SBL

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 Chapter 1 concepts of strategy
一、What is strategy
According to Johnson, Scholes & Whittington (“JSW”) strategy is :
“the direction and scope of an organization over the long term, which achieves advantage in a
changing environment through its configuration of resources and competences with the aim of
fulfilling stakeholder expectations.”
Strategic planning is a long-term planning which considers the whole organization.
二、Levels of strategy planning
1. Corporate strategy :
（1）概念：deals with the overall purpose and scope of an organisation and how to add value
to the different parts (business units) of an organization
（2）举例：Should another range of shops be established (as Gap did with Banana Republic, a
more up-market chain)?
Should the company raise more share capital?
（3）分类：portfolio strategy 投资组合战略
Parenting strategy 培养战略
Directional / growth strategy 发展战略
2. Business-level strategy :
（1）is about how to compete successfully in particular markets
（2）举例：How will the company beat rivals and gain market share in Australia?
（3）关键词：competition
3. Functional / Operational strategies:
（1）are about how parts of an organization such as marketing, finance or IT support the
overall strategy
（2）举例：How will suitable premises be found and fitted out for the new range of shops?
三、Approach——JSW model of strategic planning

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1. strategic position / analysis
e.g 外部环境分析 、自身优势分析、企业文化分析、企业组织架构分析
【注】the core relationship ：

（1）外部环境分析——OT
① PESTEL （外部宏观环境的分析）
② 波特——Diamond model 钻石模型 （分析国家的竞争优势）
③ 波特——Five forces model 五力模型 （分析行业竞争环境）
④ 外部环境分析工具——industry lifecycle （企业所处阶段不同，竞争也不同）
⑤ 外部环境分析工具——scenario planning
（2）内部环境分析——SW
① value chain
② quantifiable analysis
 Ratios
 CSF / KPI
③ Benchmarking
④ Multi-variable analysis
 The balanced scorecard
 The building block model
2. strategic choices
e.g 要进入一个新的领域，是选择自行研发还是收购该领域的一个公司
（1）corporate level
① portfolio strategy
 BCG matrix
 Public sector portfolio matrix
② parenting strategy
 Ashridge portfolio model
③ directional / growth strategy
 Ansoff’s matrix
 Techniques——企业实现增长具体的方法（methods of development）

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 a. Internal / organic growth
b. Merger & acquisition
c. Strategic alliances
【注】任何 matrix 的分析思路均为：描述 x,y ；分类（象限） ；战略评估（SAF）
（2）business level （competition）——competitive strategy
① How to obtain competitive advantage?
 Generic strategy
 Strategy clock
 Marketing mix——7Ps
② How to sustain competitive advantage
 Strategic capabilities
 Price based strategies
 Further differentiation
 Lock-in
（3）strategic evaluation ——SAF
① S——核心：fit（契合度）
 Curtural 与企业文化是否契合
 Strategy 与企业的发展战略是否契合
② A——核心：shareholder
 Risk 股东的风险态度
 Return 股东要求的回报
 Claims 股东的诉求
③ F——核心：resources—9Ms
 Money / material / machinery
 Man / management / methods
 Management information system（MIS）/ make-up（名誉）/ marketbase
3. strategic into action (implementation)——project management
e.g 执行战略，调整战略
四、strategic drift

1. 定义：Strategic drift describes a situation where the organization’s strategy gradually, if

imperceptibly, moves away from the forces at work in its environment.
2. Causes of strategic drift:
• the organization’s underlying assumptions turn out to be invalid
• the pace of development overtakes it
• changes in the organization’s external environment
• changes in the organization’s internal environment

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 【注】造成 strategic drift 的原因——Icarus Paradox 伊卡洛斯矛盾
（1）辉煌往往会让企业遭到牺牲，沉溺于过去的辉煌而忽略了环境的改变
（2）做了正确的战略，但这个战略太过于领先于环境
3. Stages of strategic drift:
Incremental change → Strategic drift → Flux → Transformational change / death
4. Approaches to deal with strategic drift:
a) Regular assesses its environment for changes
b) Has flexible systems for reacting to changes in its environment
c) Develops an organizational culture that helps successfully cope with change
d) Has a clear idea of its mission and objectives
e) Has strong leaders

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 Chapter 2 External environment
一、The external environment——three levels
（1） global environment
（2） national environment
（3） industry or sector environment.
【注】The environment is particularly important as a source of threats (external changes which
could damage our business) and opportunities (external changes which we could exploit
to our advantage).
二、PESTEL（分析外部宏观环境）
PESTEL analysis is a framework for analysing the general environment, and anticipating the
future.
1. Political : Government action
such as—— changes in competition policy or consumer protection
The political environment includes taxation policy, government stability and foreign trade
regulations.
2. Economic
such as—— GDP changes, inflation, interest rates and foreign exchange rates
The economic environment includes interest rates, inflation, business cycles, unemployment,
disposable income and energy availability and cost.
3. Social : Factors in society
such as—— demographics and changes in tastes or culture
The social / cultural environment includes population demographics, social mobility, income
distribution, lifestyle changes, attitudes to work and leisure, levels of education and
consumerism.
4. Technological
Changes in technology that affect ways of working or the types of products and services
demanded
The technological environment is influenced by government spending on research, new
discoveries and development, government and industry focus of technological effort, speed
of technological transfer and rates of obsolescence.
5. Environmental :”Green” issues
such as—— pollution, climate change, wastage and biodiversity
The ecological environment, sometimes just referred to as ‘the environment’, considers ways
in which the organization can produce its goods or services with the minimum environmental
damage.
6. Legal and regulatory : Legal issues
such as ——changes in employment law, health safety and data protection
changes in industry-specific regulations
The legal environment covers influences such as taxation, employment law, monopoly
legislation and environment
三、Porter’s five forces model（分析行业环境）
The 5 Forces Model structurally analyses an entire industry or strategic group of close
competitors, and has two main uses:

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 a) Understanding the inherent attractiveness or profitability of a particular market segment
(or industry), then
b) Identifying actions relating to each individual force on the organization that:
• mitigate their damaging effects (threats), and/or
• promote the beneficial effects (opportunities).
1. Bargaining power of buyers
Powerful customers can force price cuts and/or quality improvements.
Bargaining power is high when a combination of factors arises. Such factors could include：
（1）买方购买量大，可能 Bulk purchase：
a buyer’s purchases are a high proportion of the supplier’s total business or represent
a high proportion of total trade in that market
（2）买方利润率已经极低了，公司无法再挤压买方的利润了
a buyer makes a low profit
（3）买方不在乎质量和送货速度，因此对价格的讨价还价能力强
the quality of purchases is unimportant or delivery timing is irrelevant, and prices will
be forced down
（4）替代品多
there are similar alternative products available from other suppliers.
2. Bargaining power of suppliers
The power of suppliers to charge higher prices will be influenced by the following:
（1）the degree to which switching costs apply and substitutes are available
（2）the presence of one or two dominant suppliers controlling prices
（3）the extent to which products offered have a uniqueness of brand, technical performance
or design not available elsewhere.
3. Competition/rivalry
Intensity of existing competition will depend on the following factors:
（1） Number and relative strength of competitors.
The competition in a market can range from perfect competition through to monopoly.
（2） Rate of growth. ‘
Where the market is expanding, competition is low key.
（3） Where high fixed costs are involved companies will cut prices to marginal cost levels to
protect volume, and drive weaker competitors out of the market.
（4） If buyers can switch easily between suppliers the competition is keen.
（5） If the exit barrier (i.e. the cost incurred in leaving the market) is high, companies will
hang on until forced out, thereby increasing competition and depressing profit.
4. Threat of new eintrants
The threat from new entrants will depend upon the strength of the barriers to entry and the
likely response of existing competitors to a new entrant. Major sources of barriers to entry
are:
（1）Economies of scale
where the industry is one where unit costs decline significantly as volume increases, such
that a new entrant will be unable to start on a comparable cost basis.
（2）Product differentiation
where established firms have good brand image and customer loyalty. The costs of

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 overcoming this can be prohibitive.
（3）Capital requirements
where the industry requires a heavy initial investment (e.g. steel industry, rail transport).
（4）Access to distribution channels may be restricted
（5）Cost advantages of existing producers, independent of economies of scale
e.g. patents, special knowledge, favourable access to suppliers, government subsidies.
（6）Know-how （技术秘诀）
（7）Regulation.
Governments or professional bodies might supervise and limit new entrants.
5. Threat of substitute products
Porter explains that‘Substitutes limit the potential returns ... by placing a ceiling on the
price which firms in the industry can profitably charge’.
The better the price-performance alternative offered by substitutes, themore readily will
customers switch.
四、Industry Lifecycle——企业所处阶段不一样，竞争也就不一样
The stage of an industry in its life cycle may have particular implications for costs.
For example, a software industry in its early stages may incur high R&D and marketing costs
but later on variable costs will be low.
A manufacturing industry may have higher variable costs throughout its cycle.

