CIMA PAPER E3 – STRATEGIC LEVEL

Enterprise Strategy

SMART Notes

Prepared by Darren Sparkes

Email: darrensparkesnotes@sky
darrensparkesnotes@sky.com
.com

CIMA E3 – Enterprise Strategy

Strategy These notes are not intended
intended to cover the whole of the E3 syllabus
syllabus © Darren Sparkes, 2010 1
 Contents Page No.
An important message from Darren………………………..3
Dealing with the pre-seen case-study material……………4
A message from the Examiners…………………………….5
Examiners comments November 2009…………………….6
The scope for numbers in the examination………………..7
Examination Technique……………………………….…..…8
Background to Paper………………………………………...9
Syllabus Overview………………………………………......11
Strategic Planning…………………………………..…….…12
Mission and Objectives…………………………………......13
Internal Analysis……………………………………………..14
External Analysis…………………………………………….15
Filling the Gap……………………………………………….16
Strategic Options……………………………………………17
Method of Growth…………………………………………...18
Strategic Choice and Implementation……………………..19
Change Management and other Implementation Issues..20
Developing an IT Strategy………………………………….22
Organisational Structure…………………………………….23
Marketing……………………………………………………..24
Profitable customers or products?....................................25
Business and Professional Ethics………………………….26
The International Market Place……………………………..27
Review and Control………………………………………….28
Con trol………………………………………….28

CIMA E3 – Enterprise Strategy

Strategy These notes are not intended
intended to cover the whole of the E3 syllabus
syllabus © Darren Sparkes, 2010 2
Thank you for requesting a copy of my ‘SMART Notes’.

The notes act as a learning and memory aid for the core models, theories and academic tools included in the syllabus.
However, in order to pass your examination the academic knowledge must be combined with extensive question practice
leading up to the examination.

Your examiner is not interested in the regurgitation of your knowledge but how you APPLY that knowledge to the
scenarios provided in order to answer the requirement set. The examiner feedback from every exam sitting confirms this.

I suggest that you should practice as many exam standard questions as possible before the examination. Your practice
answers can be a mixture of answer plans and full written answers to get through as many questions as possible. In
 particular, you must practice the new pilot paper for the new E3 examination.

However, I would also suggest that it is essential for you to practice at least one full examination to time before entering
the exam room. It is only by replicating the time pressure in the exam that you can appreciate the importance of time
planning on the day.

Keep a look out for relevant articles appearing in your professional magazine or on the Institute’s website prior to the
examination, particularly if they are written by the examiner.

I would welcome feedback on the notes.

And remember….

‘Whether you believe you can or you can’t, you’re right.’ (Henry Ford)

Regards,

Darren Sparkes

CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 3
 Dealing with the pre-seen material
The most significant change in the new E3 paper is the addition of ‘pre-seen’ case study material for Section A (scenario
common to all three strategic papers). This will be available for students to download from www.CIMAglobal.com around 6
weeks prior to the examination. The pilot paper pre-seen material has five pages. Once in the examination there will be
additional ‘un-seen’ case study material and the requirements. The pilot paper contains two pages of ‘un-seen’ material.

Once the real examination pre-seen material has been released by CIMA you should do the following in preparation for 
the exam:
 Complete a thorough analysis of the pre-seen material. As a start point you could conduct a corporate appraisal
(SWOT) of the organisation in question, that is, a full internal and external analysis (see pages 14 and 15 of these
notes). This should help you to recognise the major issues affecting the organisation. Pay particular attention to any
numbers and what they may tell you about the organisations performance and position.
 You should avoid too much emphasis on the research of industry information. Leave that for your T4 TOPCIMA
examination!
 From your analysis, identify the related syllabus areas and learn/review them in light of the position and problems of 
the organisation.
 You can now conduct some scenario planning. Think of the different scenarios that could appear in the un-seen
material and the requirements that could be asked by the examiner. Remember that there is likely to be at least four 
separate requirements.
 Practice your approaches to answering the scenarios that you have identified.
 Be warned, identifying likely requirements is a dangerous occupation. It is done here for you to start thinking more
widely about the pre-seen material. Once in the exam room you must FOCUS ON THE ACTUAL REQUIREMENT IN
THE QUESTION and avoid replicating an answer to a different requirement that you had prepared for.
 Purchase a revision kit from one of the big tuition providers that contain a number of mock exams (probably around 6
different un-seen scenario’s) based upon the actual pre-seen material and practise as many as you can to time.

It is essential that you familiarise yourself well with the pre-seen material before entering the exam room.However, this
must not be to the detriment of your wider studies. Remember, the Section A of the exam only accounts for 50%
of the marks. You will still have to complete two Section B questions that will be completely un-seen.

CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 4
 Approach Required
‘Overall this paper is a balanced test of the key syllabus areas and covers a
number of well used strategic tools and models. Candidates should not find
any surprises in this paper and a well prepared candidate should have no
difficulty in both demonstration of syllabus knowledge and in the application
of this to the various examination scenarios.’

‘It’s easy to get carried away with all the models covered in the (P6) syllabus
and forget why it’s there in the first place. The syllabus is at the top of the
business management pillar, but its title is very clear. It isn’t a business
strategy exam; it’s an exam in business strategy in the context of
management accounting.’

