q and as-strategic management-june 2010 dec 2010 and june 2011 (1)

8/12/2019 Q and as-Strategic Management-June 2010 Dec 2010 and June 2011 (1)

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ZAMBIA INSTITUTE OF CHARTERED ACCOUNTANTS

PROFESSIONAL LEVEL

P5: Strategic Management

June 2010

December 2010

June 2011

QUESTION PAPERS AND SUGGESTED SOLUTIONS


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Table of ontents

JUNE 2010 STRATEGIC MANAGEMENT ................................................................... 3

SUGGESTEDSOLUTIONS ....................................................................... 7

DECEMBER 2010 STRATEGIC MANAGEMENT ................................................................. 21

SUGGESTEDSOLUTIONS ..................................................................... 24

JUNE 2011 STRATEGIC MANAGEMENT ................................................................. 36

SUGGESTEDSOLUTIONS ..................................................................... 39


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CHARTERED ACCOUNTANTS EXAMINATIONS

PROFESSIONAL LEVEL

P5: STRATEGIC MANAGEMENT

SERIES: JUNE 2010

TOTAL MARKS100 TIME ALLOWED: THREE (3) HOURS

INSTRUCTIONS TO CANDIDATES1. You have ten (10) minutes reading time. Use it to study the examination paper carefully so that you

understand what to do in each question. You will be told when to start writing.

2. There are FIVE questions in this paper. You are required to attempt any FOUR questions.ALL questions carry equal marks.

3. Enter your student number and your National Registration Card number on the front of the answerbooklet. Your name must NOT appear anywhere on your answer booklet.

4. Do NOT write in pencil (except for graphs and diagrams).

5. The marks shown against the requirement(s) for each question should be taken as an indication ofthe expected length and depth of the answer.

6. All workings must be done in the answer booklet.

7. Present legible and tidy work.

8. Graph paper (if required) is provided at the end of the answer booklet.


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Question 1

Strategic planning is often defined as a process of proactively aligning the organizations resources with

threats and opportunities caused by changes in the external environment in order to achieve prescribed

goals. While it focuses on the future, it also reflects on what happened in the past.

(a) Explain the four (4) aspects that are embedded in the definition of strategic planning. (8 marks)

(b) Point out five (5) reasons why organizations may embark on the concept of strategic planning.(5 marks)

(c) State seven (7) shortcomings of strategic planning. (7 marks)

(Total: 20 marks)

Question 2

Taifa Bank, a subsidiary of an International Bank has experienced a serious decline in its businessperformance. The deposits are down, the loan portfolio has a lot of bad debts and head office is planning

to slash the level of investment in the bank.

Use Porters Five Forces of Competition Model to establish the impact of competition on the overall

performance of the bank.

Explain how Taifa Bank can use Porters Five Forces Model in evaluating why there has been a declinein performance. (20 marks)

(Total: 20 marks)

Question 3

Chawama Enterprises was established twenty-five years ago. The organization was formed to provide

mining tools to the mines on the Copperbelt and the neighbouring country of Democratic Republic of

Congo. The organization has faced mixed fortunes in its business over the period of its existence. This

is directly attributable to external forces faced over its life cycle both at macro and competitive

environment levels.

There are times when macro environment has been favourable and times when factors relating to

political and economical environment had almost threatened the survival of the organization.

During the world credit crunch, fall in copper prices and ever increasing importation prices of tools due to

weaker kwacha has once again created acute challenges for the organisation.

In wake of the above background:

(a) Evaluate how environmental analysis can help Chawama Enterprises deal with the business

environment? (10 marks)

(b) Explain how Chawama Enterprises can use the Five Forces Model to evaluate how competitive

the firm is. (10 marks)

(Total: 20 marks)


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Question 4

A companys value chain identifies the primary activities that create customer value and the related

support service activity.

Ultimately, it is the customer who derives from the product bought from one company as compared to

that produced by rivals. It is cardinal that a company carries out customer value analysis if it has to

compete favourably in the market place.

Discuss the steps you would take in customer value analysis.

(Total: 20 marks)

Question 5

Introduction

Kitwe City council is one of the councils on the Copperbelt. Its mandate includes maintenance of roads

and walkways, street lighting, council (government) housing provision and maintenance, regulation of

local entertainment clubs and refuse collection among its many roles.

Funding

The council is funded through government allocation and grants. In addition, the council collects various

levies for provision of services to the city residents such as refuse collection and road maintenance.

Management

The council is governed by councilors elected from the various wards within the expanse of the city. In

turn the governing body of councilors has selected a team of professionals who carry out the daily duties

of the council.

Required:

(a) Distinguish how objective setting in Kitwe city council would differ from that of a Private Sector

corporation. (12 marks)

(b) Kitwe city councils objective of regulating social clubs and taverns would encroach on its ability to

collect more levies.

(c) Describe how the council Town clerk can manage the conflict between the two conflicting

objectives. (8 marks)

(Total: 20 marks)


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Question 6

Hassan is one of the Zambias leading detergent manufacturing companies. The firm has more than

twenty-five product types. These have been developed over a period of its ten year existence. Some

products are very successful while others have not performed well. The challenge for the board has

been the formulation of strategy policy in the way the company manages the portfolio of products.

As a newly recruited qualified ZICA Accountant, your advice is being sought to address the following

questions the Product manager has prepared as input into his paper to the Board.

(a) Describe the Boston Consulting Group (BCG) growth vector matrix. (8 marks)

(b) Explain what strategic options are available to Hassan in accordance to the BCG Matrix.

(8 marks)

(c) Outline what limitations the model poses to the Product Manager as he prepares his paper to the

Board.

(4 marks)

(Total: 20 marks

Question 7

Sylva Food Processing company has proposed you as a management consultant. The firm seeks to

implement the balanced scorecard tool in an attempt to monitor performance.

The management of Sylva has no idea about the balanced scorecard model and has approached you for

guidance regarding the approach to implement it and the challenge such a model presents.

(a) Describe the balanced scorecard. (10 marks)

(b) Explain the steps that Sylva can take in designing and implementing the balanced scorecard.

(5 marks)

(c) Evaluate why the cost of implementing the balanced scorecard can outweigh the benefits derived

from the use of the model. (5 marks)

(Total: 20 marks

END OF PAPER


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JUNE 2010

P5 STRATEGIC MANAGEMENT

SUGGESTED SOLUTIONS


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Solution 1

(a) Strategic planning should be defined in four ways which are:-

1. Futurity of Current Decision

It deals with the futurity of current decisions. Strategic planning looks at the chain of cause

and effect consequences overtime of an actual or intended decision that a manager is going

to make.

Strategic planning looks also at the alternative courses of action that are open in the future

and when are made among the alternatives they become the basis for making current

decisions systematic identification of opportunities and threats that to lie in the future and

deciding how best and the bet way to exploit opportunities and avoiding threats.

2. Process

Strategic Planning is a process. It is the process that begins with the setting of

organizational aims, defines objectives and policies to achieve them, and develop detailed

plans to make sure that the strategies are implemented so as to achieve the ends sought.

Strategic Planning for most organisations results in a set of plans produced after a specified

period of time set aside for the development of the plans.

3. Philosophy

Strategic planning is an altitude, a way of life. It is more of a thought process, an intellectual

exercise, than a prescribed set of processes, procedures, structures, or techniques.