五、Scenario planning——外部环境分析工具
1. 概念：
PESTEL and 5 Forces analysis often focuses on the 'most likely’ potential future market state.
Scenario planning is therefore often employed by organisations in order to force managers
to think about other potential future market positions. In scenario planning the key
environmental factors are identified and the firm then considers how these might change in
the future. Plans are then considered for each of these eventualities.
2. The most common approach to scenario planning is to create three potential future
scenarios:
（1）The most likely scenario — this reflects the majority of managements’ expectations of
the future possibilities for the market.
（2）The best case scenario 一 this reflects a position where the key environmental factors

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 move in a favourable direction for the organization
(for example, if the product becomes fashionable, the economy improves, competitors
fail to react to changing technology etc.).
（3）The worst case scenario — this reflects a position where the environment turns against
the organisation (for example, if there were more entrants into the market or if the
economy where to suffer a period of recession
The organisation can then evaluate how it might react to these changes.
六、National environment——Porter's competitive advantage of nations（分析国家竞争优势）
四个维度（图）+ government + chance

Michael Porter observed that some nations’ industries are more successful than others’,
and argued that conditions within a country may help certain firms to compete.
The inter-related elements that can be used to assess a nation’s competitive advantage
are:
1. Factor conditions （要素禀赋）
relate to the resources enjoyed by a country. These can be categorised as:
（1）Basic factors
e.g. natural resources, climate, semiskilled or unskilled labour
（2）Advanced factors
factors requiring development, e.g. communications, education of the workforce,
research capability
2. Demand conditions
strong demand and sophisticated customers tastes will drive quality up and costs down
through economies of scale and the learning curve
3. Related and supporting industries
can provide a good local supply chain and hence quality and cost advantages
4. Firm strategy, structure, rivalry
the national cultural factors in the nation, and social attitudes can lead to an advantage
in certain industries. Intense domestic rivalry means that firms need to perform well to
survive and may encourage them to look for export markets

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 Chapter 3 understanding and delivering value
一、内部环境分析工具——Value chain

1. Michael Porter developed the value chain to analyse a firm’s activities – ways in which they
add value.
2. The activities in the value chain are as follows:
（1）primary activities——value added
a) Inbound logistics – receiving, storing and handling stocks of raw materials
e.g Inbound logistics are activities associated with receiving and storing the inputs to
the production process. In terms of the costs identified in the scenario, inbound
logistics are concerned with raw foodstuff costs, the costs of cans and the transport
costs (goods inward).
b) Operations – processing raw materials into finished goods
e.g Operations are concerned with the production activities associated with turning
inputs into their final form, outputs. Production at Noble Pets involves the
processing of the raw materials, canning and labelling. In the context of the scenario,
these are represented by production costs and direct labour costs.
c) Outbound logistics – storing finished goods and distributing them to customers
e.g Outbound logistics are the activities involved with distributing the product to the
customer, in this instance the wholesalers and supermarkets. This area is
represented by transport costs (goods outward) included in the table given in the
scenario.
d) Marketing and sales – marketing and selling activities
e.g Sales and marketing is concerned with the activities which make the buyer aware of
the product (marketing) and also provide a means by which the buyer can purchase
the product (sales). No details of the costs of sales and marketing are provided in the
table.
e) Service – after or during sales services separate from the product
e.g Service activities are designed to support or enhance the product. Normally, these
include services such as installation, repair, training and part supply. (eg warranties)
（2）support activities
a) Procurement – purchasing function
b) Human resources – all functions related to staff recruitment and development
c) Technology development – management of IT and R&D functions
d) Infrastructure – everything else! (eg senior managers and finance function)
3. 经验之谈
It is vital that the linkages between different elements of a value chain are considered. But

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 what you are supposed to keep in mind is :
（1）Ensure consistency. Any cost advantages within the value chain do not compromise
overall quality.
（2）Through linking separate activities more effectively than competitors, a firm can gain a
competitive advantage.
Since to gain a competitive advantage, a company must either:
 Perform value creation functions at a lower cost
 Perform them in a way that leads to differentiation and a premium price
（3）Different organizations, different strategies, different value chains.
【注】Exam tips:
You might use Porter’s value chain analysis to decide how individual activities might be
changed to reduce costs of operation or improve the value of the organization’s
offerings.
Remember to link your analysis with the organization’s strategy.
二、Value system

1. 概念：A company's value chain is not bounded by a company's borders, it is connected to

what Porter describes as a value system.
2. 意义：As well as managing its own value chain, a firm can secure competitive advantage by
managing the linkages (ie relationships) with the value chains of its suppliers and
customers.
• For example, our inbound logistics needs to coordinate well with the outbound
logistics and operations planning of suppliers. Increasingly this will be facilitated by
the use of technology (eg extranets and EDI).
二、内部环境分析工具——quantitative analysis
1.financial ratios——Quantitative analysis
a) Protability
Return on capital employed (ROCE) = PBIT / (Debt + Equity)
Gross profit margin = Gross profit / Revenue
Operating profit margin = PBI / Revenue
Return on equity = PAT and preference dividends / Equity
Net asset turnover = Revenue / TALCL
b) Liquidity
Current ratio = Current liabilities / Current assets

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 Quick ratio (or acid test) = ( Current assets – inventories) / Current liabilities
Inventory turnover/days = Cost of sales /Inventories Inventories /Cost of sales*365
Receivables collection period / days = Trade receivables / Credit sales*365
Payables days = Trade payables / Credit purchases*365
c) Gearing
Debt/equity = Interest bearing debt / Equity
Financial gearing = Debt/ (debt + equity)
= Interest bearing debt / Interest bearing debt + Equity
Interest bearing debt = long-term debt on which the company is required to pay
interest. In some instances a persistent bank overdraft is classed as long-term debt.
d) Investors’ ratios
Dividend yield = Dividend per share / Share price
Dividend cover = EPS / Dividend per share
Price/Earnings (P/E) ratio = Share price / EPS
Interest cover = PBIT / interest
EPS = profit after tax an preference dividends / number of shares
2. Non-financial performance measures——quantitative analysis
CSF KPI
 Speed of response to customer needs
Customer satisfaction  Complaints rate
 Waiting time
 Labor turnover
Staff satisfaction  Days absence
 Overtime
innovation Proportion of new products and services to old one
 Relative market share and position
Competitiveness
 Sales growth by product or service
 Productivity measurement
Resource utilization  measurement of resources available against those
used
Quality of service No. of customer complaint
 Reworking costs;
Quality of output  reject rates;
 warranty cost
Flexibility Time to respond to customer demands
（1）Critical success factors（CSF）
①概念：Critical success factors are the essiential areas of the business that must be performed
well if the mission, objectives and goals of the business are to be achieved. They few
key areas where things must go right for the business to flourish.
JSW believe that CSFs are the product features which are particularly valued by a
group customers and, therefore, where the organization must excel to outperform its
competition.