‘…candidates should recognise that depth of argument is desirable in

answers to this paper, and a series of brief points will never be rewarded
highly.’ (Co-examiners for CIMA P6)

CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 5
Extracts from the Examiners comments November 2009
Section A - Question 1
 Knowledge Management question very poorly answered as candidates had no clear understanding of
Knowledge Management
 ‘… with no reference to the scenario information.’
 Only generic benefits of knowledge management given with no reference to the scenario
 Insufficient depth of discussion – use of short form answers such as bullet points
 Provision of calculations good but limited critical analysis or discussion plus poor use of the scenario
information
 Basic description of the Five Forces model with limited application to the scenario

Section B
 Limited application
 General discussion of the process of competitor analysis
 Unjustified recommendations in terms of why they were appropriate to the short or long term
 Not answering the question set
 Insufficient application
 Description rather than evaluation of the proposed strategies
 Limited/no application
 Recommendations with no/limited justification
 Including a range of stakeholders not included in the scenario i nformation
 Some repetition of points made between each suggestion
 Imbalanced discussions of suggestions
 Limited/no justification of recommended course of action
 Part c a repeat of answer to part b

CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 6
 Cost of Capital
(debt / equity / WACC)

Company Discounted Cash flow

Valuations NPV / IRR / ARR

Enterprise Strategy

Expected Values The scope for  Costing

numbers/calculations in (DPP / CVP / CAP /
Absorption / marginal)
the examination

Variances including Pricing / transfer 

planning variances ricin

Ratio Analysis

CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 7
 Examination Technique to give the Examiners what they want
PADI – Plan, Analyse, Design, Implement
PLAN
1. USE 20 MINUTES READING TIME WISELY
Examine section B questions and choose the two on which you can MAXIMISE MARKS (not necessarily
•

those on your ‘favourite’ topics)

If you have some time left then analyse Question 1 requirements and skim read the Q1 un-seen material to
•

get a feel for the relevant issues and identify where the information is for each part of the requirements.

2. WORK OUT TIMINGS

Q1 = 90 minutes. Planning = 20-25 minutes, Writing answer = 65-70 minutes
•

Section B Questions = 45 minutes each. Planning up to 10 minutes, Writing answer 35 minutes.

•

Break down the time required for each part of the requirements using the marks as a guide. 1.8 minutes per 
•

mark in total, 1.4 minutes per mark after planning.

I suggest you start with Question 1 as you know you have 90 minutes to complete it.
•

START PLANNING IN YOUR ANSWER BOOK

3. ANALYSE THE REQUIREMENTS

Identify the verb, or verbs, and make it stand out. The verb tells you what the examiner wants you to do, e.g.
•

evaluate, recommend, analyse, calculate. Be sure to identify all the verbs in the requirement just in case
there is more than one thing to do, e.g. analyse and discuss, evaluate and recommend.
Identify key words. These tell you what to do it on or about, e.g. evaluate what?, recommend what?
•

4. ALLOCATE MARKS TO EACH VERB IN THE REQUIREMENT

This can now determine how much to write for each verb in the requirement
•

5. IDENTIFY RELEVANT MODELS, TOOLS, THEORIES FROM YOUR KNOWLEDGE BANK

CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 8
 6. DEVELOP HEADINGS AND NUMBERS LAYOUT
Put key elements of model in plan as headings, e.g. Porters 5 Forces analysis = 5 headings. Headings will
•

give your answer a framework and structure.

Use requirements to develop headings to show marker that you are answering the question asked
•

7. DISTRIBUTE MARKS ACROSS HEADINGS

This can now determine how much you write under each heading
•

ANALYSE
8. ANALYSE THE SCENARIO
Make brief notes in your plan under relevant headings from models/tools/theories and requirement
•

Find relevant numbers for calculations

•

DESIGN
9. THINK BEFORE YOU WRITE
Decide which points you are going to put in your answer (trying to put in everything usually leads to going
•

over time) and start with your strongest points

Decide how you are going to layout your answer to make life easy for the marker and maximise marks
•

IMPLEMENT
10. WRITE UP YOUR ANSWER TO MAXIMISE MARKS
Layout calculations in a logical and easy to mark format - Add value to calculations by asking ‘SO WHAT?’
•

Use as many headings as possible to give the answer structure

•

Short sentences in short paragraphs - Paragraphs of 3/4 sentences maximum - Looking for 2 marks for each
•

paragraph
PEE for 2 marks – Point, Evidence, Explain (So what?)
•

Leave a blank line between paragraphs to make your answer ‘easy on the eye’
•

Be strict with timings. When time is up on a question, or part of a question, move on.
•

Stick to answering the requirement – use your plan to keep you on track
•

REMEMBER THE THREE GOLDEN RULES – 1)APPLICATION 2) APPLICATION and 3)APPLICATION

CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 9
 • Evaluate the Key external factors affecting an organisation’s strategy

• Evaluate the impact of information systems on an organisation

• Advise on important elements in the change process

• Evaluate tools and methods for successfully implementing a change

Exercise professional programme
 judgement
Select relevant • Recommend change management processes in support of strategic
data information

• Evaluate the process of strategy development

• Evaluate tools and techniques used in strategy formulation

Determine appropriate
techniques
• Evaluate tools and process of strategy implementation
Candidate Requirements