To get best results, managers and staff in the organization must believe that strategic

planning is worth doing and must want to do it as well as they can.

4. Structure

A formal strategic planning system links three major types of plans:-

Strategic plans

Medium-range programmes and

Short-range budgets and operating plans

(b) Any five of the following will suffice:

1. Change direction of the company

2. Accelerate growth and improve profitability

3. Weed out poor performers among divisions

4. Flush up strategic issues for top management consideration

5. Concentrate resources on important things. Guide divisions and research personnel in

developing new products. Allocate assets to areas of best potential.


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6. Develop better information for top managers to make better decisions

7. Develop a frame of reference for budgets and short range operating plans.

8. Develop situation analyses of opportunities and threats to provide better awareness of

companys potential in light of its strengths and weaknesses.

9. Provide a road map to show where the company is going and how to get there

10. Setting more realistic, demanding yet attainable objectives.

11. Review and audit present activities so as to make proper adjustments and

(c) Some critical shortcomings are reviewed as follows:

1. Environment may prove different from that expected

Forecasting is not an exact science and plans that are based upon predictions that prove

incorrect may fail. Unexpected events in government action such as a contract cancellation,a change in labour union activities, a decline in economic activity, or a sudden price discount

by a major competitorall are uncertainties that make planning difficult.

2. Internal resistance

In many organisations the introduction of a formal planning system raises antiplanning biases

that can prevent effective planning. In larger organisations, old ways of doing things, old

rules, and old methods may be so entrenched that it is difficult to change them. The larger

the companies become, the greater the amount of such debris one finds.

3. Planning is expensive

In a typical corporate planning effort of even a medium-sized company a significant effort is

required to do effective planning. The time of many people is occupied and costs are

incurred for special studies and information. Planning is expensive and managers

throughout the planning process must continuously apply a cost-benefit gauge. It is not

possible to apply this equation quantitatively to corporate planning, but the idea should be

kept in mind for it is not difficult to incur costs that exceed potential benefits.


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Solution 2

Part (a)

The Five Forces model can provide useful information in regard to the decline in performance of the

bank. It is worth assuming that forces in the market such as competition has resulted in declining profits,in ability to attract quality clients and general poor reaction to competitive moves in the market.

Useful information that the Bank can derive is as follows:

Statistical Analysis

1. The Five Forces Analysis allows determining the attractiveness of an industry. The decline in

profitability may be due to the industry becoming less attractive.

2. It provides insights on profitability. The model can assist determine how the forces have driven the

costs up or reduced turnover that the bank can make.

3. Thus, it supports decisions about entry to or exit from an industry or a market segment. This is

helpful for the bank in the context of whether it has been easy for new firms to enter or difficult for

other banks to leave. The combination intensifies competition that may impact on the performance

of the bank.

4. Moreover, the model can be used to compare the impact of competitive forces on their own

organization with their impact on competitors. Taifa bank must evaluate the extent to which the

forces have impacted on their operations in relation to competitors.

5. Competitors may have different options to react to changes in competitive forces from theirdifferent resources and competences. A comparison of how the bank has developed strategic

options in response to the forces can be helpful.

Dynamical analysis

In combination with a PEST Analysis, which reveals drivers for change in an industry, Five Forces

analysis can reveal insights about the potential future attractiveness of the industry. Expected Political,

Economical, Socio-demographical and Technological change can influence the five competitive forces

and thus have impact on industry structures.

Analysis of Options

With the knowledge about intensity and power of competitive forces, organizations can develop options

to influence them in a way that improves their own competitive position. The result could be a new

strategic direction, e.g. a new positioning, differentiation for competitive products of strategic

partnerships.

This, Porters model of five competitive Forces allows a systematic and structured analysis of market

structure and competitive situation. The model can be applied to particular companies, market

segments, industries or regions. Therefore, it is necessary to determine the scope of the market to be


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analysed in a first step. Following all relevant forces for this market are identified and analysed. Hence,

it is not necessary to analyse all elements of all competitive forces with the same depth.

The five forces Model is based on microeconomics. It takes into account supply and demand,

complementary products and substitutes, the relationship between volume of production and cost of

production, and market structures like monopoly, oligopoly or perfect competition.


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Solution 3

(a) Chawama must actively and consistently conduct environmental analysis by analyzing the political,

legal, economical, social, environmental and technological environments.

This analysis will be invaluable as follows:

(i) Chawama will be become knowledgeable about the macro environmental forces that are

affecting the organization.

(ii) Chawama will be able to establish a trend analysis of these forces in terms of how the

forces have affected the firm over its life cycle. Are we faced with opportunities or threats, is

the question to answer?

(iii) Chawama will know at any given point which force has high, medium or low impact.

Currently most firms must deal with the economic environment. During 1991, the firm had todeal with the political environment.

(iv) Chawama can then construct scenarios representing possible future occurrences. This is

applicable in times of acute uncertainty.

(v) Chawama will then develop strategies of dealing with each scenario should it occur in

future.

(vi) The above will result in Chawama overcoming the negative implicationsof not taking the

environment seriously.

(vii) Eventually environment analysis ensures long term survival as the organization is able to

gain strategic foresight.

Strategic management must address the environment in knowing what opportunities and

threats are being posed by the environment.

(b) The five forces model helps organizations to analyze and evaluate their competitive position by

looking at the impact of these forces.

These forces include:

Threat of rivalry amongst current competitors- Chawama will have to look at the number ofcompeting firms, are these firms supplying a homogenous product, are firms competing on price or

quality and what are the exit barriers.

For example, too many competitors increase competition. High exit barriers can also increase

competition, while differentiation can reduce competition.

Threat of new entrants-the extent to which new entrants can establish similar business will result

in Chawama finding its position undermined. Factors relating to entry barriers will have to be

analyzed. Ease with which new entrants can get business from mines, ease of raising capital and


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ease of having access to sources of these tools can make it easy for new firms to set up the

business in which Chawama is.

Threat of substitute products-this relates to whether mines can find alternative tools or methods

of extracting minerals. In times where Chawama tools are getting expensive, the mines may beforced to get innovative or look at alternative tools.

Threat of bargaining power of suppliers-Chawama will have to ask themselves the extent to

which the firm can force suppliers to reduce prices. This will depend on the quantities bought, the

number of customers buying from the same supplier and the extent to which Chawama can easily

switch to other sources of tools.

Threat of bargaining power of customers-this relates to mines. Can they drive the prices

down? Under current economic problems, mines are finding strength in the crisis by citing

economic wows as reducing their ability to pay and in the process forcing suppliers to reduce

prices or be threatened with loss of business.

The extent to which Chawama can deal with these forces will affect the level of profits, value and

long term survival of the firm.


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Solution 4

The aim of a customer value analysis is to determine the benefits that customers in a target market

segment want and how they perceive the relative value of competing suppliers offers. The premise upon

which customer value is held, is that customers will buy from the firm that they perceive offers the highest

customer delivered value.

The major steps in customer value analysis are as follows: -

1. Identify the major attributes that customers value. Customers are asked what functions and

performance levels they look for in choosing a product and vendors. Different customers will

mention different features/benefits. If the list gets overly long, the researcher can remove

redundant attributes.