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 ②CSFs 与 Completences 之间的区别：
CSFs are what an organization needs to be good at, while competences focus on what
an organization is good at.
③衡量指标：Key performance indicators （KPI）
（a）概念：KPIs are the measurements used to monitor the achievement of the CSFs.
（b）特点：KPIs 必须能够量化，但却不能附带具体数值
KPIs should be quantifiable, such that they can be compared to a standard or
target.
KPIs should not be given specific values. These specific values will be given in
performance objectives which relate to defined timeframes. This allows the KPI to
remain the same, but the performance objective can change.
三、内部环境分析工具——Benchmarking
1.概念：Benchmarking is where one organisation compares its performance in a specific area
to another organisation, the benchmark, to identify how much room there is for
improvement. It then attempts to implement improved practices to narrow the gap
between its own performance and the performance of the benchmark.
2. 内容：Benchmarking can come in different forms:
（1）Internal – division against division
（2）Competitive – company against competitor
缺点：信息的不可获得性
competitive benchmarking within the same industry
a) The competitor information is not available or that competitors use different
measurement techniques, providing an invalid comparison.
b) There is likely to be an absence of supporting information. A cannot be sure how B
has actually achieved XXX . So it does not know what it needs to put in place to
improve its XXX performance.
（3）Functional/Activity – single function against same function in a different industry.
External functional benchmarking where a particular function is compared with that
function in the organization which performs it best, regardless of what industry the
company is in.
优点：a) Non-competing organisations are more likely to share data than competitors.
b) With external functional benchmarking it is more likely that the comparator will
not only share results, but also the process which has achieved these results.
缺点：a) However, given that the comparator will be in a different industry, the
competitive situation might be quite different and this reduces the usefulness
of the comparison.
（4）Generic– similar process
3. benchmarking 的优缺点
（1）benefits
a. Help improve performance and add value
b. Improve understanding of environmental pressure
c. A creative process to change
d. A target to motivate and improve operations, thus competitive position
e. Increase rate of organizational learning

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 （2）dangers
a. Benchmarking does not always reveal the reasons for good/poor performance
b. In practice, staff are threatened and feared.
c. The more innovative companies are less concerned with benchmarking since if a
company focuses on the processes, the numbers will eventually self correct.
四、内部环境分析——Multi-variable analysis
Organizations should combine financial and non-financial performance measures in order to
provide a broader view of the organization’s performance and position. There are a number
of tools that can be used to do this. Two of these are explored below:
1. The balanced scorecard （FIIC）
The balance scorecard, developed by Kaplan and Norton, suggests that managers should
appraise performance from four perspectives:
（1） a financial perspective —how do we create value for our shareholders
this considers whether an organisation is achieving its financial targets and meeting the
needs of shareholders
（2）a customer perspective —how do customers see us?
this considers the organisation from a customer point of view to determine whether
the organization is meeting customer needs
（3）an internal business perspective —what must we excel at to achieve our financial and
customer objectives?
this considers whether the organisation’s processes are efficient as well as whether
employees are satisfied and motivated
（4）an innovation and learning perspective —can we continue to improve and create value?
this considers whether the organisation is continuing to improve and develop
2. The Building Block model（DSR）

五、总结：strategic analysis——SWOT analysis (corporate appraisal) （对内外环境的分析）

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 Chapter 4 strategic choice
一、corporate level
1. portfolio strategy ——Portfolio analysis tool
（1）Boston Consulting Group (BCG) matrix

a) 概念：The BCG matrix categorises SBUs in terms of market growth rate and relative
market share. It assesses SBUs based on financial performance only and as such
fits well with a portfolio manager approach.
Relative market share is measured by comparison with the largest competitor.
High market share means that the SBU is the market leader, which will tend to lead
to lower costs per unit.
b) 内容：
 Stars offer good future returns so the parent needs to invest in and develop them. Due to
the industry life cycle, stars will become cash cows in time.
 Cash cows do not need much investment so will generate cash income. Parents can use
this cash to invest in stars or simply provide a return to shareholders.
 Question marks should be assessed to see whether they have the potential to become
stars. If so, the parent should invest in them, if not, they should be sold or run down.
 Dogs can tie up funds and provide a poor return. In general, they should be sold off
although may be retained if they are a useful niche business.
c) 举例：
 题目：Analyze the position of each of the products using BCG matrix.
The company provides fruit juices to a number of supermarket chains that sell them
under their own label.
A: Freshly squeezed orange juice is doing fine. It sells in the same quantities now as it has
done for a number of years. Although margins are low, the company has sufficient
economies of scale to do very nicely in this market. ‘We have got advanced production
and bottling equipment and long-term contracts with some major growers. No
problems here’
B: Freshly squeezed pomegranate juice. Customers loved it in the tests, but producing the
stuff at the right price is a major hassle. ”We hope it will be a winner, once we get the
production right and start converting customers to it. After all, the market for exotic

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 fruit juices generally is expanding fast.’
 错误答案：Orange juice is a cash cow.
Pomegranate juice is a question mark, which the company wants
to turn into a star
 答题思路：Professional marks: Analyze=reasoned evidencing
Four steps: Market growth is high? low?
Market share is high? low?
Categorize
Evaluate strategies (Suitability? Acceptability? Feasibility?)
（2）Public sector portfolio matrix

The dimensions of the matrix are:

• value for money- this considers whether the service can be provided effectively
• the desirability of the service - public support and funding attractiveness
Position Characteristics Strategy
Attractive to the public and well Continue at current funding levels
funded. Funds are used well
Public sector star and the service goals are
achieved.

Very effective, but the-pubic Move funds to other services aim

believe that it is over-funded. to reduce the service or cut staff
Golden fleece
Numbers

Not effective and not desired by Remove this service

Back drawers issues the public

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 Very popular but not very
effective.
Putting a drain on funding that
Political hot box
could be used elsewhere
Either aim to change the public's
perceptions and change it into a
back drawer issue, or try to
improve effectiveness and turn it
to star

2. parenting strategy
 The Ashridge model

a) 概念：The Ashridge model assesses the level of “fit”between the parent and its
subsidiaries, and as such assumes the parental developer approach. This is
assessed by reference to two variables:
 “feel” / ability to add value:
The degree of fit between the parent’s skills and resources, and the critical
success factors of the SBU. This measures how well the parent understands what
the SBU must do well to succeed.
 “benefit”/ opportunity to add value:
The degree of fit between the parent’s skills and resources and the SBU
opportunities.
b) 内容：
 Heartland business:
The group has a good feel for the business and there seems to be a good fit
between the business opportunities and the characteristics and capabilities of the
group as a whole.
 Value trap business:
Value trap businesses present opportunities for parents to add value. However ,
the parents have a limited understanding of what is critical for the SBU to succeed
and so there is a high risk that they will make decisions that reduce value. If they
cannot be converted to heartland businesses they should be divested.
 Ballast business:
Ballast businesses are well understood by the parent, perhaps it has owned it for
many years or some of the parent managers previously worked in it. However, the
parent has no real opportunities to add value. Ballast businesses can provide
steady earnings but also be a distraction for management. If they cannot be
moved into heartland businesses, managers should consider divesting them.
 Alien business :

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 Alien businesses are poorly understood and offer no opportunity for adding value.
It is likely that value is being destroyed and they should be divested as soon as
possible.