Apply knowledge
and skills
Aims of the paper 
Background

Format of paper  Study Weighting

Section A 50%
• Compulsory
• Major case study, pre-seen and • Interacting with the Competitive Environment 20%
un-seen
• Usually four parts
• Case will include numbers • Change Management 20%

• Evaluation of Strategic Position and Strategic Options 30%

Section B 50%
• Choice of two from three • Implementation of strategic plans and performance evaluation 30%
• Each question up to three parts
• Will include short scenario

CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 10
 3 E’s – Efficiency, Economy, Effectiveness
Syllabus Overview
CSF’s SMART

Mission and objectives

Purpose,Strategy,Standards,Values
Mendelow power-interest matrix

PEST Stakeholder Analysis

Resource audit
M’s
External Analysis Internal Analysis
Core competences
Porters 5 Forces SARI
Corporate
Competitor  Appraisal
Analysis Value Chain
Benchmarking
(PROSAC)
SWOT PLC / BCG
Resource Based
vs Positioning
Withdraw
Strategic Ansoff’s product-
market matrix
Porter’s Generic Options
Strategies Risk
Acquisition vs organic vs joint development
Suitability, Acceptability, Feasibility Strategic Choice Cost/Benefit
Game theory, Real options
Change Management
HRM / IT Culture
Structure Implementation

International Trading Quality

Marketing
Ethics
Review and Control
CSF’s

Financial Measures SVA / EVA ®  Balanced Scorecard

ROI / RI Non-financial Measures KPI’s

CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 11
 Integrates activities Competitive advantage

Relationship with environment Corporate =

Whole Strategic level
or anisation
All stakeholders

Business = Tactical level

Long-term Strategy
‘Strategy is the direction and scope of an
organisation over the long term: which
achieves advantage for the Functional = Operational level
organisation through it’s configuration
of resources within a changing
(Johnson & Scholes)
Freewheeling Opportunism environment, to meet the needs of 
• Market Driven – reactive markets and to fulfil stakeholder 
expectations.’
• Hands on management
• Exploit complacent players
• Relies on leaders vision
Alternative Purpose
 √ 
• No formula for success
Take advantage of market
opportunities
Strategic
× Stock market problems
Planning • Respond and fit to environment
• Utilise scarce resources
Incrementalism (Lindblom) • Provide direction
• Building block approach Rational ‘Top Down’ Approach • Ensure consistent objectives
• Build strategy through incremental steps not radical • Monitor progress
shifts Mission & Objectives
 √  Accepts uncertainty of future
 √  Builds commitment
× May be too slow Corporate appraisal
Advantages Disadvantages
× Ideas often compromised
 √  Identification of  × Expensive (time
Strategic options strategic issues and money)
 √  Consistency of goals × Bureaucracy
 √  Improve × Stifles creativity
Emergent Strategy - ‘Bottom up’ (Mintzberg) performance/survival Less relevant in
Strategic choice ×

 √  Pro-active a crisis

Intended Deliberate Realised  √  Recognises
Strate Strate Strate Implementation environment
JSW  √  Optimum use of 
resources
Unrealised Review
Strategy Emergent
strategy
Position Strategic Strategy
E.G. Honda’s entry into the USA, 3M Analysis Choice Implementation

CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 12
 Advantages
Purpose • Resolve stakeholder conflict
• Set direction Criticisms
Strategy • Help formulate strategy • Meaningless terms used
• Communicates values to • Written retrospectively? S Specific
employees • Not communicated to M Measurable
• Marketing to customers employees A Attainable
Policies and • Ignored by managers
R Relevant
standards
T Timebound

Mission Statement
‘… the most generalised type
Values of objective which can be
thought of as its raison d’etre.’
Objectives

Mission and Determinants:

Flexibility
F
I
Innovation
Stakeholders Objectives Resource utilisation
Excellence (Quality of service)
R
E

Results:
Financial performance F
Mendelow’s Power – Interest Matrix Critical Success Competitiveness C
Bri nall et al
Low Interest High Factors
"The limited number of areas
in which results, if they are
Not for Profit Or anisations
A B satisfactory, will ensure
Low Minimal Effort Keep Informed successful competitive
Features of objective setting
 performance for the
Give Direction Education / organization.
• Multiple and contradictory objectives
Communication • Participation in objective setting
Power  • Providers of funding different to beneficiaries of service
They are the few key areas
• Priorities may change frequently
where things must go right for 
• Value for money a requirement not an objective
the business to flourish.
C D • Increased role of personal objectives
Keep Satisfied Key Players – If results in these areas are
High Keep Close not adequate, the
Intervention organization's efforts for the Economy Effectiveness
Participation  period will be less than (Inputs) (Outputs)
desired." 
Efficiency
(Process)

CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 13
 • Strategy • Valuable Strategic Porter’s Value Chain
• Manpower  S
• Structure • Rare Assets
• Management • Systems • Can’t be copied …identify activities within the firm which
• Money A
• Staff  • Not substitutable Architecture contribute to competitive advantage and
• Make-up Style Give access to wide those which do not.
• • R
• Machinery • Shared values range of markets
• Methods Skills I Reputation
• Materials
•
Primary Activities
• Markets • Inbound Logistics
Core Competences
• Management • Operations
‘…the activities or processes that Innovation
information • Outbound logistics
McKinsey 7 S critically underpin competitive
• Marketing and sales
Model advantage.’
• Service