2. Assess the Quantitative Importance of the different attributes. Customers are asked to supply their

ratings or rankings of the importance of the different attributes. If the customers diverge much in

their ratings, they should be clustered into different customer segments.

3. Assess the companys and competitors performances on the different customer values against

their rated importance. The customers are asked where they see the companys and each

competitors performance on each attribute. Ideally, the companys performance should be rated

high on the attributes that customers value most and low on the attributes customers value least.

4. Examine how customers in a specific segment rate the companys performance against a specific

major competitor on an attribute-by-attribute basis. The key to gaining competitive advantage is to

take each customer segment and examine how the companys offer compares to that of its major

competitor. If the companys offer exceeds the competitors offer on all important attributes, the

company can charge a higher price, thereby earning higher profits, or it can charge the same price

and gain more market share.

5. Monitor customer values overtime: although customer values are fairly stable in the short run, they

will most probably charge as technologies and features charge and as customers face different

economic climates. The company must periodically re-do its studies of customer values and

competitors standings if it wants to be strategically effective.


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Solution 5

(a) Objectives are intentions behind actions. All organizations will set-up objectives for themselves.

These would be the targets which they hop to meet in the future, both short term and long term

ones. They will serve as key performance measures or yard sticks towards which the businesses

would be working towards.

Usually senior management would e charged with the duty of setting these objectives. In the case

of Kitwe city council, the governing body of councilors will have the duty of setting out the Kitwe

City council objectives.

Kitwe City Council is an arm of the Ministry of Local government, hence it is not a private sector

organization, therefore, its objective setting process is going to be different from that of a typical

private sector corporation.

Multiple Stakeholders

Kitwe City council has got multiple stakeholders whose interest is to be satisfied by the council. In

the situation of a private sector company, the most key stakeholder is the shareholder who has

committed funds in the business and waits for a return from the business in form of capital growth

on share price or dividend payouts when the business posts profits.

In the light of this when setting out its objectives, it would need to carry out several consultations

with its key stakeholder representatives to ensure that the objectives/targets incorporate the

interests of the stakeholders, whereas in a private sector corporation, the private focus of

objectives would be the stakeholders.

During objective setting Kitwe City Council would hold length consultative meetings with

stakeholder groupings, whereas the private sector company would only need to ensure that the

primary goal of generating profits and giving returns to shareholders is incorporated in the

objectives.

Political Influence and Limits on Resources

Kitwe City council Is part of the Ministry of Local Government, hence the council would have a lot

of political influence on its operations. Usually the top team council personnel would be appointed

by the minister of local government. Further, Kitwe City Council depends to a large extent on thegovernment grants or its funding. This introduces a constraint in form of financial resources.

The objective setting will be done with limited resources in view. As opposed to Kitwe City Council,

a private sector company ideally would not have financial resources constraints as it can borrow

more funds if needed from financial institutions like banks and other financiers, in addition, if the

business needs more capitalization, it can issue some more share capital as long as all legal

requirements for a right issue are met.


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Multiple Objectives

As pointed to earlier, private sector companies will have a profit motive as the primary objective of

its existence and this will permit all its investment decision making activities. Kitwe City council on

the other hand would have several objectives which would be of equal importance.For instance, the scenario has pointed out objectives for Kitwe City Council such as maintenance

of roads and walkways, street lighting, provision of council housing and maintenance of these

housing units, regulation of entertainment clubs and refuse collection.

It therefore, means that as opposed to a private sector corporation, Kitwe City Council will need to

set-p multiple objectives which it would be pursuing simultaneously. Kitwe city council would need

to develop various key performance indicators (KPIs) to be used in tracking its performance.

Service Oriented objectives

Most Municipal councils provide services such as road maintenance, housing provisions, andlighting. Therefore, the objectives that Kitwe City Council will set-up would be service oriented.

Service objectives are usually going to be very difficult to quantify and hence difficult to track. On

the other hand a private sector corporation will be able to easily quantify its profitability objective by

selling out a profit figure it would want to achieve in a given financial year.

(b) All organizations at one time or the other will have conflicting objectives that is objectives which pull

in different direction.

For Kitwe city council, much as it would want to regulate farmers and social clubs, the successful

pursuit of this objective would result in loss of revenue by club owners, and in turn this would

collect from the tavern and social club owners.

There are a number of approaches to managing such conflict which the council Secretary would

employ.

Satisfying

Satisfying would involve partly meeting each objective with the given available resources. In the

case of Kitwe City Council, it would need to regulate the taverns and clubs quiet in a reasonably

stringent manner which would still leave them making money out of which they will meet the levies

obligation to the local authority (council)


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Prioritizing

The council secretary can also consult the top council team to decide which of the objectives the

council would prioritize between the maximization of revenue collection and regulation of

bars/taverns to create sanity in the community. If the council senior management team decidesthat regulation is more noble, then the council should take regulation as the more superior

objective and pursue it.

Shifting Duties to law Enforcement Wings

Alternatively the Council Secretary and the deputies would lobby the government to give some of

the law enforcing duties to the necessary law enforcement wings such as state police, the anti-drug

enforcement agencies to help in regulating of taverns and bars and ensure that all the laws as

regards social club patronage are strictly adhered to. This will likely lift the burden of attending to

too many objectives by Kitwe City Council and free up human capital for employment on other

activities.


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Solution 6

(a) The BCG Matrix is a model used to analyze the portfolio of strategic business units, investments

and products according to their cash generating capabilities whose function is relative market

share and market growth rate. This results into 4 categories being: question marks (future

potential earners), stars ( increasing good positive cash flow), cash cows (cash rich) and dogs

(declining cash flows)

(b) Hassan has four strategic choices when we look at the BCG Matrix. They include:

Build-this is where Hassan uses funds from other products to invest in question marks or stars.

These funds are usually harvested from cash cows. This is about moving excess cash around

various product lines especially those with potential for growth but lacking own funds for

reinvestments.

Hold-this is where funds are ploughed back or profits reinvested. This is applicable to question

marks and stars.

Harvest-this is where funds are milked out of cash cows and used to build question marks and

stars.

Divest-this is applicable in cases where Omar discontinues operations of product lines that are no

longer profitable.

(c) The limitations include:-

(i) Market information regarding aggregate demand and market shares held by competing

firms may not be readily available or too expensive to obtain.

(ii) Too simplistic by assuming that cash flow is affected by only market growth rate and

relative market share.

(iii) Assumes that only longer staying firms in the market can build competitive edge. In modern

business environments, this is not possible. We have seen new entrants easily overtaking

long established firms.


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Solution 7

Part (a)

The Balanced Scorecard is a performance planning and measurement framework, with similar principles

as management by objectives, which was publicized by Kaplan and Norton in the early 1990s, as a

means to overcome the traditional approach to performance evaluation that relies solely on financial

objectives.

Balanced scorecard is a tool to execute and monitor the organizational strategy by using a combination

of financial and non financial measures. It is designed to translate vision and strategy into objectives and

measures across four balanced perspectives: financial, customers, internal business process and

learning and growth. It gives a framework ensuring that the strategy is translated into a coherent set of

performance measures.