3. growth / directional strategy

 Ansoff's matrix - Growth strategy
Product(orservice)
Existing / present new
Market
Withdrawal
Do Nothing
Existing / present Product Development
Consolidation
Market Penetration
Market Development Diversification
– Geographical – Related
New
– New Segment – Unrelated

1. Market Penetration
（1）概念：Market peneration means increasing market share of existing products via
promotions, price reductions, increasing usage etc.
It represents a relatively low risk strategy. Alternatively, a company may
simply aim to maintain or even reduce its position in a market.
（2）内容：Market penetration involves some of the following:
a) increasing the average spend per visit for existing customers
b) Increasing the frequency of visits for existing customers
c) winning customers away from rivals
d) encouraging non-users to buy
2. Market Development
概念：Market development means seeking new customers for existing products,
e.g. exporting or selling via new distribution channels.
Risk here is still reasonably low.
3. Product development
（1）概念: Product Development is selling new products to existing customers
(“cross-selling”).
This is slightly riskier as it may involve investment in new products and its
success may depend on the relationship a firm has with its customers.
（2） A company might show a preference for product development strategy to the
following reasons:
a) it holds a high relative share of the market, has a strong brand presence and
enjoys distinctive competitive advantages in the market
b) the changing needs of its customers demand new products
c) Continuous product innovation is often the only way to prevent product

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 obsolescence
4. Diversification
（1）概念：Diversification , selling new products to new customers, may offer significant
growth potential but it is risky as it may require significant investment and
new competencies.
（2）类别（techniques） ：
a) Unrelated/conglomerate diversification
 A firm moves into markets that are unrelated to its existing technologies and
products to build up a portfolio of businesses.
 Reasons:
 The company has developed skills in turnaround or brand management,
and can buy an ailing company very cheaply and quickly create value.
 It believes it has no real future in its existing product market domain.
 Benefits：
Increased flexibility / profitability
Ability to grow quickly
Diversification of risk
Avoidance of anti-monopoly legislation
Better access to capital markets
 Problems：
No synergy
No additional benefits for shareholders
No advantage over small firms
Lack of management focus
b) Vertical integration- this can take the form of forward or backward Integration
 种类：
Forward integration – moving towards the consumer – control of distribution
Backward integration – moving away from the consumer – control of supplier
 优缺点：

Advantages Disadvantages

a. Economies of combined a. It may not be cheaper to do it

operations b. Increased operating gearing
b. Economies of internal control c. Capital investment
Cost c. Economies of avoiding the d. Reduced flexibility to switch to
market cheaper suppliers
e. Dulled incentives

21
 a. Cut off from customers /
suppliers
Tap into technology – enhanced b. Reduced flexibility to switch to
Quality
ability to differentiate better suppliers
c. Differing managerial
requirement

a. Assured supply / demand Much more difficult to exit the

b. Defense against lock-out industry
c. Create barriers by controlling
Barriers
suppliers/distribution/retail
outlets

c) Horizontal diversification
 The strategy is undertaken when a company extends its activities into
products and markets in which it already possesses necessary expertise.
 synergy is highest in the case of horizontal diversification, especially if the
technology is related, but the disadvantage is that little additional flexibility is
provided.
 This type of strategy affects all parts of the value chain since fixed costs can
be spread over an increased number of units.
 Most diversification strategies are of this type. The strategy is undertaken
when a company extends its activities into products and markets in which it
already possesses necessary expertise. For example, a manufacturer of
televisions branching into the manufacture of DVD recorders, camcorders and
hi-fi equipment
 It refers to development into activities that are competitive with or directly
complementary to a company’s present activities. There are three case:
Competitive products.
Complementary products.
By-product.
 Benefits: Synergy is highest in the case.
A defense against substitutes
Widen the company’s product portfolio and reduce reliance on
one product or on powerful customers.
Less risk
 Problems: More understanding of different markets.
Some new strategic capabilities will be needed.
Synergies are not automatic and will need to be worked on.
More difficult to manage a diversified business.
5. techniques ——企业要实现 growth 的具体方法（Method of development）
（1）Internal development / organic growth – only using internal resources
① 适用情况：Internal growth, sometimes called organic growth, takes place when the
company grows by building on and developing its own existing

22
 competencies.
② 优点：a) Familiar
This market knowledge is a core competence, creating and reinforcing
competitive advantage.
b) A slower rate of change, associated with more gradual expenditure and
sustainable growth, may also minimise disruption to other activities within the
company.
③ 缺点（前提-international expansion） ：
a) However, international expansion is often very difficult to achieve with internal
growth. This can be due to government restrictions.
b) Cultural differences also inhibit organic growth. The company will have little
understanding of how business is done in the country, the expectations of
stakeholders or the way that business transactions are agreed and executed.
④ 优缺点总结：

（2） Mergers & acquisitions – combining with another organization

① 适用情况：An acquisition takes place when ownership is taken of another organisation.
② 优点： a) A compelling reason to develop by acquisition is the speed of entry it
apparently provides into a new product or geographical market.
b) Rapid growth through acquisition may also offer immediate economies of
scale
c) Acquisition may provide an opportunity for an organisation to address a lack
of resources or competencies in certain areas.
③ 相比于 internal development 的缺点：
a) the spread of cost may be easier to bear (internal development).
Acquisitions usually require a major expenditure at a certain point in time.
b) Internal development avoids the political and cultural problems arising from
post-acquisition integration
④ 优缺点总结：

23
（3） Strategic alliances – Joint Venture& Franchising some form of co-operation where two or
more organisations
① 适用情况：Strategic alliances take place when two or more organisations share
resources and activities to pursue a given strategy. Both companies seek
to gain benefits through co-operation.
An alliance would be used to enter a new geographical market where an
organisation needs local knowledge and expertise.
② 特点：One of the features of strategic alliances is the range of alliances that might be
pursued. Some alliances are very formal, others involve informal networking
between organisations with no shareholding or common ownership involved.
a) formal alliances——joint venture
 A joint venture is an arrangement where a newly created organisation is jointly
owned by the parents.
 In this instance, a new company could be created in Ceeland with the local
company providing labour, local expertise and countrywide knowledge.
MachineShop would provide the products, marketing expertise and finance.
b) informal alliances——franchise
 FRG would provide space in their stores for a MachineShop franchise to
operate.
In return, FRG would receive a franchise fee which would help it improve its
financial position, as well as it potentially benefiting from cross-purchases by
customers attracted to the store by the MachineShop facility.
 优点：
Such a loose arrangement could be put in place very quickly, compared to any
formal joint venture, acquisition or organic expansion.
 缺点：
One of the main problems of strategic alliances is the ability of the initiator to
find an appropriate partner.
There may also be a concern, at MachineShop, that once the partner
understands the dynamics of the market, they will steal the idea and promote
it as their own.

24
 ③ 优缺点总结

4. achieving international growth——Possible strategies for expanding internationally:

• Ethonocentrism
• Polycentrism
• Regiocentrism
• Geocentrism
二、business level （competition）——competitive strategy
1. How to obtain competitive advantage?
（1）Generic strategy
① Cost leadership
a) aim : Cost leadership aims to cut costs of production or purchasing or service and in

25
 turn, cut selling price --- to be the lowest cost producer in an industry.
b) how: Economies of scale
Use of learning effects
Using cheaper labour and materials
【注】Examples of how to achieve this:
• Decide whom you are competing against;
• perform value analysis and value chain analysis;
• understand your own cost and cost drivers;
• economy of scale;
• use of learning effect;
• using cheaper labor / materials / latest technology;
• moving to cheaper premises;
• concentrate on improving productivity.
c) benefits: High volumes
Win price wars
Creates a barrier to entry
Can operate in unattractive segments
Reduction in power of substitutes
Low costs give a platform for expansion (both gaining market share and
moving into new markets)
d) threats: Larger rivals (possibly from overseas market ) may enter the market
Strong Currency makes imports cheaper
No fallback position if leadership is lost (only room for one cost leader)
Internal focus rather than market demand
Over-reliance on input cost (increase would reduce price advantage)
e) Suitability: Large organizations with the economies of scale
② Differentiation
a) aim: To offer a product that can't be matched-by rivals and charge a premium for this
"difference"
b) how: Branding
Quality & design
Innovation
【注】Examples of how to achieve this:
Quality differentiation: not fundamentally different but just better
Design differentiation: offer the customer something truly different
Image differentiation: create product image; cosmetic differences
Support differentiation: something that goes alongside the product
Branding;
innovation;
knowledge management;
control over suppliers;
exploit other activities of the value chain
c) benefits: Builds brand loyalty and repeat purchases
Higher margins

26
 Reduce customers’ bargaining power
Uniqueness is entry barrier
d) Threats: Perform badly in a recession
Often easily copied in the long run（imitation can narrow differentiation）
Need to constantly innovate （changes in fashion）
Needs much higher marketing than cost leadership
High marketing cost
Few barriers to entry
Smaller volumes
e) suitability: It suits Innovative companies with large marketing budgets
③ Focus （niche strategy）
a) aim: Position the business in one particular niche in the market
b) how: Find a segment where the cost leader or differentiators have little or no
presence and build business here.
Reduction in product range
Providing goods and/or services at lower cost (cost-focus)
Providing a differentiated product or service (differentiation-focus)
c) benefits: Develops brand loyalty
Little competition
Often a first step towards the other generic strategies
Not spread itself too thinly (expert in your field)
d) Threats: Low volumes (sacrifice economy of scale)
If successful, it attracts cost leaders and differentiators
Few barriers to entry
e) suitability: It suits small businesses with entrepreneurial flair, strong market knowledge
and risk taking attitude.
【注】 A business that fails to achieve one of these generic positions will be stuck-in the middle.
It will lose some customers who will move down market to the cost leader, other
customers who will move upmarket to differentiators and others will move to rivals
who focus on their specialist needs.
（2） The Strategy Clock
An alternative way of identifying strategies that might lead to competitive advantages is
to look at ‘market facing’ generic strategies.
Competitive advantage is achieved if a firm supplies what customers want better or
more effectively than its competitors.