9 M’s Support/secondary activities

Competences
Resources • Procurement
Threshold OR Core? HRM
Basic OR Uni ue? •

• Technology development
• Firm infrastructure
Resource Audit/ Uses
Position Audit • Streamline linkages
• Eliminate non-value added activities
Product Life-cycle • Business Process Re-engineering
Stages: • Benchmark key processes
• Introduction: high risk, little
competition, low volume, high
Internal Analysis Value Networks

•
advertising = losses + negative cash
Growth: increased competition, (Strengths & Weaknesses)
growing volumes, EOS, high
advertising = losses to profits +
negative to positive cash Problems: Benchmarking
• Maturity: steady repeat sales, high • Definition of axes
volumes, EOS, low level advertising
Portfolio Analysis • Definition of market
= profits + positive cash • No account of complimentary goods
• Decline: falling volumes, falling • Assumes high market share = 1. Determine processes to be
prices = profits to losses + positive advantage benchmark
to negative cash, divest 2. Choose type of benchmarking
3. Choose partner 
Balance the portfolio 4. Determine measures
Balance the portfolio BCG Matrix 5. Collect data
6. Learn and improve
Problems: Relative market
7. Implement changes
• No common shape High share Low
• Unpredictable
• Self-fulfilling prophecy STAR PROBLEM CHILD
High Build then Hold Build or Divest
• Product orientated – ignores market Competitive Internal
Losses to profits, negative Losses, negative cash
to ositive cash
Process/Activity
CASH COW DOG
Hold then Harvest Harvest then Divest
Low Profits and positive cash Profits to losses, positive BEST IN PRACTICE
to negative cash

CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 14
 Economic Social & Demographic Technological
• Globalisation • Income distribution • Internet P Prediction of Reaction
• Economic cycle • Education levels • Government spending on RnD R Resources
• Interest rates • Population size • Communications
• Inflation • Age profile • Speed/rate of change O Objectives
• Employment levels • Lifestyle changes • Processes and methods of  S Strategy
Exchange rates Market
Fashions and tastes production
• •

growth A Assumptions
• Consumerism • Transportation
C Competences
Political and Legal
• Taxation PEST analysis
• Government policy External, Environmental anal sis
• Foreign trade
regulations
Competitor 
• Monopoly legislation Anal sis
• Environmental
legislation External Analysis
• Employment legislation
•

•
Consumer protection
Protectionism
(Opportunities and Threats)
Porter’s 5 Forces
Threat from New Market Entrants Threat from Substitute
Barriers to Entry: (Competitive,
Technologies
• Economies of Scale Industry analysis) • Can same features be produced
• Other cost advantages cheaper?
• Capital requirements • Can new features be provided for same
• Access to distribution channels cost?
• Patents, Government policy
• Reaction of existing firms
Competitive Rivalry • Level of danger may be influenced by
Greatest where: barriers to entry and/or power of buyers
• Competitors of similar size
• Slow market growth rate
• High fixed cost industry
Power of Buyers • Lack of differentiation Power of Suppliers
Power greatest where: Power greatest where:
• Few buyers • Few suppliers
• High number of suppliers available • Few substitutes
• Cost is high proportion of buyers total cost Internal + External Analysis • High switching costs
• Low switching costs = Corporate Appraisal = Position • Threat from forward integration
• Buyers have low profits • Customer not significant to supplier 
• Buyers have full information
Appraisal= SWOT Analysis • Supplier has differentiated product
• Little product differentiation Strengths Weaknesses
INTERNAL

EXTERNAL
Opportunities Threats
CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 15
 Filling The Gap

Gap Analysis

Target
Objective
e.g. ROI Diversification
GAP New products
or new markets
Future Penetration
Plans
Efficiency

Current
operations

Scenario Planning
Time

1. Define the scope of the scenario

 Focuses management on future
possibilities
 Encourages creative thinking
 Encourages communication and
participation
 Identifies sources of uncertainty
 Identifies most important variables
CIMA E3 – Enterprise Strategy
2. Identify the major stakeholders
3. Identify basic trends
4. Identify key uncertainties
5. Construct initial scenario themes  Costly
6. Check for consistency and  Often inaccurate
plausibility  Uses resources on scenarios that will not
7. Develop learning scenarios materialise
8. Identify research needs  Tendency for managers to get carried
away
9. Develop quantitative models
 Risk of self-fulfilling prophecy
10. Evolve towards decision scenarios
These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 16
 • Strategic Assets Porters Five To beat the five
• Architecture PEST Forces forces
• Reputation
• Innovative ability
Porter’s Generic Strategies
Strategically develop
Harness core competences to organisation in line • Overall Cost Leadership
give sustainable competitive with environment (better margin, potential price cuts, entry
barrier, reduce supplier power)
advanta e
• Differentiation
(Premium price, better margin, barrier,
Positioning view reduce buyer power)
Resource Based Strategy
outside-in • Focus (Niche)
Inside-out (Cost or Differentiation, focus on market
needs, develop core competencies)
Method of Growth? (See next page)
What Basis?

