answers in most cases. The most common weakness was that answers were often too brief and did not cover a sufficient range or depth of discussion points to be awarded a pass mark. Candidates are reminded to consider the mark allocation for each question and ensure that they present an answer which is of suitable length and depth to address the awarded marks. Overall, most candidates made a sound attempt at this question and applied their answers very well to the unseen scenario information. The Chartered Institute of Management Accountants 2014 Page 6

7 Question 1(c) Recommend, with reasons, TWO functions that should be included in Y's website to help Y to build and manage its relationship with its online customers. (6 marks) This question examines learning outcome D1(e) 'recommend changes to information systems appropriate to the organisation's strategic requirements'. For requirement (c) candidates are expected to consider the features of a website that would specifically assist Y in building and managing its relationships with its online customers. Therefore, answers must be focused upon customer relationship management and not merely upon generic features of a website such as security and page layout. For each function of the website recommended Up to 3 6 This question was reasonably well answered. Most candidates presented two relevant examples of appropriate functions to manage online customer relationships for Y. However, some candidates did present generic features such as having a structured page layout or having firewalls and appropriate security which are not directly relevant to customer relationship management. The candidates that scored well did so because their examples were directly applied to Y and the specific needs of its online customers. Common errors: Limited use of the information provided in the scenario Generic website features rather than those specific to managing Y s customer relationships The Chartered Institute of Management Accountants 2014 Page 7

8 SECTION B 50 MARKS ANSWER TWO QUESTIONS FROM THREE Question 2(a) Explain FOUR characteristics of a service business, using P to illustrate your answer. (8 marks) This question examines learning outcome D1(b) 'evaluate alternative models of performance measurement' and is designed to test candidates' understanding of the characteristics of a service business. Requirement (a) should be a straightforward question, requiring candidates to identify and apply four characteristics of a service business. Answers must be focused upon those characteristics of a service business which make it different to other types of business. Also, candidates must support their answers with reference to the characteristics of P. For each characteristic explained Up to 2 8 This question was not well answered. This should have been a straightforward knowledge demonstration question but most candidates demonstrated limited understanding of service business characteristics. Most answers were not applied directly to P and in addition, most of the characteristics identified were not directly specific to a service business. For example, many candidates identified high levels of customer service and quality as specific features of a service business but these can, and do, in fact relate to most modern businesses whether they are service related or not. Common errors Limited/ no application of service business characteristics to P Poor understanding of the specific characteristics of a service business The Chartered Institute of Management Accountants 2014 Page 8

9 Question 2(b) Evaluate the current process used by the five senior partners when reviewing P's performance and the current process used to set targets. You should use Fitzgerald and Moon's 'Building Block Model' to assist in structuring your answer. (11marks) This question examines learning outcome D1(c) 'recommend solutions to problems in performance measurement' and is designed to test candidates' understanding of the difficulties of linking rewards to divisional performance. For requirement (b) candidates are expected to demonstrate a knowledge and understanding of the Fitzgerald and Moon Building Block Model to evaluate the current process of performance measurement and target setting in P. Importantly, candidates are expected to critically evaluate the current processes carried out by P, using the Building Block model as a framework for identifying where weaknesses are occurring. Candidates are not expected to merely describe the model or to describe the current processes being carried out by P. Evaluation of the current performance review process Evaluation of the current target setting process Up to 8 Up to 6 11 This question was not well answered. A number of candidates demonstrated a basic knowledge of Fitzgerald and Moon s Building Block Model but very few were able to correctly apply the model to the performance measurement and target setting processes being undertaken by P. Some candidates merely described or presented the model which was not sufficient to be awarded a pass mark. A large proportion of candidates failed to use the model at all, instead describing the processes being undertaken by P in general terms. Most answers to this question failed to address the question that had been set and failed to use the model appropriately. However, it is important to note that candidates did not have to use the Building Block Model to produce a pass standard answer, as a significant number of marks were available for a successful evaluation of P s current processes of performance measurement and target setting. However, few candidates did this successfully. Common errors: Poor evaluation of P s performance measurement and target setting processes Lack of knowledge/ application of the Building Block Model The Chartered Institute of Management Accountants 2014 Page 9