27
 ① A no frills approach seeks to deliver the lowest possible price.
It is most appropriate where customers are price-sensitive, switching costs are low and
there is little opportunity to compete on product feasures.
② A low price strategy seeks to provide a similar value of product or service to
competitors, but at a lower price. This is relatively easy for competitors to copy so will
only be sustainable if the company has a cost advantage over its competitors for a given
level of quality.
③ The hybrid approach attempts to simultaneously price lower than competitors while
delivering enhanced value to customers.
This may be achieved by producing higher volumes than competitors, or focusing very
clearly on one aspect of added value or a particular market segment.
④ Diffierentiation is a strategy aiming to provide services which are different or unique in
terms of value provided to customers.
This may be based on factors such as product quality , marketing or innovation.
Differentiation allows customers to earn a higher margin by charging higher prices, or
gain market share by offering more value at the same price as competitors.
⑤ Focused differentiation means providing high perceived value to justify charging a
significantly higher price than other products. This usually means targeting a specific
market segment.
2.How to sustain a competitive advantage —— Sustainable competitive advantage
（1）strategic capabilities
① 概念：Strategic capability is the adequacy and suitability of the resources and
competences an organisation needs if it is to survive and prosper.
② 内容：
（a） Resources:
Ø Tangible: physical assets such as machinery, labour, finance;
Ø Intangible: non-physical assets such as knowledge, knowhow, brand, reputation
（b） Competences:
the activities, processes and methods through which an organisation uses its

28
 resources effectively
③ 逻辑：strategy capability = unique resources + core competences
（a）unique resources : Those resources that critically underpin competitive advantage and
that others cannot easily imitate or obtain.
（b）core competences: The activities and processes through which resources are deployed
in such a way as to achieve competitive advantage in ways that
others cannot imitate or obtain.
④ 举例：organisational knowledge
（a） Knowledge is a strategic capability. An organisation’s knowledge of its environment
(such As expected technological changes, changes in substitute availability etc.)
can make it stand out from rivals. It can be more proactive towards its environment
and also be in a position to react quicker to environmental changes when
necessary.
（b）Increasingly, the knowledge within an organisation is seen as an important resource.
（c）Some organisations may even seek to develop knowledge management (exploiting
existing knowledge and creating new knowledge) as a core competence.
（2）price-based strategies
JSW identify four ways of suataining price-based strategy:
a) Having the lowest cost base in the industry (cost leader), which will require constant
and relentless focus on all costs throughout the value chain to drive them down.
b) Greater financial resources than competitors, which can allow you to win a price war.
C) A willingness to accept lower margins than competitors: either because it can sell
more volume than its competitors or because it can cross-subsidise that business from
other business units in th portfolio.
d) Careful focus on a customer segment that is particularly price-conscious.
（3）further differentiation
JSW identify three ways of sustaining a differentiation:
a) creating difficulty of imitation
b) Pursuing imperfect mobility of resources or competencies: increase the difficulty
and cost to the customer of switching its supplier
c) the re-investment of margin
（4）lock-in
Companies may achieve suatainable competitive advantage by lock-in, when their
product becomes the industry standard and other products must be compatible with it.
Sustaining competitive advantage may involve collaboration with customers, suppliers
and even potential competitors.( There is a fuller discussion of “boundary-less
organisations”)
三、strategy evaluation （SAF）
1. Suitability
（1）Suitability is concerned with whether a strategy addresses the circumstances in which an
organization is operating, the strategic position.
（2）Whether the options are adequate responses to the firm’s assessment of its strategic
position. (Environmental fit? Cultural fit?)
2. Acceptability

29
（1）Acceptability is concerned with the expected outcomes of a strategy. These can be seen
in context of stakeholder reactions, risk and return.
（2）considers whether the options meet and are consistent with the firm’s objectives and are
acceptable to the stakeholders.
① Risk (Financial ratio / sensitivity analysis: margin of safety / Risk attitude)
② Return (Financial and non-financial return
③ Stakeholders’ expectation (All stakeholders / Stakeholder mapping / Stakeholders’ risk
attitude)
3. feasibility
（1）Feasibility is concerned with whether an organization has the resources and
competencies to deliver a strategy. （staff/skills/finance/technology/experience）
（2）9Ms
 Money / material / machinery
 Man / management / methods
 Management information system（MIS）/ make-up（名誉）/ marketbase

30
31
 Chapter 5 Governance
一、Governance 的定义
1. ‘啰嗦版’:
Corporate governance refers to a set of relationships between a company’s directors, its
shareholders and other stakeholders. It also provides structure through which the
objectives of the company are set, and the means of obtaining these objectives and
monitoring performance are determined. (OECD 2004)
2.‘简略版’:
Corporate governance refers to the system by which organizations are directed and
controlled. (Cadbury,1992)
3.‘综合版’:
Corporate governance refers to the system by which companies are directed and
controlled by both of the inside and outside forces in the interests of shareholders and
other stakeholders.
二、Benefits of Corporate Governance （在评价内控或风险管理的好处时也可以用）
1. Safeguards the firm from misuse of business assets
2. Encourages ethical behavior and corporates social responsibility
3. Clearly defines/Increases accountability of managements for their decision making
4. Attracts new investments (assurance / comfort factor)
5.
三、perspective （狭义和广义）
1. narrow : 狭义上的公司治理关注的是 shareholder & management 之间的关系
agency theory
① agency relationship
 定义：An agency relationship is one of trust between an agent and a principal
which obliges the agent to meet the objectives placed upon it by the
principal.
 Any agency relationship involves two parties: a principal and an agent. The agent
is accountable to the principal.
The relationship arises from the separation of management and ownership in
public companies (and in other situations in society).
The primary purpose of agency is to discharge its fiduciary duty to the principal.
 Fiduciary duty
Fiduciary duty is a duty of care and trust which one person or entity owes to
another. It can be a legal or ethical obligation.
The duty is more onerous than generally arises under a contractual or tort
relationship. It requires full disclosure of information held by the fiduciary, a strict
duty to account for any profits received as a result of the relationship, and a duty
to avoid conflicts of interest.
② agency problem
 产生原因：
This separation of ownership from management can cause issues if there is a
breach of trust by directors by intentional action, omission, neglect or