Limitations Beware of ‘Stuck in the Middle’

• Definition of market
•

•
Ignores factors such as competitors
Suggests strategies in isolation
Strategic Options Uses
• Analyse rivals
• Suggest own strategy
What Direction? • SBU level strategy

Horizontal diversification – competitive products, Limitations

complementary products, by-products
Vertical Integration
Advantages
• Economies of combined
ops
Economies of control and
•
coordination
• Avoiding the market
• Tap into technology
Conglomerates
Advantages
• Flexibility
• Quick growth
• Access to capital
• Portfolio effect
• Avoidance of anti-
monopoly legislation
CIMA E3 – Enterprise Strategy
Do nothing
• Unclear definition of industry
 / Withdraw • Defines advantage in terms of position not
resources
Ansoff’s Matrix • Lack of empirical evidence
Products, existing and new (PEN) • Ignores middle ground
Disadvantages • Restricts firm to position in present
• Increased operational Markets, existing and new (MEN) industry
gearing
• Requires perfect information
• Reduced flexibility to
change partners • Market Penetration (cost reductions,
price reductions, advertising, minor product
• Capital investment needs
modifications)
• Product Development (exploit Risks
Disadvantages existing customers, RnD, buy-in and badge, • Product
• No additional benefit to JV’s, Licensing)
shareholders through
• Market
• Market Development (new markets • Operations and
synergies such as foreign markets, new segments such
• No operating advantages as adult to child or industrial to consumer) management
• Diversification (related = vertical • Financial
integration or unrelated = conglomerate)
These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 17
 Advantages Disadvantages Advantages Disadvantages
• Quick • Purchase premium • No premium for assets • Slow
• Lower risk • Integration issues • People development • Increases number of 
• Overcomes barriers to entry o Systems • Staged investment competitors
• Same number of competitors o People • Established culture • Overcoming barriers to
• Possible synergies o Culture • Introduction of new entry
• Possible under-valuation of  • Synergies do not technology and systems • No opportunity for 
target materialise easier  synergies
• Reputation of target • Possibility of grants • Higher risk

Porter’s 3 Tests for  Acquisition Organic

Acquisitions Growth
• The attractiveness test Acquisition versus
• The cost of entry test
Organic growth
• The better off test Divestment
Possible synergies  √  Quick
• Market  √  Higher price due to
• Economies of scale strategic value
• Shared activities
• Surplus assets
• Vertical integration
•

•
Skills transfer 
Dilution of risk
Method of  Withdrawal  √ 
Demerger 
Gives shareholders
•

•
Reduced power of 
buyers/suppliers
Tax advantages
Growth?  √ 
an exit route
Management can
focus on core areas
 √  Two companies can
develop separate
identities
Joint Venture
Separate business entity
with equity form two or 
more businesses
Joint Development
Methods Management Buyout
(MBO)
Strategic Alliance  √  Quick growth Consider 
Long-term agreement to  √  Access to competences • On-going involvement of 
Licensing  √  Less financial risk/outlay holding company
share knowledge, Giving the right to
competences, technology  √  Overcome product, market, • Why is holding company
exploit brand, recipe, operational risk selling?
for mutual benefit process etc for a × May lose competences • Loss of Holding company
share of the rofits × Train future competitors help, e.g. technical support,
Franchising × Brand infection finance services
Giving the right to exploit a business × Operational and contractual • Quality of management team
method/model in return for a capital sum disputes • Price
plus a share of the profits. Franchisor  × Ownership of assets • Personal risk, e.g. home at
usually provides support e.g. marketing, × Sharing of profits risk?
training, technical

CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 18
 Acceptability
Suitability Will the proposed strategy meet
Is the proposed strategy suitable for the Feasibility
the objectives of the organisation Has the organisation got, or can it get,
present situation and circumstances of the and, therefore, be acceptable to
organisation? the necessary resources to carry out the
the ma or stakeholders? strategy?
i.e. Is it suitable given the SWOT
analysis?

Strategic
Risk
Evaluation & Cost/Benefit
Choice
Game Theory Real Options
• Concerned with the interrelationships between t he competitive •‘…the net present value rule is not sufficient. To make intelligent
moves of a set of competitors investment choices, managers need to consider the value of keeping
• Can be a useful tool to analyse and understand different their options open.’ (Dixit and Pindyck, 1995)
scenarios
• Relies on two key principles: •…all business decisions are real options…they confer the right but not
- Strategists take a rational, informed view of potential the obligation to take some initiative in the future. (Lewent, 1994)
competitor actions
- If a competitors strategy allows them to dominate us then the Real options capture the value of managerial flexibility to adapt
priority is to eliminate that strategy decisions in response to unexpected market developments.

For example, taking competitor reaction into account, a company may

not be any better off by making a particular strategic move as it may be
cancelled out by the competitor. This may leave both companies worse
off than they were before. McKinsey’s 4 stage process for Real Options

1. Use standard NPV approach to produce valuation of investment

2. Use scenario planning to determine the potential futures

• Model the uncertainties in the project with event trees

3. Identify the decision options at key stages of the project

• Convert event tree into decision tree

4. Value the portfolio of options using the Black & Scholes portfolio approach

CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 19
 Unfreeze Change Refreeze
Role Task
Job Factors
Cultural Web
Strengthen Weaken Personal Factors • Stories
• Rituals Power  Person
• Symbols
Social Factors • Power structure
Driving Forces Restraining Forces • Organisation
resistance structure Handy’s cultural types
Organisational Factors • Control systems
Lewin’s Force
Field Analysis
• Participation
• Education & communication
Facilitation & support
Culture
Kanter’s prescription for creativity: The change •