10 Question 2(c) Recommend, with reasons, TWO suitable performance measures which could be used to assist P in measuring those areas of its business in which it must succeed, in order to remain competitive. (6 marks) This question examines learning outcome D1(c) 'recommend solutions to problems in performance measurement'. For requirement (c) candidates must recommend, with reasons, two suitable performance measures for P, taking into consideration the answers presented in both part (a) and (b) of the question. Part (a) of the answer considered the needs of a service business and part (b) considered the Building Block Model and its key dimensions of performance. Therefore candidates are expected to use these key dimensions to identify suitable performance measures for P, as a service business. Importantly, answers must be specific measures and not systems of measurement, such as the balanced scorecard or benchmarking. The question also specifically refers to measures within areas in which P must succeed. For each performance measure (identification 1 mark, reasoning 2 marks) Up to 3 6 This question was not well answered and this was largely due to the preceding answers to parts (a) and (b) being very weak. Most candidates failed to recognise the importance of focusing performance measures upon the key dimensions of a service business, such as flexibility, innovation and resource utilisation. Many candidates failed to present any relevant performance measures at all, instead focusing their answers upon performance measurement systems such as the balanced scorecard or benchmarking. Some candidates did present a number of relevant performance measures but failed to adequately justify these measures in relation to P. Common errors: Presentation of performance measurement activities and not performance measures Limited/no application of the performance measures directly to P The Chartered Institute of Management Accountants 2014 Page 10

11 Question 3(a) Discuss how the recent actions of Mr Fox would compromise M's requirement that its suppliers act in accordance with M's high ethical standards. (6 marks) This question examines learning outcome B3(b) 'evaluate ethical issues and their resolution'. For requirement (a) candidates are expceted to evaluate the scenario material to identify those areas in which Mr Fox has breached M s high ethical standards. This requires candidates to both evaluate Mr Fox s actions and to consider whether or not these are in breach of M s ethical standards for its suppliers. There are many issues presented in the scenario, some of which do and some of which do not breach M s ethical standards.therefore, candidates must clearly explain why they believe Mr Fox s actions breach these standards. Integrity - staff dishonesty / incomplete info / threats Objectivity (bribes) Fair treatment and payment - senior management treatment and overtime 2 each 6 Examiner's Comments This question was generally well answered. Most candidates used the scenario information well, to identify and discuss a number of actions carried out by Mr Fox which would breach the high ethical standards that M has set for its suppliers. However, some candidates answers did fail to cover a sufficient number of issues to be awarded a pass mark. For example, some candidates merely discussed the issue of bribery or the issue of wage payments, with no reference at all to the far wider range of actions recently undertaken by Mr Fox. A small minority of candidates incorrectly focused their answers upon lengthy discussions of CIMA s ethical code which was not required in this answer. Common errors: Answers focused upon only one action undertaken by Mr Fox Limited discussion on how Mr Fox s actions had specifically breached M s high ethical standards The Chartered Institute of Management Accountants 2014 Page 11

12 Question 3(b) Evaluate each of the relevant aspects of B's current cultural web and advise on the ways in which it would need to change to enable B to meet the high ethical standards M sets for its suppliers. (10 marks) This question examines learning outcome B1(a) 'discuss the concept of organisational change'. For requirement (b) candidates are clearly asked to evaluate B s cultural web, therefore answers must focus directly uopn the cultural aspects of B and not the general operational aspects. In addition, candidates must also consider how the cultural aspects of B would need to change. Again, this requirement relates directly to B s culture change requirements and not mere operational changes. For each relevant point applied to B and evaluated Up to 2 10 Examiner's Comments This question was not well answered. Most candidates failed to use the cultural web as a framework for their answer and many candidates ignored culture entirely. Many answers focused largely upon operational and structural activities such as fair wage payments, employment of the over 50 s and redundancy processes, which were largely irrelevant to the question that had been set. However, those that did discuss the cultural aspects of B, and in particular those that applied the cultural web, did score well on this question. Candidates are reminded that they must answer the question that has been set. Common errors: Lack of application of the cultural web A focus upon non cultural issues The Chartered Institute of Management Accountants 2014 Page 12