The Balanced Scorecard helps provide a more comprehensive view of a business, which in turn helpsorganizations act in their best long-term interests. The strategic management system helps managers

focus on performance metrics while balancing financial objectives with customer, process and employee

perspectives. Measures are often indicators of future performance

Part (b)

Implementing Balanced Scorecards typically includes four processes:

1. Translating the vision into operational goals;

2. Communicating the vision and link it to individual performance;

3. Business planning;

4. Feedback and learning, and adjusting the strategy accordingly.

Managers have to identify five or six goals within each of the perspectives (financial, customers, internal

business process and learning and growth), and then demonstrate some inter-linking between these

goals by plotting causal links to the perspectives. Having reached some consensus about the objectives

and how they inter-relate, the Balanced Scorecard is devised by choosing suitable measures for each

objective. This type of approach provides greater contextual justification for the measures chosen, and is

generally easier for managers to work through.

Part (c)

The balanced scorecard can be very costly. The firm must pay for the software, the consultant and

allocate time for staff to go through the training. All this can accumulate to levels the firm finds too high in

comparison to value derived.

In as much as the costs are easy to quantify, the benefits are difficult to quantify. In political

organisations or depending on perceptions, it is easy to believe that the cost is less than the benefit and

in some cases rightly so.


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Some organisations may be too smaller lack the organisational as well as information systems especially

integrated to successfully implement the balanced scorecard. In such cases, it would be wise not to

attempt to introduce the system until such a time that such gaps are closed up.

ChallengesA challenge of the Balanced Scorecards is that the scores are not based on any proven economic or

financial theory, and therefore have no basis in the decision sciences. The process is entirely subjective

and makes no provision to assess quantities (e.g., risk and economic value) in a way that is actuarially or

economically well-founded.

Another challenge is that the Balanced Scorecard does not provide a bottom line score or a unified view

with clear recommendations: it is simply a list of metrics.

Some people also claim that positive feedback from users of Balanced Scorecards may be due to a

placebo effect, as there are no empirical studies linking the use of Balanced Scorecards to betterdecision making or improved financial performance of companies.


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PROFESSIONAL LEVEL


SERIES: DECEMBER 2010


INSTRUCTIONS TO CANDIDATES

1. You have ten (10) minutes reading time. Use it to study the examination paper carefully so that youunderstand what to do in each question. You will be told when to start writing.

2. There are FIVE questions in this paper. You are required to attempt any FOUR questions.ALL questions carry equal marks.



5. The marks shown against the requirement(s) for each question should be taken as an indication of

the expected length and depth of the answer.





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Question 1

You are the Chief Accountant for a new mine that is about to commence operations in Mufumbwe.

Your boss has just returned from a workshop on mission statements and requires your input to clarify

some questions he has regarding mission statements.Provide detailed notes on the following issues which he wants clarified regarding mission statements by:

(a) Evaluating the concept of the Mission Statement. (8 marks)

(b) Explaining the motivation behind the firms developing mission statement. (7 marks)

(c) Stating the contents of a mission statement (5 marks)

(Total: 20 marks)

Question 2

(a) Explain with examples the functions of corporate strategy in an organization. (12 marks)

(b) Discuss the functions of business strategy in a strategic business unit. (8 marks)

(Total: 20 marks)

Question 3

(a) Explain the term Stakeholder. (4 marks)

(b) Discuss how stakeholders exercise power (6 marks)

(c) Describe how an organization can neutralize stakeholder power. (10 marks)

(Total: 20 marks)Question 4

Sepiso detergents has faced serious challenges managing the portfolio of its products ranging from

washing powders/paste, bathing soaps and tooth pastes.

Currently the firm is using the BCG matrix to manage the portfolio of products. At a senior management

meeting, it was resolved that to gain better insight into understanding the performance of products, the

product life cycle model and product life cycle management be used as compliment to the BCG matrix.

As a newly recruited Management accountant, you have been asked to make presentation to seniormanagement at the next management briefing regarding a product life cycle management and product

life cycle.

The presentation must cover the following issues:

(a) The stages that the product goes through according to product life cycle. (12 marks)

(b) Contrast between the concept of Product Life Cycle Management and that of Product life cycle.

(8 marks)

(Total: 20 marks)


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Question 5

Strategy making is a key function of any successful manager. Many strategists agree that strategy is a fit

between what is obtaining in the internal environment of the organization and the dictates of the external

environment. However, the manager must consider a number of factors that shape any strategy.Describe any five (5) factors that shape strategy. (20 marks)

(Total: 20 marks)

Question 6

Buyantanshi Ltd. is a Zambian bank that has been conceived by transforming a mutual cooperative

foundation into a full fledged bank to offer traditional banking products of account for deposits and loans

to the general public. Buyantanshi ltd. is in direct competition with both local (other Zambian banks) and

international banks currently operating in Zambia. As a cooperative fund, (before change of status),

Buyantanshi Ltd, operated to satisfy the deposit taking and financing functions for its co-operativemembers. However, as a private sector bank, offering traditional banking products in a profitable

(economical) manner, there is increased focus on business profitability, balance sheet liquidity and

compliance to central bank regulatory requirements.

Buyantanshi (the mutual co-operative fund) employed large numbers of employees, many of whom were

relatives of the members of the fund. This sometimes brought laissez-faire attitude towards work. As a

result, the chief executive officer of Buyananshi Ltd., has made repeated calls for cultural change and

streamlining of bank operations in order to achieve increased profitability.

(a) Describe the factors that have dictated the culture of Buyantanshi Ltd. (12 marks)

(b) As an Accountant of Buyantanshi Ltd, write a report to the Chief Executive Officer of BuyantanshiLtd on ways in which he can improve the profitability of the bank. (8 marks)

(Total: 20 marks)

Question 7

Karibu is a Kenyan company that is setting up a Salt processing plant in Chavuma. Karibu has just been

given an operating license to process edible salt in Zambia. The senior managers of Karibu have made

a detailed study of the production logistics, political, socio-economical and technological realities

surrounding the potential production site and the general environment opportunities, both local and

international.(a) Discuss benefits that will occur to Karibu by internationalizing its business by expanding its

operations outside Kenya. (8 marks)

(b) Elaborate on challenges likely to be faced by Karibu under the Zambian environment.

(12 marks)

(Total: 20 marks)

END OF PAPER


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DECEMBER 2010


SUGGESTED SOLUTIONS


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Solution 1

(a) Evaluation of Mission StatementOne need not look beyond basic business policy textbooks to find the assertion that mission

statements, as a strategic planning and management tool, provide the basis for organizationalperformance and indeed, organizational survival.

A frequently repeated definition of a mission statement is that it is, abroadly defined but enduring

statement of purpose that distinguishes the organization from others of its type and identifies the

scope of its operations in product (service) and market terms.

Recognised as the starting point for a corporate identity program, mission statements are

described as wielding significant influence over organisational performance.

The conclusion of most commentaries on mission statements is that they are an essential factor

contributing to an organisations enduring success.For the mining company, the mission statement will help the firm define what its purpose is,

responsibilities to stakeholders and what impact in terms of its business it intends to make on the

market and environment.

(b) Motivations for Development of Mission Statements

They include:

(a)To inspire and motivate organisational members to higher levels of performance(ii) To provide a sense of purpose to members of the organization.

(iii) To guide resource allocation in a consistent manner.

(iv) To create a balance among the competing and often conflicting interests of various

organizational stakeholders.

(v) Providing a sense of direction.

