Finance Strategic

College of Accounting Sciences Department of

Management Accounting University of South Africa,
Pretoria
 PART TOPIC CHAPTERS
PART A The strategy process 1
PART B The organizational 4&5
ecosystem

PART C Generating strategic 2, 3, 7 & 9

options

PART D Making strategic 6&8

choices
PART E Strategic control 10 & 11
PART F Digital strategy MAC4866

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Introduction

Dear Student

A sincere welcome as a registered student of the module ENTERPRISE

STRATEGY. We trust that studying the tutorial matter will not only be interesting
and stimulating, but will also provide new knowledge and insights that will stand
you in good stead in your career and future studies.

Before starting your studies, it is important that you take note of the important
aspects which follow below.

General objectives of this module

This module will be useful to strengthen and deepen managers' and aspiring managers'
knowledge of enterprise strategies in organisations. It will also serve as preparation for
writing various papers at CIMA. The study material has been designed to equip you to

• integrate skills across functions, though it concentrates on developing the

knowledge and skills used in designing and implementing strategy
• develop strategy in a context by understanding in depth how the organisation's
external environment and stakeholders affect strategy development
• implement strategy by making sound theoretical judgements in choosing the right
tools and techniques associated with change management
• apply tools to assist in the evaluation of the performance implications of a given
strategy

In setting the tutorial matter and assignment questions for this module we have paid
particular attention to the general objectives of tuition at postgraduate level. Independent
research on your part, and working out answers to assignment questions, should provide
sufficient exercise to broaden your knowledge, develop your ability to think critically
and identify and solve problems and help you prepare for the CIMA examinations.

Learning outcomes of this module

Your undergraduate studies provided you with adequate background knowledge. In this
module, MAC4863, we will help you to expand this knowledge by giving you the
opportunity to gain insight in the important field of managing financial and management
information.

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On this level (NQF 8) it is believed that you should have mastered the following:
• the ability to deal with unfamiliar concrete and abstract problems and case studies
using evidence-based solutions and theory-driven arguments
• the ability to present and communicate information and opinions in well-structured
arguments, showing an awareness of audience and using academic/professional
discourse appropriately
• a capacity to operate in variable and unfamiliar learning contexts, requiring
responsibility and initiative
• a comprehensive knowledge of enterprise sStrategies in organisations

Prescribed literature

The prescribed book for this module is:

CIMA Study Text: E3 Strategic Management. Latest publication. Kaplan Publishing

You can access additional online resources associated with the CIMA Official books,
via the EN-gage website at: www.EN-gage.co.uk.

Refer to the inside of the cover page of the prescribed books for detailed guidelines on
how to access these online resources, where you will also find the unique pass key
(behind the scratch-off panel).

These tutorial letters are only wraparound “guides” for this module, so it is imperative
that you buy the prescribed textbook(s) listed above.

Supplementary literature

You are required to use the prescribed study material as the core and basis of your
studies and when answering assignment and examination questions. Thereafter you
can use supplementary literature as additional and/or complementary sources.

Visit the official CIMA Global website www.cimaglobal.com and click on the “Students”
tab for additional resources and material.

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CIMA verbs

Please be aware that CIMA places great emphasis on the definition of verbs. These
verbs will be used to guide students when answering assignment and examination
questions. Verbs used include:

• List – As it says, just provide a list. Each of the items on your list should be
expressed in terms of a full sentence, for clarity, but there’s no need to go any
further than that.
• State – Again, pretty obvious. Just say what you need to say in a fairly concise
manner. No need to explain or clarify, unless you think that what you’ve written isn’t
clear.
• Define – This is really asking for a dictionary or textbook definition, but your own
words can be used instead. Asking you to define something is simply a test of memory
– a pretty low level skill – but if you use your own words you’re actually doing
‘describe’ or ‘explain’, which is fine.
• Describe – A straightforward ‘what it is’ statement. Think of it as the next step on
from ‘list’ or ‘state’. However, you might need a short paragraph, rather than a single
sentence, depending on how complex or technical the issues are.
• Distinguish – One or more lists. You can only distinguish between things, so there
need to be two or more things given in the question. The trick here is only to list the
features of each of the things that make them different from each other.
• Explain – A tricky one. Quite often examiners ask you to explain something but get a
description instead. Think of it this way – if you are asked to describe a dog, it's easy:
Furry animal, four legs, goes ‘woof’. Now explain a dog. See what I mean? You
need more guidance as to what approach to take, or you need to decide on your
own approach. It’s not possible to explain what a dog is, but it’s easy to explain why
people keep dogs as pets, or how a dog may be trained. If you’re asked to explain
something, use a paragraph: Write a sentence that makes your point, then write
another to explain why the first sentence is so, or the consequences of the first
sentence. If your point still isn’t clear, write a third sentence that makes it clearer.
• Identify – To do this, it’s really necessary to have a scenario. It’s not really
application of your knowledge, but more a selective use of it. Think of ‘identify’ as
meaning ‘explain in this situation’. Go through what you’ve learned, and pick out only
the bits that apply to the situation described in the question.
• Calculate – Obvious. Do the maths.
• Analyse – Now we’re starting to get into the really difficult stuff. This is asking for a
series of detailed explanations, often opinions rather than facts, each with an
illustration (if appropriate). Think about ‘analyse the published accounts’: Calculate
some ratios, explain what you think they mean, relate them to each other, relate them
to the context of the question. Alternatively, what about ‘analyse the variances’? The
same set of steps? I think so.

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• Compare and contrast – Fairly obvious – an explanation of the similarities and
differences between two (or more) things. Compare and contrast a dog and a cat?
They’re both furry animals, but one goes ‘woof’ and the other ‘miaow’.

• Discuss – This is a tricky one. In order to discuss something, there needs to be an

‘argument’. In other words, you need two or more differing or opposing viewpoints.
Also, any discussion should, if possible, end in a conclusion. Think about, advantages,
disadvantages, conclusion. Or: reasons why, reasons why not, conclusion. Or: maybe
this, maybe that, conclusion. Can you ‘discuss’ one viewpoint? Sure. Examiners often
ask you to ‘discuss the advantages of’. Does that mean you have to do the
disadvantages as well? No. Simply go through the advantages, saying whether they
apply in this situation, or whether they’re each a major advantage or a relatively minor
one.
• Advise – Tell them what you think they could, or should, do. Construct a good,
comprehensive, argument that leads to one or more options for the owners or
managers (normally) to consider pursuing.
• Evaluate – The second of our ‘top level’ verbs, and another tricky one. Think of
evaluate as a higher level discuss. It might mean calculations, but it might not. You
can say how valuable something is in qualitative terms, as well as monetary. This is
easier to illustrate than to explain, so I’ll give an example later.
• Recommend – Just that. Tell them what to do. Often, when recommend is used in
an exam question, it’s the last requirement. If there are three requirements (a, b and
c), you might find that part (a) says ‘explain’ or ‘identify’, part (b) says ‘discuss’ or
‘evaluate’, and part (c) says ‘recommend’. Are these the three stages of the
recommend answer? I think so. If you get an exam question that asks you to
recommend, without any preceding requirements to identify and evaluate, you need
to do a series of things, identify and explain any reasonable options, evaluate each,
conclude and recommend. Once again, notice how you are breaking a high level
verb down into a series of steps, using verbs from lower in the hierarchy.

Test your understanding

The prescribed textbooks provide comprehensive examples, practical applications, as

well as a wide range of case study type questions on each topic with suggested solutions.
It is important that you work through the examples to compare your answers with the
suggested solutions. Please avoid the situation where you merely look at the suggested
solutions and then assume you understand them ‒ unfortunately it does not
work like this in the examination!