32
 incompetence.
 Solution
a. 革命派——remove
One power that shareholders possess is the right to remove the directors from
office. But shareholders have to take the initiative to do this, and in many
companies, the shareholders lack the energy and organisation to take such a
step. Ultimately they can vote in favour of a takeover or removal of individual
directors or entire boards, but this may be undesirable for other reasons.
b. 建制派——exercise control
To alleviate the agency problem, shareholders have to take steps to exercise
control, such as attending AGMs or ultimately becoming directors themselves.
However agency theory assumes that it will be expensive and difficult to:
• Verify what the agent is doing, partly because the agent has available more
information about his activities than the principal does.
• Introduce mechanisms to control the activities of the agent.
③ Agency costs
The principals therefore incur agency costs, which are the costs of the monitoring that is
required because of the separation of ownership and management.
Common agency costs include:
• Costs of studying company data and results
• Purchase of expert analysis
• External auditors' fees
• Costs of devising and enforcing directors' contracts
• Time spent attending company meetings
• Costs of direct intervention in the company's affairs
• Transaction costs of shareholding
④ Transaction costs theory
• Companies will try to keep as many transactions as possible in-house in order to
reduce uncertainties about dealing with suppliers, and about purchase prices and
quality.
• To do this, companies will seek vertical integration (that is they will purchase suppliers
or producers later in the production process).
• Transaction cost theory also states that managers are also opportunistic ie organise
their transactions to pursue their own convenience.
• They will also be influenced by the amounts that they personally will gain, the
probability of bad behavior being discovered and the extent to which their actions
are tolerated or even encouraged in corporate culture.
⑤ 总结——Agency theory
a. Agency Relationship is a contract under which one or more persons (the principals)
engage another person (the agent) to perform some service on their behalf that
involves delegating some decision -making authority to the agent.
b. Agency theory is a collection of concepts describing the nature of the agency
relationship deriving from the separation of ownership and control. It is used to
study the problems of motivation and control when a principal needs the help of

33
 an agent to carry out activities.
c. An agent is appointed by the principal to carry out a task on their behalf.
d. Therefore, the agent is held accountable to the principal, which means directors
(agents) have a fiduciary responsibility to the shareholders (principals) as
‘operating in the best interest of the shareholders’.
e. Accountability: subordinates are held accountable to their superiors
(e.g. employees—managers; managers-directors; directors—shareholders;
auditors—shareholders)
f. However, the principals and the agents both have their own individual desires and
interests which may be not compatible with each other, thus leading to agency
problems.
g. Agency costs are borne by principals in monitoring agency behavior because a lack
of trust in the good faith of agents.

2. wide : 广义上的公司治理关注的是 organisation & stakeholder 之间的关系

Stakeholder theory
（1）定义：The basis for stakeholder theory is that companies are so large and their impact
on society so pervasive that they should discharge accountability to many
more sectors of society than solely their shareholders。
（2）stakeholder
① stakeholder 的定义：
Stakeholders are any entity (person, group or possibly non-human entity) that can
affect or be affected by the achievements of an organisation's objectives.
② stakeholder claim
 定义：
Stakeholder claims mean the demands that stakeholder interests make upon
organisations, based on the view that the impact of companies is so great that
they have responsibilities to different sections of society, not just to
shareholders.

34
 Management has to decide on the legitimacy and relative strength of
different stakeholder claims.
 举例：
a. Employees
Employees will focus on how the company is performing, and how the
company's performance will impact on their pay, working conditions and
career path.
Employees also have information requirements. Surveys suggest that the
most interesting information for employees is information concerned with
the immediate work environment and which is future orientated.
Their commitment to the job may be considerable involving changes
when taking the job (moving house), dependency if in the job for a long
time (not just financial but in utilising skills that may not be portable
elsewhere) and fulfilment as a human being (developing a career,
entering relationships).
b. Trade unions
Trade unions exist to protect employee interests, so will be interested in
the pay, prospects and working conditions of their members. Their
influence will depend on the percentage of employees that are
members.
They may be concerned about aspects of poor corporate governance, for
example failure by directors to communicate with employees or failure to
protect whistleblowers.
Trade unions will also be concerned about a lax control and risk
environment, which may jeopardise health and safety or which permits
discrimination by managers or other employees.
However they may also be concerned with an environment that is
excessively controlling and which curtails their members' privacy at work.
A good relationship can help maximise productivity by a contented
workforce.
Trade union influence can also act as a balancing factor in corporate
governance, highlighting abuses by management which would also
concern shareholders.
c. Suppliers
Major suppliers will often be key stakeholders, particularly in businesses
where material costs and quality are significant.
Supplier co-operation is also important if organisations are trying to
improve their management of assets by keeping inventory levels to a
minimum. They will need to rely on suppliers for reliability of delivery.
If the relationship with suppliers deteriorates because of a poor payment
record, suppliers can limit or withdraw credit and charge higher rates of
interest. They can also reduce their level of service, or even switch to
supplying competitors
d. Customers

35
 Customers have increasingly high expectations of the goods and services
they buy, both from the private and public sectors. These include not just
low costs, but value for money, quality and service support.
Customers are increasingly evaluating goods and services not just on the
basis of how they will satisfy their immediate material needs, but also
how they will satisfy their deeper moral needs.
With increasingly competitive markets, consumers are able to exercise
increasing levels of power over companies.
Dissatisfied customers are more likely to make their views knoen than
satisfied customers. Moreover businesses now believe that normally the
costs of retaining existing customers are significantly less than those of
obtaining new customers.
e. Regulators
Regulation can be defined as any form of interference with the operation
of the free market. This could involve regulating demand, supply, price,
profit, quantity, quality, entry, exit, information, technology, or any other
aspect of production and consumption in the market.
Regulators will be particularly interested in maintaining
shareholder-stakeholder confidence in the information with which they
are being provided.
Actively promoting competition by encouraging new firms in the industry
and preventing unreasonable barriers to entry.
Addressing quality and safety issues and considering the social
implications of service provision and pricing.
 Importance of recognition of all of stakeholder claims
a. Stakeholder recognition is necessary to gain an understanding of the
sources of potential risk
b. Stakeholder recognition is important in terms of assessing the sources of
influence. Stakeholder influence is assessed in terms of each stakeholder’s
power and interest, with higher power and higher interest combining to
generate the highest influence.
c. Stakeholder recognition is necessary in order to identify potential areas of
conflict between stakeholders.
d. There is an ethical and reputational case for knowledge of how decisions
affect stakeholders, both inside the organisation or external to it.
③ Classifications of stakeholders
 ICE
a. Internal stakeholders : Employees, management
b. Connected stakeholders : Shareholders, customers, suppliers, lenders,
trade unions, competitors
c. External stakeholders : The government, local government, the public,
pressure groups, opinion
 Legitimate and illegitimate stakeholders
a. Legitimate stakeholders : Those who have valid claims upon the

36
 organisation
b. Illegitimate stakeholders : Those whose claims upon the organisation are
not valid
【注】Ultimately how the legitimacy of each stakeholder’s claim is viewed may
well depend on the ethical and political perspective of the person
judging it.
 Direct and indirect stakeholders
a. Direct stakeholders :
Those who know they can affect or are affected by the organisation's
activities – employees, major customers and suppliers
b. Indirect stakeholders：
Those who are unaware of the claims they have on the organisation or
who cannot express their claim directly – wildlife, individual customers or
suppliers of a large organisation, future generations
【注】Although they cannot express their claim directly to the organisation,
this does not necessarily invalidate their claim.
 Known and unknown stakeholders
a. Known stakeholders：
Those whose existence is known to the organisation
b. Unknown stakeholders：
Those whose existence is unknown to the organisation (undiscovered
species, communities in proximity to overseas suppliers)
 Recognised and unrecognised stakeholders
a. Recognised stakeholders：
Those whose interests and views managers consider when deciding upon
strategy
b. Unrecognised stakeholders：
Those whose claims aren't taken into account in the organisation's
decision making – likely to be very much the same as illegitimate
stakeholders.
 Narrow and wide stakeholders
a. Narrow stakeholders:
Narrow stakeholders are those that are the most affected by the
organisation’s policies and will usually include shareholders, management,
employees, suppliers, and customers that are dependent on the
organisation’s output.
b. Wide stakeholders：
Wide stakeholders are those less affected and may typically include
e.g Wider stakeholders overnment, less-dependent customers, the wider
community (as opposed to local communities)
 Primary and secondary stakeholders
a. Primary stakeholders :
Those without whose participation the organization will have difficulty
continuing as a going concern, such as shareholders, customers, suppliers