(vi) Promoting shared values amongst employees.

(viii) And refocusing on organization during crises.

(c) Contents of a mission Statement

(i) Purposethe reason why the business exists defining its products and services.

(ii) Strategy also called commercial logic, looking at what markets, customers and key

stakeholders to focus on.

(iii) Valueslook at what the business believes in, for example customer is king

(iv) Behavioural standards brings in the aspect of culture, dos and donts, ethics and social

responsibility.

(v) Responsibility to stakeholders.


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Solution 2

(a) The following are the functions of a corporate strategy:

(i) Building and managing a high performing portfolio of business units (making acquisitions,

strengthening existing business positions, diverting business that no longer fit intomanagements plans.

(ii) Capturing the synergy among related business units and turning it into competitive

advantage.

(iii) Establishing investments priorities and steering corporate resources into business

(iv) Reviewing/revising/unifying the major strategic approaches and moves proposed by SBU

managers.

(b) The functions of business strategy are:

(i) Devising moves and approaches to compete successfully and to secure a competitive

advantage based on low-cost, differentiation and narrow focused/niche strategy

(ii) Forming responses to changing external conditions.

(iii) Uniting the strategic initiatives of key functional department for efficiency and productivity as

well as removal of unfitting situation and red tape.

(iv) Coordination across functional area strategies is best accomplished during the deliberation

stage (meetings and consultations). It avoids conflicts.


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Solution 3

(a) A stakeholder relates to an individual or organization with a stake, affected or affects an

organization. They include internal (employees and management), connected (shareholders,

suppliers and customers) and external (government and general public)

(b) This is done via three ways:

(i) Voiceby expressing displeasure or being vocal, some stakeholders can prevail over the

organizations, e.g. trade unions, government and the general public.

(iii) Exit those stakeholders with cash or material investment in the firm can threaten to

withdraw their investment if their objectives are not being met.

(iv) Loyaltysome stakeholders can use length of association with the firm to demand that the

firm honors the same loyalty by meeting their objectives.

(v) Stakeholder power is about twisting firms hand to bend to meet the stakeholders interests.

(c) Organisations deploy various methods to neutralize stakeholder power as follows:

(i) Involvementstakeholders with a lot of power and interest must be given active involvement

in the decision making.

(ii) Stakeholders with high interest but low power must be kept informed..

(iii) Stakeholders with high power yet low interest must be made satisfied to avoid awakening a

giant.

(iv) Those with both low interest and power must be educated.(v) Other methods include side payments, dialogue and information flow management.


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Solution 4

(a) The different stages in a product life cycle are:

1. Market introduction stage

Cost high

Sales volume low

No/little competition competitive manufacturers watch for acceptance/segment

growth losses

Demand has to be created

Customers have to be prompted to try the product

2. Growth stage

Costs reduced due to economies scale.

Sales volume increases significantly

Profitability

Public awareness

Competition begins to increase with a few new players in establishing market

Prices to maximise market share

3. Mature stage

Costs are very low as you are well established in market & no need for publicity.

Sales volume peaks

Increase in competitive offerings Prices tend to drop due to the proliferation of competing products

Brand differentiation, feature diversification, as each player seeks to differentiate from

competition with how much product is offered

Industrial profits go down

4. Saturation and decline stage

Costs become counter-optimal

Sales volume decline or stabilize

Prices, profitability diminish Profit becomes more a challenge of production/distribution efficiency than increased

sales

(b) Product Life Cycle Management is the succession of strategies used by management as a product

goes through its product life cycle. The conditions in which a product issold changes over time

and must be managed as it moves through its succession of stages.

The product life cycle goes through many phases, involves many professional disciplines, and

requires many skills, tools and processes. Product life cycle (PLC) has to do with the life of a


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product in the market with respect to business/commercial costs and sales measures; whereas

product life cycle management (PLM) has more to do with managing descriptions and properties of

a product through its development and useful life, mainly from a business/engineering point of

view. To ay that a product has a life cycle is to assert four things:

1. that products have a limited life,

2. product sales pass through distinct stages, each posing different challenges, opportunities,

and problems to the seller,

3. profits rise and fall at different stages of product life cycle, and

4. products require different marketing, financial, manufacturing, purchasing, and human

resource strategies in each life cycle stage.


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Solution 5

(a) Societal, political, regulatory and citizen considerationsWhat an enterprise can and cannot do concerning strategies is always constrained by what is

legal, by what is in compliance with government regulations and policies, by what is consideredsocially acceptable and by what constitutes community citizenship. Outside pressures may also

come from other sources special interest groups, the glare of investigative reporting. A fear of

unwanted political action, and the stigma of negative opinion also have an impact on the

organization.

More and more companies now consider societal values and priorities, community concerns and

for the potential for onerous legislation and regulatory requirements. The concept of corporate,

social responsibility is now showing in companys mission statements.

(ii) Industry attractiveness and competitive conditions

Industry attractiveness and competitive conditions are bit strategy determining factors. When a

firm concludes its industry and the environment has grown unattractive, it is better off investing

company resources elsewhere, it may craft a strategy of disinvestments and abandonment. When

competitive conditions intensify significantly, a company must respond with strategic actions to

protect its position. A strategist therefore, has to e a student of industry and competitive

conditions.

(iii) Specific company opportunities and threats

A well-conceived strategy aims at capturing a companys best growth opportunities and defendingagainst external threats to its well being and future performance. The particular business

opportunities a company has and the threats to its position that it faces are key influences on

strategy.

(iv) Organisational strengths, weaknesses, and competitive capabilities

Experience shows that in matching strategy to a firms internal situation, management should build

strategy around what the company does well and avoid strategies whose success depends heavily

on something the company does poorly or has never done at all. A companys strategy ought to be

grounded in what it is good at doing (i.e. its organisational strength and competitive weaknesses.)

(v) The personal ambitions, business philosophies and ethical beliefs of managers

Managers decisions are often influenced by their own vision of how to compete and how to

position he enterprise and by what image and standing they want the company to have. Managers

personal ambition, business philosophies, and ethical beliefs are usually woven into the strategies

they craft. Sometimes the influence of the managers personal values and experiences is

conscious and deliberate, at other times it is unconscious.


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Attitudes toward risk also have a big influence on strategy. Risk avoids favour conservative

strategies that minimize downside risk, have a quick payback and produce sure short term profits.

Risk takers lean more toward opportunistic strategies where bold moves can produce a big pay-off

over the long term. Risk takers prefer innovation to imitation and strategic offensives to defensive

conservation. Managerial values also shape the ethical quality of a firms strategy.

(vi) The influence of shared values and company culture on strategy

An organisations policies, practices, traditions, philosophical beliefs and ways of doing things

combine to give it a distinctive culture. A companys values and culture sometimes dominate the

kind of strategic moves it will consider or reject. This is because culture related values and beliefs

become so embedded in managements thinking and actions that they condition how the enterprise

responds to external events.


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a relatively new player in the Banking industry, it could have some areas in the business which

might still need to be well established. For instance the Laize-fare attitude among its employees,

many of them being relatives to members in the old cooperative fund (before transformation).

Business Strategy

The business strategy is the approach a business will take in ensuring competitiveness in the

markets it operates in with regards to its product offering pricing and customer handling.