Note that your answers to questions in your textbooks should not be submitted for
assessment and correction. These questions are there to assist you in your studies.
Should you encounter problems answering them, this will be an indication that you do not
have the necessary knowledge on the subject matter.

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Assignments and examination

Questions in assignments and examinations may require you to integrate material from
different parts of the syllabus. Analysis and integration form an important part of studies
at postgraduate level.

Conclusion

We trust that the preceding sections will assist you in approaching your studies in the
module MAC4863 methodically and with greater understanding. Some of the literature and
questions in this module will obviously be unfamiliar to you, and you will meet new
concepts, but by the end of the module you will realise that you have not really moved
beyond the framework of the preceding guidelines.

Finally, we trust that you will enjoy doing this module. All the best with your studies.

MAC4863 Lecturer

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 PART A:
The strategy process

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CONTENTS

PART A: Evaluating strategic position and strategic options (18%) .................9

TOPIC 1: The strategy process............................................................................. 9

LEARNING UNIT 1: Introduction – organizational ecosystem ................................................ 10

LEARNING UNIT 2: The purpose of strategy ....................................................................... 10

LEARNING UNIT 3: Levels of strategy ................................................................................... 11

LEARNING UNIT 4: Types of strategy.................................................................................... 11

LEARNING UNIT 5: Perspectives to strategic planning .......................................................... 13

LEARNING UNIT 6: The role of the management accountant ................................................ 13

LEARNING UNIT 7: Summary................................................................................................ 14

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PART A: The strategy process (18%)

Introduction

The purpose of part A is to determine the processes involved in strategic formulation, the roles
and responsibilities of the Board of Directors and the Chartered Management Accountant in
strategic formulation and understanding the ecosystem in which the organization exists.

It is important that you go through all the “test your understanding” exercises in the prescribed
book.

Learning outcomes

After studying this topic, you should be able to

• define and explain the purpose of strategy

• discuss the types and levels of strategy
• outline the rational and emergent processes of arriving at strategy

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TOPIC 1: The strategy process

This topic consists of the following study units:

LEARNING UNIT 1: Introduction – the organisational ecosystem

LEARNING UNIT 2: The purpose of strategy
LEARNING UNIT 3: Levels of strategy
LEARNING UNIT 4: Types of strategy
LEARNING UNIT 5: Perspectives to strategic planning
LEARNING UNIT 6: The role of the management accountant
LEARNING UNIT 7: Summary

LEARNING UNIT 1: Introduction – the organizational ecosystem

For an organization to come up with the most appropriate strategy for its business it must
understand the ecosystem in which it exists.

A business ecosystem is the network of organizations—including suppliers, distributors,

customers, competitors, government agencies, and so on—involved in the delivery of a specific
product or service through both competition and cooperation.

LEARNING UNIT 2: The purpose of strategy

The term “strategy” has different meanings for different people, making it almost impossible to
come up with only one definition. However, CIMA defines strategy as:

‘A course of action, including the specification of resources required, to achieve a specific

objective’

Advantages of formal strategic planning (Long-term planning):

➢ Identifies risks by forcing managers to look ahead

➢ Ensures no strategic drift
➢ Easier for business to raise capital
➢ Helpful for less skilled/experienced managers

Disadvantages of formal strategic planning (Long-term planning):

➢ Too rigid (stifles innovation)

➢ Bounded rationality (key issues may be missed)
➢ Time consuming and slow which is a major problem in fast moving industries
➢ Expensive

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LEARNING UNIT 3: Levels of strategy

Corporate
Strategy
What business should we be in?

Business Strategy
Tactics to beat the competition

Functional Strategy
Operational methods to
implement tactics

Source: Author, 2015

FIGURE: Levels of Strategy

Study the information on this topic in your prescribed textbook.