37
 and government (tax and legislation)
b. Secondary stakeholders:
Those whose loss of participation won't affect the company's continued
existence such as broad communities (and perhaps management)
【注】the narrow-wide classification is based on how much the organisation
affects the stakeholder. The primary-secondary classification is based
on how much the stakeholders affect the organisation.
 Voluntary and Involuntary stakeholders
a. Voluntary stakeholders :
Voluntary stakeholders are those that engage with an organization of
their own choice and free will. They are ultimately ( in the long term)
able to detach and discontinue their stakeholding if they choose.
b. Involuntary stakeholders
Involuntary stakeholders have their stakeholding imposed and are unable
to detach or withdraw of their own volition.
 Active and passive stakeholders
a. Active stakeholders :
Those who seek to participate in the organisation’s activities. Active
stakeholders include managers, employees and, but may also include
other groups not part of the organisation’s structure such as regualtors or
pressure groups.
b. Passive stakeholders :
Those who do not seek to participate in policy-making such as most
shareholders, local communities, institutional shareholders and
government.
④ Assessing the relative importance of stakeholder interests——deal with conflicts
——Mendelow’s power-interest matrix:

 坐标轴（variances）: interest and power

 特点：dynamic
The framework is dynamic in that stakeholders move around the map
as their power and interest rise and fall with events.
 四个象限：

38
 a. Key players : The organisation’s strategy must be acceptable to them,
e.g major customer.
b. Kept satisfied : kept satisfied must be treated with care. They are capable
of moving to segment D.
e.g large institutional shareholders.
c. Kept informed : kept informed do not have great ability to influence
strategy, but their views can be important in influencing
more powerful stakeholders, perhaps by lobbying.
e.g pressure group.
d. Minimal
（3）stakeholder theory
① Stakeholder theory - Instrumental view 狭义观点
 This reflects the view that organisations have mainly economic responsibilities
(plus the legal responsibilities that they have to fulfil in order to keep trading).
 In this viewpoint fulfilment of responsibilities towards stakeholders is desirable
because it contributes to companies maximising their profits, or fulfilling
other objectives such as gaining market share or meeting legal or stock
exchange requirements.
 Therefore a business does not have any moral standpoint of its own. It merely
reflects whatever the concerns are of the stakeholders it cannot afford to
upset, such as customers looking for green companies or talented employees
looking for pleasant working environments.
② Stakeholder theory - Normative view 广义观点
 This is based on the idea that organisations have moral duties towards
stakeholders. Thus accommodating stakeholder concerns is an end in itself.
 This suggests the existence of ethical and philanthropic responsibilities as well
as economic and legal responsibilities and organisations focusing on being
altruistic.
 Duties include the moral duty to take account of the concerns and opinions of
others. Not to do so will result in breakdown of social cohesion leading to
everyone being morally worse off, and possibly economically worse off as well.
四、Approaches
1. rule & principle based
（1）Rules-based approach
① In a rules-based approach to corporate governance, provisions are made in law and a
breach of any applicable provision is therefore a legal offence.
② This means that companies become legally accountable for compliance and are liable
for prosecution in law for failing to comply with the detail of a corporate governance
code or other provision.
（2）Principles-based approach
① When, for whatever reason, a company is unable to comply in detail with every
provision of a code, the listing rules state that the company must explain, usually in its
annual report, exactly where it fails to comply and the reason why it is unable to
comply. The shareholders, and not the law, then judge for themselves the seriousness

39
 of the breach.
② Assess the ‘comply or explain’ statement
 Comply or explain is intended to allow latitude in compliance with details of
corporate governance provision, but is not ‘optional’ in the usual meaning of the
term.
 Listing rules insist on compliance with codes in many countries with ‘comply or
explain’ allowed when compliance with detail is not possible or desirable, usually in
the short to medium term.
 If the shareholders are not satisfied with the explanation for lack of compliance,
they can punish the board by several means including holding them directly
accountable at general meetings, by selling shares (thereby reducing the value of
the company) or by direct intervention if a large enough shareholder.
 It enables the policing of compliance by those who own the entity and have a
stronger vested interest in compliance than state regulators who monitor
compliance in a legal sense. This places the responsibility for compliance upon the
investors who are collectively the legal owners of the company.
（3）Principles or rules – For & Against 优缺点分析
Principles Rules
Less costly 
Flexible 
Transitional 

Confusion over rules 

Investor

misunderstanding
Consistency and full

compliance
① principle-based 优点
 Greater flexibility
 Applies across different legal jurisdictions, which makes the governance of a
multi-national business more effective.
【注】a. In most cases, compliance with general principles is cheaper than compliance with
a detailed ‘box ticking’ regime.
b. A principles-based approach is flexible and allows companies to develop their own
approach, perhaps with regard to the demands of their own industry or
shareholder preferences.
This places the emphasis on investor needs rather than legal demands. There may
be no reason, for example, why companies in lower risk industries should be
constrained by the same internal control reporting requirements as companies in
higher risk industries.
An example of the flexibility afforded by a principles-based approach is that it

40
 allows for transitional arrangements and unusual circumstances.
② principle-based 缺点
 Too broad principles may be of little use
 Investors may lose confidence of consistency
 Incorrectly viewed as voluntary
【注】a. There may be confusion over what is compulsory under law and what is
principles-driven under listing rules. A lack of clarity might be present, especially
where compliance expertise is not available to management (such as in some
smaller companies) between legally-required compliance and listing rules which
are subject to comply or explain.
This may confuse some management teams and cause non-compliance borne of
lack of advice and information.
b. A principles-based approach assumes that markets are capable of understanding
the seriousness of any temporary or more lengthy periods of non-compliance and
of revaluing the shares as a result.
Non-specialist shareholders may not understand why a given provision is not
complied with nor appreciate the potential consequences of the non-compliance.
Cleverly-worded comply or explain statements might mislead shareholders.
③ rule-based 优点
 Avoid ambiguity / Clear
 Legally binding requirements (sanction acting as a deterrent) /
Standardized for all companies (consistency / level playing field)
 Increase investors’ confidence
【注】a. A ‘box ticking’ approach offers the advantage of gaining full compliance at all times
(i.e. all boxes are actually ticked) whereas a principles-based approach allows some
Bad practice to continue.
b. A full compliance regime is likely to provide a greater overall confidence in
regulation and this, in turn, will further support long-term shareholder value.
④ rule-based 缺点
 Allow no leeway or deviation, irrespective of how illogical the situation is (flexibility
is lost)
 Situations may not be covered explicitly in the rules (exploitation of loopholes)
 Start ‘box-ticking’ (checklist)
 Regulation overload – increasing costs for regulators
 No room to improve or go beyond the minimum level set
【注】 A common criticism of rules-based approaches is the expense of compliance including
the establishment of information systems to meet reporting requirements (for example
on internal controls), consultancy costs, increased management costs and reporting
costs.
2. International convergence --- OECD / ICGN
Principles of corporate governance:
（1）OECD (Organization for Economic Cooperation and Development)
 简介
• Developed Principles of Corporate Governance in 1998 and issued a revised

41
 version in April 2004
• Non-binding principles
• Intended to assist governments in their efforts to evaluate and improve the legal,
institutional and regulatory framework for corporate governance in their countries
• Intended to provide guidance for stock exchanges, investors and companies
• Concise, understandable and accessible to the international community
 Content of the OECD principles:
a. Ensuring the basis for an effective corporate governance framework
b. The rights of shareholders and key ownership functions
c. The equitable treatment of shareholders
d. The role of stakeholders in corporate governance
e. Disclosure and transparency
f. The responsibilities of the board
（2）ICGN (International Corporate Governance Network)
 简介
• Issued a report aiming to enhance the guidance produced by OECD
• Intended to provide practical guidance for boards to meet investors’ expectations
efficiently and effectively
• Intended to provide guidance about how to manage relationships with
stakeholders to achieve value in the longer term
 Content of the ICGN principles:
a. Sustainable value – long term success is a prerequisite of good governance
b. Boards should be effective, diverse, experienced and accountable for their actions
c. Corporate culture should support ethical behavior, supporting whistle-blowers if
necessary
d. Risk management should be formally undertaken in line with shareholders’
expectations
e. Remuneration should be transparent and aligned appropriately with risk and other
objectives
f. Audit should be robust, effective and independent
g. Disclosure and transparency should be at the heart of all relations with
stakeholders
h. Shareholders’ rights should be protected and respected by directors
i. Shareholder responsibilities should also be respected by shareholders
五、Principles of Corporate Governance
1. Qualities that ensure the best decisions are made
（1）Integrity
 Integrity means straightforward dealing and completeness. What is required of
financial reporting is that it should be honest and that it should present a balanced
picture of the state of the company's affairs. The integrity of reports depends on the
integrity of those who prepare and present them.' (Cadbury report)
 Integrity can be taken as meaning someone of high moral character, who sticks to
strict moral or ethical principles no matter the pressure to do otherwise.
 A key aim of corporate governance is to inspire confidence in participants in the