This entails that culture will be dictated by the strategy in place just like Buyantanshi Ltd, most

commercial banks would want to offer high quality customer service.

The strategy of offering a high quality service calls for culture of excellence in all avenues of

managing Buyantanshi Ltd, no wonder the CEO of Buyantanshi is calling for total change in culture

and skills to ensure that employees of Buyantanshi Ltd reflect the culture that will foster excellent

service quality to customers.

(b) TO: THE CEO

FROM: ACCOUNTANT

DATE: XX/XX/XXXX

SUBJECT: IMPROVING PROFITABILITY

Given the current situation of business and your desire to enhance the profitability of the

Buyantanshi Ltd, please see the notes below which highlight ways in which the profitability of

Buyantanshi Ltd. can be improved.

Cost Management

Profit is a function of income and expenses of any business. Therefore, increasing income while

keeping tight control over expenditure will enhance profits of Buyantanshi Ltd, all department

heads should be sent cost reports for the units which they head for their review so that they

monitor the cost hitting the cost centres with a view to controlling them.

A cost management committee could be established to regularly meet and discuss all cost related

issues and brainstorm on how to manage costs and implement the cost reduction and controlinitiatives.

Customer Centricity

Buyantanshi Ltd should differentiate its banking services by being a customer centred bank,

meaning that Buyantanshi Ltd must begin to have increased focus on its customers with the

objective of satisfying the customer needs and desires to the least detail. For example, if an

individual applies for a debit card, bank should ensure that the card should be activated as quickly

as it is given to the customer so that they can transact on it.


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In case of account opening, it would be better if we reduce the time it takes to open an account on

our core banking system. This would have a lot of referral sales leads. Eventually our customer

base, hence revenue base would increase.

It should be noted here that there would be need to train employees of the bank in basic customerservice, and reward personnel that would be exhibiting new desired enhanced customer service

antiques.

Management of the Bad Book (Loan impairments)

In recent times, a lot of banks have found themselves in financial woos due to imprudent lending

and poor management of the bad loans.

It would be better to review our credit policies and the day-to-day credit operations. The credit

team in conjunction with the sales team must screen customers and ensure that credit dossiers on

credit worthiness are stringently adhered to. This will ensure that potentially toxic (bad) loans are

not booked by Buyantanshi Ltd. And finally the impact of any forth coming bad loans will be highly

reduced.


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Solution 7

(a) Corporate Image Enhancement

Corporations which are international players are usually perceived to have more expertise on

international business and markets, hence they are usually perceived to be superior in theiroperations and they are looked at as exposed businesses. This usually attracts customers due to

the perceived credibility and high confidence levels placed in them. Karibu going international, with

its gesture of establishing and operating the salt processing business in Zambia, it will enhance its

standing both in the light of the Zambian government together with the Zambian population.

Increased access to markets

One benefit which internationalization brings is the immediate access to an increased customer

pool. Since Karibu has been granted the payment (license) to operate the Salt plant in Zambia, it

has full access to the Zambian market, implying that it has about 13 million people (the Zambian) to

its customer base. If fully-exploited this immediate customer growth would increase Karibus

revenue and long-term profitability situation.

Tax Haven

As alluded to earlier, Karibu must have been attracted to make up its investment in Zambia by the

tax exemptions and holidays that was offered by the Zambian government.

By putting up the Salt plant in Zambia, Karibu is going to be given a number of tax credits which

will ease the pressures on the profits of the business in the early years of the businesss inception.

The tax credits (holiday) may be enjoyed on all machinery importation and on corporations profits.

Cost of Production

Yet another benefit of Karibus going international is the benefit obtained from the use of cheap

labour. With current high levels of unemployment prevalent in the country, Zambia has a huge

supply of cheap labour that can be tapped into.

In the final analysis, since Karibu will be tapping into very cheap labour, the total cost of production

at its salt plant will be relatively low. These cost savings will significantly contribute to health profits

for the business, therefore Karibu would have reasonably big profits to expand its operations and

give out as a dividend return to its shareholders (owners) back in Karibu.

(b) Challenges likely to be faced by Karibu under the Zambian Environment are:

(i) For Karibu to be successful, there must be a stable political environment.

(ii) Differences in currencies between Kenya and Zambia. Currencies differ in stability and real

value.

(iii) Differences in culture and lifestyles between Zambia and Kenya.

(vi) Consumers in Kenya do not have the same tastes as consumers in Zambia.

THE END


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PROFESSIONAL LEVEL


SERIES: JUNE 2010


INSTRUCTIONS TO CANDIDATES

1. You have ten (10) minutes reading time. Use it to study the examination paper carefully so that youunderstand what to do in each question. You will be told when to start writing.

2. There are seven (7) questions in this paper. You are required to attempt any five (5) questions.ALL questions carry equal marks.



5. The marks shown against the requirement(s) for each question should be taken as an indication ofthe expected length and depth of the answer.





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Question 1

You are the Chief Accountant for a new mine that is about to commence operations in Mufumbwe.

Your boss has just returned from a workshop on mission statements and requires your input to clarify

some questions he has regarding mission statements.

Provide detailed notes on the following issues which he wants clarified regarding mission statements by:

(a) Evaluating the concept of the Mission Statement. (8 marks)

(b) Explaining the motivation behind the firms developing mission statement. (7 marks)

(c) Stating the contents of a mission statement (5 marks)

(Total: 20 marks)

Question 2

(a) Explain with examples the functions of corporate strategy in an organization. (12 marks)

(b) Discuss the functions of business strategy in a strategic business unit. (8 marks)

(Total: 20 marks)

Question 3

(a) Explain the term Stakeholder. (4 marks)

(b) Discuss how stakeholders exercise power (6 marks)

(c) Describe how an organization can neutralize stakeholder power. (10 marks)

(Total: 20 marks)Question 4

Sepiso detergents has faced serious challenges managing the portfolio of its products ranging from

washing powders/paste, bathing soaps and tooth pastes.

Currently the firm is using the BCG matrix to manage the portfolio of products. At a senior management

meting, it was resolved that to gain better insight into understanding the performance of products, the

product life cycle model and product life cycle management be used as compliment to the BCG matrix.

As a newly recruited Management accountant, you have been asked to make presentation to senior

management at the next management briefing regarding a product life cycle management and product

life cycle.

The presentation must cover the following issues:

(a) The stages that the product goes through according to product life cycle. (12 marks)

(b) Contrast between the concept of Product Life Cycle Management and that of Product life cycle.

(8 marks)

(Total: 20 marks)


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Question 5

Strategy making is a key function of any successful manager. Many strategists agree that strategy is a fit

between what is obtaining in the internal environment of the organization and the dictates of the external

environment. However, the manager must consider a number of factors that shape any strategy.Describe any five (5) factors that shape strategy. (20 marks)

(Total: 20 marks)

Question 6

Buyantanshi Ltd. is a Zambian bank that has been conceived by transforming a mutual cooperative

foundation into a full fledged bank to offer traditional banking products of account for deposits and loans

to the general public. Buyantanshi Ltd. is in direct competition with both local (other Zambian banks)

and international banks currently operating in Zambia. As a cooperative fund, (before change of status),

Buyantanshi Ltd, operated to satisfy the deposit taking and financing functions for its co-operative

members. However, as a private sector bank, offering traditional banking products in a profitable

(economical) manner, there is increased focus on business profitability, balance sheet liquidity and

compliance to central bank regulatory requirements.