13 Question 3(c) Recommend, with reasons, THREE ways in which M could assist Mr Fox to improve his and B's ethical standards. (9 marks) This question examines learning outcome B2(d) 'evaluate the role of leadership in managing the change process'. For requirement (c) answers must focus directly upon the actions of M which could assist Mr Fox and B to improve the ethical standards. Re-education of Mr Fox - management style Health and safety training Management re-education Fair payment system introduced and overtime pay implemented (Identification 1 mark, reasoning 2 marks) Up to 3 each 9 This question was not well answered, again, largely due to candidates not answering the question that had been set. Candidates were specifically asked to discuss the actions of M, but many candidates failed to do so. Some candidates also used the Lewin Ice Cube model to answer this question which was not particularly relevant or necessary. However, if candidates did attempt to apply this model directly to the actions of M, then these points were awarded credit. Common errors Lack of focus upon the actions of M to assist Mr Fox The Chartered Institute of Management Accountants 2014 Page 13

14 Question 4(a) Advise C of the importance of understanding its customer segments. Your answer should include advice to C on the most appropriate ways in which C could segment its customers. (9 marks) This question examines learning outcome A1(e) 'recommend how to interact with suppliers and customers' and is designed to test candidates' understanding of customer segmentation. For requirement (a) candidates should undertake two distinct activities; firstly, to discuss the importance of segmentation to C and secondly, to then recommend appropriate customer segments for C. Candidates should ensure that their answers are directly related to the specific customer segments relating to C. Generic answers will not be awarded a pass mark. Importance to C of customer segmentation applied to C Types of segmentation Up to 5 Up to 5 9 This question was reasonably well answered. Most candidates correctly identified and discussed a range of relevant points in relation to the importance of customer segmentation for C. Answers were well applied in most cases. However, some candidates answers were weak in terms of recommending appropriate customer segmentation for C, with some merely re-writing the customer groups already highlighted in the scenario. Candidates were expected to consider the wider forms of segmentation that C could use, such as geographic, demographic or lifestyle. Common errors: A descriptive answer rather than directly applied to C Limited analysis of appropriate segmentation for C The Chartered Institute of Management Accountants 2014 Page 14

15 Question 4(b) Discuss the benefits for C of employing an e-business approach to engage with its customer segments. (10 marks) This question examines learning outcome D1(e) 'recommend changes to information systems appropriate to the organisation's strategic requirements' and is designed to test candidates' understanding of e- business. For requirement (b) candidates are required to discuss the benefits of an e-business approach to C. It is important that candidates once again, apply these benefits directly to C. For each benefit discussed and applied to C Up to 2 10 This question was well answered by candidates, most of whom demonstrated a sound understanding of the benefits of an e-business approach for C. Most candidates provided a good range of discussion points in this answer and many candidates applied their answers directly to C. The Chartered Institute of Management Accountants 2014 Page 15

16 Question 4(c) Recommend, with reasons, TWO different types of Web 2.0 technologies which could be used by C to engage with its customers more effectively. (6 marks) This question examines learning outcome A2(a) 'evaluate the impact of the internet on an organisation and its strategy ' and is designed to test candidates' understanding of Web 2.0 technologies. For requirement (c) candidates are required to present two examples of Web 2.0 technology which C could use to engage more effectively with its customer segments. There are a wide range of potential technologies that candidates could discuss. To achieve a pass standard answers must be applied directly to C. For each Web 2.0 technology recommended (Identification 1 mark, reasoning 2 marks) Up to 3 6 This question was well answered by those candidates who had good knowledge of Web 2.0 technology, with candidates providing a wide range of well applied applications and technologies. However, there were some candidates who clearly did not know what Web 2.0 is and discussed irrelevant issues such as Internet security. However, most candidates had a sound understanding of this area and applied their answers very well to the use of Web 2.0 by C. Common errors Lack of knowledge of Web 2.0 technologies Descriptive answers not directly applied to C The Chartered Institute of Management Accountants 2014 Page 16