‘The way we do things around here’

• Negotiation
process • Manipulation
A Acceptance of change • Coercion
N New Ideas
I Interaction Excellence Culture – Peters and
T Tolerance of failure
A Acknowledge creative behaviour  Waterman
Change
Management
Implementation P Productivity through people

Issues A
S
S
A bias for action
Stick to the knitting
Simple structure
C Close to the customer 
A Autonomy and entrepreneurship
Context of Change S Simultaneous loose-tight properties
H Hands on, value driven
Quality
Triggers ‘Fitness for use’
Organisational Development • Internal Customers
To increase: • External TQM
• Level of trust Quality control ‘Get it right
Likelihood of solving problems first time’ Competence
•
Types of change = reactive
• Openness of communication • Planned Quality
• Level of individual and group Emergent
•
Assurance =
responsibility for problem Incremental
•
proactive Commitment
Continuous
solving • Step 6 C’s improvement
• Transformational
Four costs of Quality:
Methods Appraisal
• Costs
• Survey research and feedback • Preventative
• Therapy groups (T-Groups) Communication
• Internal failure
• Team Building
• External failure
• Change Agents
Continued on next page
CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 20
 • Recruitment
• Appraisals • Commitment
• Training Motivation:
• Reward • Quality • Maslow – Hierarchy of needs
• Job design • Herzberg – Hygiene factors and motivators
• Involvement • Flexibility
• Status and security

HRM HRM HRM Behavioural Performanc e Financial

Strategy Practices Outcomes Outcomes Outcomes Outcomes

Staff understand org’n Guest model

goals & values Increased ability to
compete & add value of HRM
Networks
Groupware
HRM
Benefits
Motivated
workforce Intranet
People encouraged to
generate & use knowledge Turn tacit into explicit Implementation Systems

Knowledge = closest we
can get to ultimate
Organisational Issues (cont’d) Extranet

‘competitive advantage’ Knowledge

Management Sequences
Associations
Organisational Structure Information
Technological Systems Classification
barriers Technology
Politics
Issues / Data Mining -
Problems Turning data into Forecasting
Errors in data Reports
transfer 
information
De-motivation Data Clustering
Support Warehousing Large relational
Format of  strategic database
Social barriers information decision making

Improve quality
Support Speed up of data
Incompatible systems integrated value response times Predictive Descriptive
& processes chain to queries models models

Im lementation Issues cont’d

CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 21
 Strategic importance in predicted competitive

Beat the Low High

five forces Value
Generic chain Support – High Potential –
Key business strategies
Improve Innovative with high
areas L management future potential
Strategic o effectiveness but not
w critical to the
Cost importance
Strategic in current business
Considerations Weapon competitive
environment
PICK Key Operational– Strategic –
Implications H Critical to sustain Critical to future
i existing business business success
1. Identify business needs g
2. Identify IT gap h
Performance 3. Identify potential
opportunities

Peppard – Applications
Radical & fundamental Business Process Portfolio
change for quantum Re-engineering
lea s in erformance Developing an
1. Work backwards from
outcomes not tasks
Process IT Strategy McFarlan & McKenney’s
2. Empower the end user  Innovation Strate ic Grid
3. Increase access to Completely new and
databases
radical processes. Strategic impact of future systems
4. Link parallel activities
5. Capture information only
Low High
Earls 3 Levels of 
IS Strategy - IT Strategy
Organisation of 
Support – Turnaround –
systems No strategic value Expect info system
L to become
IM Strategy – o strategically
Supporting w important in the
IT Strategy – management Strategic future
Technology processes (COPT) impact of 
infrastructure current
systems
Factory – Strategic –
Technology H See strategic value Depend on info
i of info system now system for 
Control g but expect value to competitive
Planning h decrease in the advantage
Organisation future

CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 22

 
Entrepreneurial  
 √  Fast decisions  
 √  Responsive to market  
 √  Congruence
× No career structure
× No autonomy
× Single product & market
Centralised vs Decentralised
Functional Im lementation Issues cont’d
√  Economies of scale Divisional
√  Specialists with some autonomy  √  Multiple products &
√  Career structures markets
√  Frees up entrepreneur   √  Autonomy for SBU
× Slow decisions (bureaucratic) managers
× Functional silo’s  √  Training of SBU managers
× Few products & markets Career   √  Frees up senior managers
path  √  Focus on specific
products/markets
× Loss of congruence?
Employee
Quality Flexibility Autonomy × Duplication of effort
motivation
Speed
× Isolation of SBU
managers

S Strategy Decisions Motivation of 

mana ers
T Technology
O Ownership Features of 
Or anisation Checklist Congruence Matrix
P People  √  Breakdown of silo’s
 √  Shared knowledge
T Tasks  √  Skill development
I
E
Ideology
Environment
Organisational  √ 
×

×
Innovation and creativity
Dual command
Dilution of functional
S Size
Structure ×
authority
Time consuming meetings