Buyantanshi (the mutual co-operative fund) employed large numbers of employees, many of whom were

relatives of the members of the fund. This sometimes brought laissez-faire attitude towards work. As a

result, the chief executive officer of Buyananshi Ltd., has made repeated calls for cultural change and

streamlining of bank operations in order to achieve increased profitability.

(a) Describe the factors that have dictated the culture of Buyantanshi Ltd. (12 marks)

(b) As an Accountant of Buyantanshi Ltd, write a report to the Chief Executive Officer of Buyantanshi

Ltd on ways in which he can improve the profitability of the bank. (8 marks)

(Total: 20 marks)

Question 7

Karibu is a Kenyan company that is setting up a Salt processing plant in Chavuma. Karibu has just been

given an operating license to process edible salt in Zambia. The senior managers of Karibu have made

a detailed study of the production logistics, political, socio-economical and technological realities

surrounding the potential production site and the general environment opportunities, both local and

international.

(a) Discuss benefits that will occur to Karibu by internationalizing its business by expanding its

operations outside Kenya. (8 marks)

(b) Elaborate on challenges likely to be faced by Karibu under the Zambian environment.

(12 marks)

(Total: 20 marks)

END OF PAPER


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JUNE 2011


SUGGESTED SOLUTIONS


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Solution 1

(a) Evaluation of Mission Statement

One need not look beyond basic business policy textbooks to find the assertion that mission

statements, as a strategic planning and management tool, provide the basis for organizational

performance and indeed, organizational survival.

A frequently repeated definition of a mission statement is that it is, a broadly defined but enduring

statement of purpose that distinguishes the organization from others of its type and identifies the

scope of its operations in product (service) and market terms.

Recognised as the starting point for a corporate identity program, mission statements are

described as wielding significant influence over organisatinal performance.

The conclusion of most commentaries on mission statements is that they are an essential factor

contributing to an organisations enduring success.

For the mining company, the mission statement will help the firm define what its purpose is,

responsibilities to stakeholders and what impact in terms of its business it intends to make on the

market and environment.

(b) Motivations for Development of Mission Statements

They include:

(i) To inspire and motivate organisational members to higher levels of performance(ii) To provide a sense of purpose to members of the organization.

(iii) To guide resource allocation in a consistent manner.

(iv) To create a balance among the competing and often conflicting interests of various

organizational stakeholders.

(v) Providing a sense of direction.

(vi) Promoting shared values amongst employees.

(vii) And refocusing on organization during crises.

(c) Contents of a mission Statement

(i) Purposethe reason why the business exists defining its products and services.

(ii) Strategyalso called commercial logic, looking at what markets, customers and key

stakeholders to focus on.

(iii) Valueslook at what the business believes in, for example customer is king

(iv) Behavioural standardsbrings in the aspect of culture, dos and donts, ethics and social

responsibility.

(v) Responsibility to stakeholders.


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Solution 2

(a) The following are the functions of a corporate strategy:

(i) Building and managing a high performing portfolio of business units (making acquisitions,strengthening existing business positions, diverting business that no longer fit into

managements plans.

(ii) Capturing the synergy among related business units and turning it into competitive

advantage.

(iii) Establishing investments priorities and steering corporate resources into business

(iv) Reviewing/revising/unifying the major strategic approaches and moves proposed by SBU

managers.

(b) The functions of business strategy are:

(i) Devising moves and approaches to compete successfully and to secure a competitive

advantage based on low-cost, differentiation and narrow focused/niche strategy

(ii) Forming responses to changing external conditions.

(iii) Uniting the strategic initiatives of key functional department for efficiency and productivity as

well as removal of unfitting situation and red tape.

(Iv) Coordination across functional area strategies is best accomplished during the deliberation

stage (meetings and consultations). It avoids conflicts.


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Solution 3

(a) A stakeholder relates to an individual or organization with a stake, affected or affects an

organization. They include internal (employees and management), connected (shareholders,

suppliers and customers) and external (government and general public)

(b) This is done via three ways:

(i) Voiceby expressing displeasure or being vocal, some stakeholders can prevail over the

organizations, e.g. trade unions, government and the general public.

(ii) Exitthose stakeholders with cash or material investment in the firm can threaten to

withdraw their investment if their objectives are not being met.

(iii) Loyaltysome stakeholders can use length of association with the firm to demand that the

firm honors the same loyalty by meeting their objectives.

(iv) Stakeholder power is about twisting firms hand to bend to meet the stakeholders interests.

(c) Organisations deploy various methods to neutralize stakeholder power as follows:

(i) Involvementstakeholders with a lot of power and interest must be given active involvement

in the decision making.

(ii) Stakeholders with high interest but low power must be kept informed..

(iii) Stakeholders with high power yet low interest must be made satisfied to avoid awakening a

giant.(iv) Those with both low interest and power must be educated.

(v) Other methods include side payments, dialogue and information flow management.


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Solution 4

(a) The different stages in a product life cycle are:

(i) Market introduction stage Cost high

Sales volume low

No/little competitioncompetitive manufacturers watch for acceptance/segment growth

losses

Demand has to be created

Customers have to be prompted to try the product

(ii) Growth stage

Costs reduced due to economies scale.

Sales volume increases significantly

Profitability

Public awareness

Competition begins to increase with a few new players in establishing market

Prices to maximise market share

(iii) Mature stage

Costs are very low as you are well established in market & no need for publicity.

Sales volume peaks

Increase in competitive offerings

Prices tend to drop due to the proliferation of competing products

Brand differentiation, feature diversification, as each player seeks to differentiate from

competition with how much product is offered

Industrial profits go down

(iv) Saturation and decline stage

Costs become counter-optimal

Sales volume decline or stabilize

Prices, profitability diminish

Profit becomes more a challenge of production/distribution efficiency than increased

sales


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(b) Product Life Cycle Management is the succession of strategies used by management as a product

goes through its product life cycle. The conditions in which a product is sold changes over time

and must be managed as it moves through its succession of stages.

The product life cycle goes through many phases, involves many professional disciplines, and

requires many skills, tools and processes. Product life cycle (PLC) has to do with the life of a

product in the market with respect to business/commercial costs and sales measures; whereas

product life cycle management (PLM) has more to do with managing descriptions and properties of

a product through its development and useful life, mainly from a business/engineering point of

view. To ay that a product has a life cycle is to assert four things:

(i) that products have a limited life,

(ii) product sales pass through distinct stages, each posing different challenges, opportunities,

and problems to the seller,

(iii) profits rise and fall at different stages of product life cycle, and

(iv) products require different marketing, financial, manufacturing, purchasing, and human

resource strategies in each life cycle stage.

Solution 5

(i) Societal, political, regulatory and citizen considerations

What an enterprise can and cannot do concerning strategies is always constrained by what islegal, by what is in compliance with government regulations and policies, by what is considered

socially acceptable and by what constitutes community citizenship. Outside pressures may also

come from other sources special interest groups, the glare of investigative reporting. A fear of

unwanted political action, and the stigma of negative opinion also have an impact on the

organization.

More and more companies now consider societal values and priorities, community concerns and

for the potential for onerous legislation and regulatory requirements. The concept of corporate,

social responsibility is now showing in companys mission statements.