LEARNING UNIT 4: Types of strategy

4.1 The rational model

This is a step by step approach and involves a number of interrelated stages, which you can
see from the diagram in the prescribed textbook (pg. 10)

The strategy follows a series of the following stages to create a strategy:

➢ Strategic analysis
➢ Strategic choice
➢ Strategic implementation

However, there are criticisms of this model, with some writers saying that it has little basis in the
real world.

Study the information on this topic in your prescribed textbook topic and do the “Test your
understanding” exercises.

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4.2 The emergent approach – Mintzberg

Research done by Mintzberg in 1987 proposes that little of the strategies followed by
organisations in the real world are as deliberately planned as the rational model would
suggest. They are rather a blend of planned strategy and unanticipated emergent strategy.
The dictionary definition for emergent is a process of becoming something.

4.3 Logical incrementalism

Incrementalism argues that formal planning is a waste of management time and, instead, the
organisation should adopt strategies that are small-scale extensions of past, successful
strategies.

In this less formal approach, small and slow changes are made, rather than once-off changes.

4.4 Freewheeling opportunism

In this less formal approach Opportunists ignore any formal planning, instead taking advantage
of opportunities as they arise.

Strategic planning for not-for-profit organisations (NFP’s)

Not-for-profit organisations have their own objectives, which are normally concerned with the
efficient use of resources. The strategic planning process can be more complex for NFPs since:

➢ multiple objectives are hard to prioritise

➢ objectives are more difficult to measure – usually non-financial
➢ influence/objectives of funding bodies
➢ recipients of the service are not the ones who pay for it

One way to address this problem is to use the ‘three E’s approach’ of the Audit Commission
to measure performance:

Effectiveness

The skill to select suitable goals and achieve them. Doing the right things.

Efficiency

The skill to make the best use of available resources in the process of achieving goals. Doing
things right.

Economy

Keeping costs down.

Study the information on this topic in your prescribed textbook and do the “Test your
understanding” exercises.

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LEARNING UNIT 5: Perspectives to strategic planning

5.1 The traditional approach – stakeholder

The approach first determines who the organisation’s stakeholders are and what their
objectives are before strategies are planned.

5.2 A ‘market-led’ or ‘positioning’ approach

This approach first looks at the markets and competitors before strategies are planned.

5.3 A ‘resource-based’ or ‘competence-led’ approach

This approach looks at what the organisation is especially good at, i.e. what gives it an advantage
over other organisations.

Study the information on this topic in your prescribed textbook and do the “Test your
understanding” exercises.

LEARNING UNIT 6: The role of the management accountant

In this section the role of the management accountant in helping to develop the organisation’s
strategy is discussed. Traditionally the management accountant provided internally orientated
information to management. However, with Strategic Management Accountants emphasis is
placed on information which relates to factors external to the organisation, as well as non-financial
information and internally generated information.

The strategic management accountant’s role is different to that of a traditional management

accountant as it is more forward looking and has a more external focus.

The strategic management accountant will therefore produce information as needed by

management to help support their business decisions. This may include (but is not limited to):

➢ competitor analysis
➢ customer profitability analysis
➢ product decisions – pricing, portfolio analysis, brand analysis
➢ investment decisions – acquisitions, disposals, mergers, strategic management systems.

Study the information on this topic in your prescribed textbook and do the “Test your own
understanding“exercises.

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LEARNING UNIT 7: Summary

Strategic planning is essential in all organisations. As you can see there are different approaches,
it is important that you know these and how they could be used as an alternative to the traditional
approach in an organisation. The role of the management accountant in the strategic planning
process is important. Corporate governance is the way an organisation polices itself. As a
management accountant it is your responsibility to know, understand and uphold all the policies

of corporate governance.

Relevant articles:

CIMA website:

Reinventing the management accountant by Professor Lee D Parker

http://www.cimaglobal.com/Documents/Thought_leadership_docs/VisitingProfessor/tech_presn
ot_reinventing_the_management_accountant_mar02.pd

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