Decentralisation S an of control
Mintzberg’s Structural
Advantages: Confi urations
Tall/Narrow • Simple structure =
• Frees senior   √  Promotional opportunities
management Strategic Apex entrepreneurial
 √  Smooth progression
• Better local decisions between levels • Machine bureaucracy
• Better motivation Techno- Support = functional
 √  More personal contact
• Flexibility structure Middle Line Staff  • Professional
• Training/career path bureaucracy =
decentralised
Operating core • Divisional form
Flat/Wide Greiner’s • Adhocracy = matrix
 √  Encourages delegation Growth Model
Disadvantages:  √  Quicker, more informed
• Loss of control decisions
• Loss of congruence  √  Encourages participation Growth through Revolutionary Crisis
• Duplication of effort of lower levels Creativity Leadership
• Extra costs of control  √  Lower management costs Direction Autonomy
 √  Promotions real and Delegation Control
meaningful Coordination Red Tape
 √  Closer contact between Collaboration Ps cholo ical saturation
senior management and
lower levels
CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 23
 Market Leader  Supplier Markets Recruitment Influence
- largest market share Markets Markets
Analyse environment
Referral Markets Internal and competitors – PEST
Market Challenger  Markets Marketing
- runner-up, fighting to / Porter’s five forces /
increase share Strategy PROSAC / 4P’s
Six Markets Model
Customer 
(Payne)
Market Follower  Markets
- runner-up, aiming to Market Segmentation and
hold share Marketing Target Market
…identify, anticipate and satisfy …division of the market into
Competitive homogenous groups of potential
Market nicher  customer requirements customers who may be treated
Strategies
- serve small segment, not similarly for marketing purposes
pursued by larger firms
Product Sales
Production • Geographic
• Demographic
o Age
Firm’s orientation o Gender 
o Income
A Awareness o Family life-cycle
• Social class
I Interest
D Desire Communications Mix:
Advertising
Marketing •

•
Psychological
Education
A Action Sales promotion
• Hobbies
Public relations
Personal selling Use of intermediaries:
• Economic criteria Marketing Research Undifferentiated
• Control criteria …systematic gathering,
Promotion Place recording and analysing of data Differentiated
about problems relating to the
marketing of goods and services
Marketing Mix – 4P’s Concentrated
…set of controllable
marketing variables used to Field Research (Primary Desk research
Price produce desired response in Product qualities data) secondar data
the target market Features, options,
range, warranty, Interviews, focus groups, External
packaging, branding questionnaires, Internal CSO reports,
• Cost based experiments, Test Accounts, Sales Business
• Target pricing reports, Customer  monitors, Trade
• Discriminatory pricing Product marketing
 journals,
Product Life Cycle com laints
• Psychological pricing news a ers
• Promotional pricing
• Product line pricing Product Brand Strategies Existing Product New Product
• Captive product pricing to meet Product
• Market skimming needs mix Existing Brand Line Extension Brand Extension
• Market penetration
New Brand Multi-branding New Brand
CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 24
 Sales (price x number of  Improving DPP:
Evaluation of DPP:
units – returns) Calculating DPP • Increase sales price
Increase sales volume • Too product focussed
•

LESS: Reduce costs of  • Easier and cheaper to cut price

•

stocking than conduct DPP exercise

Costs (unit cost + ordering Offer incentives • Ignores relationships between
•
Profits from sales of  products
+ inventory + storage + individual products
transport + shelf stacking +
wastage + breakage)
DPP – Direct Drawbacks:
Product • Hard to predict future behaviour 
Profitabilit • Hard to factor in competitors
Typical cost drivers: • Difficult to pinpoint life-cycle
• Product size stage
• Demand uncertainty • Uncertainty of environmental
Delivery cycle
Product View
• factors
• Ordering method

Profitable Consider:
• Present value of existing & future
purchases
Products or  • Probability of customer retention
• Probability of customer 
Single period view of 
value of customer 
CAP – Customer 
Account
Customers? •
purchasing new products
Costs of initial attraction
Profitabilit
Life-Cycle
1. Analyse customer base and divide into
Customer View
customer value
segments
2. Calculate annual revenues earned Developing Customer Relationships:
from customer segments Evaluation of CAP: Customer  Develop customer retention schemes
•

3. Calculate annual costs of serving the  Includes non-production costs Relationship for staff 
segment including the ‘hassle’ factor   Identifies customer groups of 
Marketing / • Reduce staff turnover 
4. Identify and retain ‘quality’ customers value to the firm Elevate customer retention in corporate
•

5. Eliminate or re-engineer unprofitable  Enables assessment of value of  Management

thinking
customers marketing expenditure Analyse detailed information on
•

× Leads to ill-judged product

customers and their buying habits
changes Focus marketing Monitor customer relationships
•
• Minimum order size × Calculation difficulties resources on
• Install telesales / EDI • Engage with customer 
× Single period view maintaining &
• Charge service fees • Develop ideas to increase loyalty
enhancing existing
• Impose flat order  DREAMED
customer base
charge
• Discriminatory pricing

CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 25
 C Confidentiality Equal opportunities
O Objectivity
P Professional due care Consumer health and safety
Professional Ethics Fair Trade
P Professional Competence ‘Self control, not self interest’
I Integrity Safety in the workplace
T Threats
Honesty in Advertising

Corporate Governance Sustainability

• Divorce of ownership and control
Issues
• Separate roles of CEO and Chairperson
• Audit Committee / Remuneration Committee Environment
• Directors re-election at least every 3 years
• Non-exec Directors Corporate Social
o Independent
Responsibility
o Role on audit / remuneration
committees
o Corporate conscience
o Mentors to inexperienced execs Views on Business Ethics
o Strategic value through expertise
Business and
Reputation
Professional ‘The business of 
and branding Small company business is business’
Innovation &
ideas from
advantage in the
supply chain
Ethics (Friedman)
close links to
communit Management to concentrate on
Competitive Avoid future Government policy maximising profits and
advantage shareholder wealth.