(ii) Industry attractiveness and competitive conditions

Industry attractiveness and competitive conditions are bit strategy determining factors. When a

firm concludes its industry and the environment has grown unattractive, it is better off investing

company resources elsewhere, it may craft a strategy of disinvestments and abandonment. When

competitive conditions intensify significantly, a company must respond with strategic actions to


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protect its position. A strategist therefore, has to e a student of industry and competitive

conditions.

(iii) Specific company opportunities and threats

A well-conceived strategy aims at capturing a companys best growth opportunities and defending

against external threats to its well being and future performance. The particular business

opportunities a company has and the threats to its position that it faces are key influences on

strategy.

(iv) Organisational strengths, weaknesses, and competitive capabilities

Experience shows that in matching strategy to a firms internal situation, management should build

strategy around what the company does well and avoid strategies whose success depends heavily

on something the company does poorly or has never done at all. A companys strategy ought to be

grounded in what it is good at doing (i.e. its organisational strength and competitive weaknesses.)

(v) The personal ambitions, business philosophies and ethical beliefs of managers

Managers decisions are often influenced by their own vision of how to compete and how to

position he enterprise and by what image and standing they want the company to have. Managers

personal ambition, business philosophies, and ethical beliefs are usually woven into the strategies

they craft. Sometimes the influence of the managers personal values and experiences is

conscious and deliberate, at other times it is unconscious.

Attitudes toward risk also have a big influence on strategy. Risk avoids favour conservative

strategies that minimize downside risk, have a quick payback and produce sure short term profits.

Risk takers lean more toward opportunistic strategies where bold moves can produce a big pay-off

over the long term. Risk takers prefer innovation to imitation and strategic offensives to defensive

conservation. Managerial values also shape the ethical quality of a firms strategy.

(vi) The influence of shared values and company culture on strategy

An organisations policies, practices, traditions, philosophical beliefs and ways of doing things

combine to give it a distinctive culture. a companys values and culture sometimes dominate the

kind of strategic moves it will consider or reject. This is because culture related values and beliefs

become so embedded in managements thinking and actions that they condition how the enterprise

responds to external events.


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Age of the company

The companys culture will also to a large extent depend on the age of the organization. The age

of the company is basically how old the business is. Companies that are reasonably old will have

well established systems and business cooperating models by which they are managed. Usually

they will be stable businesses with well spelt out business procedures. In case of Buyantanshi Ltd,

a relatively new player in the Banking industry, it could have some areas in the business which

might still need to be well established. For instance the Laize-fare attitude among its employees,

many of them being relatives to members in the old cooperative fund (before transformation).

Business Strategy

The business strategy is the approach a business will take in ensuring competitiveness in the

markets it operates in with regards to its product offering pricing and customer handling.

This entails that culture will be dictated by the strategy in place just like Buyantanshi Ltd, most

commercial banks would want to offer high quality customer service.

The strategy of offering a high quality service calls for culture of excellence in all avenues of

managing Buyantanshi Ltd, no wonder the CEO of Buyantanshi is calling for total change in culture

and skills to ensure that employees of Buyantanshi Ltd reflect the culture that will foster excellent

service quality to customers.

(b) TO: THE CEO

FROM: ACCOUNTANT

DATE: XX/XX/XXXX

SUBJECT: IMPROVING PROFITABILITY

Given the current situation of business and your desire to enhance the profitability of the

Buyantanshi Ltd, please see the notes below which highlight ways in which the profitability of

Buyantanshi Ltd. can be improved.

Cost Management

Profit is a function of income and expenses of any business. Therefore, increasing income while

keeping tight control over expenditure will enhance profits of Buyantanshi Ltd, all department

heads should be sent cost reports for the units which they head for their review so that they

monitor the cost hitting the cost centres with a view to controlling them.


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A cost management committee could be established to regularly meet and discuss all cost related

issues and brainstorm on how to manage costs and implement the cost reduction and control

initiatives.

Customer Centricity

Buyantanshi Ltd should differentiate its banking services by being a customer centre bank,

meaning that Buyantanshi Ltd must begin to have increased focus on its customers with the

objective of satisfying the customer needs and desires to the least detail. For example, if an

individual applies for a debit card, bank should ensure that the card should be activated as quickly

as it is given to the customer so that they can transact on it.

In case of account opening, it would be better if we reduce the time it takes to open an account on

our core banking system. This would have a lot of referral sales leads. Eventually our customerbase, hence revenue base would increase.

It should be noted here that there would be need to train employees of the bank in basic customer

service, and reward personnel that would be exhibiting new desired enhanced customer service

antiques.

Management of the Bad Book (Loan impairments)

In recent times, a lot of banks have found themselves in financial woos due to imprudent lending

and poor management of the bad loans.

It would be better to review our credit policies and the day-to-day credit operations. The credit

team in conjunction with the sales team must screen customers and ensure that credit dossiers on

credit worthiness are stringently adhered to. This will ensure that potentially toxic (bad) loans are

not booked by Buyantanshi Ltd. and finally the impact of any forth coming bad loans will be highly

reduced.


49/50

49

Solution 7

(a) Corporate Image Enhancement

Corporations which are international players are usually perceived to have more expertise oninternational business and markets, hence they are usually perceived to be superior in their

operations and they are looked at as exposed businesses. This usually attracts customers due to

the perceived credibility and high confidence levels placed in them. Karibu going international, with

its gesture of establishing and operating the salt processing business in Zambia, it will enhance its

standing both in the light of the Zambian government together with the Zambian population.

Increased access to markets

One benefit which internationalization brings is the immediate access to an increased customer

pool. Since Karibu has been granted the payment (license) to operate the Salt plant in Zambia, it

has full access to the Zambian market, implying that it has about 13 million people (the Zambian) to

its customer base. If fully-exploited this immediate customer growth would increase Karibus

revenue and long-term profitability situation.

Tax Haven

As alluded to earlier, Karibu must have been attracted to make up its investment in Zambia by the

tax exemptions and holidays that was offered by the Zambian government.

By putting up the Salt plant in Zambia, Karibu is going to be given a number of tax credits which

will ease the pressures on the profits of the business in the early years of the businesss inception.

The tax credits (holiday) may be enjoyed on all machinery importation and on corporations profits.

Cost of Production

Yet another benefit of Karibus going international is the benefit obtained from the use of cheap

labour. With current high levels of unemployment prevalent in the country, Zambia has a huge

supply of cheap labour that can be tapped into.

In the final analysis, since Karibu will be tapping into very cheap labour, the total cost of production

at its salt plant will be relatively low. These cost savings will significantly contribute to health profits

for the business, therefore Karibu would have reasonably big profits to expand its operations and

give out as a dividend return to its shareholders (owners) back in Karibu.


50/50

(b) Challenges likely to be faced by Karibu under the Zambian Environment are:

(i) For Karibu to be successful, there must be a stable political environment.

(ii) Differences in currencies between Kenya and Zambia. Currencies differ in stability and real

value.

(iii) Differences in culture and lifestyles between Zambia and Kenya.

(vi) Consumers in Kenya do not have the same tastes as consumers in Zambia.

THE END

q and as-strategic management-june 2010 dec 2010 and june 2011 (1)

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