Recruitment Enlightened Self-Interest Businesses have no duty to

society.
Benefits to Business Firms should acknowledge their social
responsibilities. Societal benefits will arise as a
Relieve stress on
result of commercial success.
management
Attract ethical
investor funds

Competitive disadvantage No universal acceptance of  Conflict of CSR with shareholder wealth
Potential problems morals & ethics • Reduced revenues
• Increased costs
Deciding what is ethical • Diverts funds from shareholders
Disclosure of business information • Distracts management

Bad publicity from monitoring and enforcement

CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 26
 Political Political power 
Trade barriers Opportunities for  s onsorshi
reduced management PEST
Market Knowledge
Economies of 
Saturated home market Cultural scale
Diversit Financial

Reasons for growth in Reduced risk

Opportunities for lower  PROSAC
costs international business
Benefits of  General
POST
international growth risks 5 Forces
Pressure on COPPER
ROCE
Demand Conditions

Exporting
 √ 
 √ 
Low capital outlay
Low risk
The International Strategy,
Porter’s
Diamond Related &
 √ 
×
Can learn about market
May not meet customer needs Market Place structure,
& rivalry
‘National
Competitive
supporting
industries
× Perceived lack of commitment Advantage’
× High distribution costs

Methods of International Expansion Factor Conditions

Joint Venture &
Franchising
 √  Access to local resources Ethnocentric Multinational - Polycentric Global - Geocentric
 √  Reduced national sentiment
 √  Shared capital input
 √ 
• Perceives foreign markets as • See overseas market as • Standardise wherever possible,
Access to competences and
similar to domestic market distinctive e.g. RnD, Branding
knowledge
× Shared profits • Products & marketing mix • Customised products and • Market convergence may allow
constant marketing mix standardised product
× Lose competences
× Train competitor  • Standardisation to save time and • Increased overseas sales • BUT
× Operational disputes money volumes • Demand-driven
• Supply-driven policy BUT • Customised marketing mix where
• Fewer EOS giving higher costs, necessary = GLOCAL
Foreign Direct Investment so volumes not turned into profits
 √ 
CloserPto market
 √  Retain profits Exporting Joint venture, Franchising, Foreign Direct Investment
 √  More control
 √  Reduced operational conflicts STAFFING
× High financial risk
 √  Overcomes lack of host skills,  √  Alleviates cultural myopia,  √  Efficient use of HR, builds strong
× Staffing decision
× Integration difficulties unified culture, Transfers inexpensive culture and management
competencies × Limits career mobility, isolates HQ network
× Resentment by host, cultural from subsidiaries × Subject to National immigration
myopia policies, expensive

CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 27
 Transfer Prices:
• Marginal Cost – no incentive for 
seller & inflated profit for buyer  Problem:
• Full Cost (Cost Plus) – may be no no account taken of invested Return On Residual
incentive for the buyer & no capital used to generate
incentive for seller to control costs
Investment Income (RI)
profits
• Market price – no buyer incentive ROI
• Opportunity Cost – usually best
• Centrally set – uncontrollable Examples
• Negotiated – powerful divisions • Gross margin PBIT
• Net margin PBIT X 100 = % (CE x imputed interest rate)
• Cost % sales CE RI
Aims of performance measures: • Profit
• Motivation
• Congruence Relative Measure % Absolute Measure £’s
• Accurate reflection of performance Profit Related Measures
• Accountability/Controllability
• Reconcile long and short-term Problems: Problems:
• Sub-optimal • Absolute measure
investment poor for 

Benefits Review and Control •

decisions
Deplete capital
performance
comparisons
 √  Longer-term assets too early
measures
 √  More difficult to
manipulate
 √ 
Joint issues when used in isolation
Measures The Balanced Scorecard • Backwards looking measures
determinants and
results • Short-termist decisions
 √  Promotes goal • Open to easy manipulation of discretionary costs and
Financial Perspective capital employed
congruence
 √  Includes
stakeholders
Customer  Internal Business Conclusion
Perspective Perspective
Financial measures should not be used in isolation to
Potential measure performance but should be combined with
Innovation and non-financial measures.
Drawbacks
× Measures conflict Learnin Pers ective
with each other 
Shareholder 
× Requires cultural Economic Value
change Value Anal sis
× Overload –
Added (EVA®)
1. Identify CSF’s
‘paralysis by
2. Identify competences required for CSF’s The business should be
analysis’
3. Develop KPI’s for competences managed to increase
× Time and cost Adjusted NOPAT
4. Measure competence shareholder wealth – i.e. all
× No obvious (Adjusted CE x imputed interest rate)
5. Take action – continuous improvement activities and processes
relationship with EVA
shareholder wealth

CIMA E3 – Enterprise Strategy These notes are not intended to cover the whole of the E3 syllabus © Darren Sparkes, 2010 28