42
 market and this significantly depends upon a public perception of competence and
integrity
（2）Fairness
 The directors' deliberations and also the systems and values that underlie the
company must be balanced by taking into account everyone who has a legitimate
interest in the company, and respecting their rights and views.
 In many jurisdictions, corporate governance guidelines reinforce legal protection for
certain groups, for example minority shareholders.
（3）Judgement
 Judgement means that the board making decisions that enhance the prosperity of
the organisation. This means that board members must acquire a broad enough
knowledge of the business and its environment to be able to provide meaningful
direction to it.
 The decision-makers’ personal attitudes to risk, ethics and the timescale of likely
returns are likely to be important factors in how a person judges a given decision.
（4）Independence
 Independence is the avoidance of being unduly influenced by vested interests and
being free from any constraints that that would prevent a correct course of action
being taken.
 It is an ability to stand apart from inappropriate influences and be free of managerial
capture, to be able to make the correct and uncontaminated decision on a given
issue.
 Independence is a quality that can be possessed by individuals and is an essential
component of professionalism and professional behaviour.
（5）Skepticism
 The UK Corporate Governance Code encourages non-executive directors (NEDs) to
adopt an air of scepticism so that they can effectively challenge management
decisions in their role of scrutiny.
 Applying professional scepticism is also an important part of the role of auditors and
audit committees. ISA 200 defines professional scepticism as: 'An attitude that
includes a questioning mind, being alert to conditions which may indicate possible
misstatement due to error or fraud, and a critical assessment of audit evidence.'
 This does not mean that all management decisions and evidence have to be
approached with suspicion or mistrust; but that an open and enquiring mind must
always be employed. A healthy corporate culture and environment is one that
encourages and enables such scepticism to thrive.
2. Qualities that ensure honest and transparent disclosures
（1）Transparency
 Transparency means open and clear disclosure of relevant information to
shareholders and other stakeholders, also not concealing information when it may
affect decisions. It means open discussions and a default position of information
provision rather than concealment.
 Disclosure includes information in the financial statements, not just the numbers and
notes to the accounts but also narrative statements such as the directors' report

43
  It also includes all voluntary disclosure that is disclosure above the minimum
required by law or regulation.
 The main reason why transparency is so important relates to the agency problem
that the potential conflict between owners and managers. Without effective
disclosure the position could be unfairly weighted towards managers, since they
have far more knowledge of the company’s activities and financial situation than
owner/investors. （information asymmetry ）
 Publication of relevant and reliable information reassures investors and underpins
stock market confidence in how companies are being governed and thus significantly
influences market prices
（2）Probity/honesty
 Hopefully this should be the most self-evident of the principles. It relates not only to
telling the truth, but also not misleading shareholders and other stakeholders.
 Lack of probity includes not only obvious examples of dishonesty such as taking
bribes, but also reporting information in a slanted way that is designed to give an
unfair impression.
（3）Responsibility
 The South African King report stresses that for management to be held properly
responsible, there must be a system in place that allows for corrective action.
 Responsible management should do, when necessary, whatever it takes to
set the company on the right path.
（4）Accountability
 Accountability is a key relationship between two or more parties. It implies that one
party is accountable to, or answerable to, another. This means that the accountable
entity can reasonably be called upon to explain his, her or its actions and policies.
 This has the potential to influence the behaviour of the accountable party, because
of the knowledge that they will have to answer for it when they give that account.
 Whilst it is clear that the board is accountable to the shareholders as stewards of
their investment, it may be the case, nevertheless, that the board may need to
account to WB because of its influence among politicians and in wider society.
（5）Innovation
 The concept of innovation in the approach to corporate governance recognises the
fact that the needs of businesses and stakeholders can change over time.
 It also has an impact on how organisations respond to meeting the 'comply or
explain' requirement contained in various codes of corporate governance that are
currently in effect.
3. 以上均可能影响到——Reputation
 Reputation is determined by how others view a person, organisation or profession.
Reputation includes a reputation for competence, supplying good quality goods and
services in a timely fashion, and also being managed in an orderly way.
 It is important that companies are seen by stakeholders as competent, ethical, fair to
others and reputable. Company boards must enjoy the full confidence of several
important stakeholders in order to enjoy full access to resource and product
markets. A poor reputation can quickly affect a company’s ability to, for example,

44
 attract high quality employees, sell its products or attract capital.
六、Impact of ownership on corporate governance（股权结构对公司治理/董事会架构的影响）
A key distinction between the corporate governance systems worldwide in different regimes has
been the insider and outsider models of ownership.
1. Insider system
（1）定义：
Insider systems are where most companies listed on the local stock exchange are owned
and controlled by a small number of major shareholders. The shareholders may be
members of the company’s founding families, banks, other companies or the government.
（2）极端架构——Multi-tier boards
① supervisory board
 A supervisory board has workers' representatives and stakeholders' management
representatives including banks' representatives.
 The board has no executive function, although it does review the company's
direction and strategy and is responsible for safeguarding stakeholders' interests.
 The supervisory board appoints the management board. Membership of the two
boards is entirely separate.
② management board
 A management or executive board, composed entirely of managers, will be
responsible for the day-to-day running of the business
（3）优缺点分析

2. Outsider system
（1）定义：
Outsider systems are ones where shareholding is more widely dispersed, and there is the
manager-ownership separation.
（2）极端架构——unitary boards
 In a unitary board, all directors, including all executive and non-executive directors,

45
 are members. All directors are of equal ‘rank’ in terms of their ability to influence
strategy and they also all share the collective responsibility in terms of legal and
regulatory liability.
 There is no distinction in constitution or law between strategic oversight and
operational management.
（3）优缺点分析

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 Chapter 6 corporate social responsibility (CSR)
一、定义
Corporate social responsibility is a concept whereby organisations consider the interests of
society by taking responsibility for the impact of their activities on wider stakeholders.
This obligation can be seen to extend beyond statutory obligations to comply with
legislation.
二、viewpoints
1. CSR （Carrol, 1991）
Four levels of corporate social responsibility identified by Carroll
• Economic: To shareholders wanting dividends/capital gains, to employees wanting fair
employment, to customers wanting good quality products
• Legal: Obeying the law is a requirement in all societies, though legal compliance imposes
greater burdens in some societies rather than others
• Ethical: Acting in fair and just way
• Philanthropic: Voluntary contributions to society
2. Corporate citizenship (Matten and Crane, 2005)
（1）Corporate citizenship is the business strategy that shapes the values underpinning a
company's mission and the choices made each day by its executives, managers and
employees as they engage with society.
（2）Three core principles define the essence of corporate citizenship, and every company
should apply them in a manner appropriate to its distinct needs: minimizing harm,
maximizing benefit, and being accountable and responsive to stakeholders.
（3）Discussion of corporate citizenship also often has political undertones, with corporations
acting instead of governments that cannot – or will not – act to deal effectively with
problems. 【Government failure】
（4）Commentators have also pointed to liberalisation, deregulation and privatisation placing
more power in the hands of corporations and less in the hands of the state.
【Corporate power】
（5）Limited view - consists of limited projects undertaken in the business’s self interest. The
main stakeholder groups that the corporation engages with are local
communities and employees.
Equivalent view - is based on a wider general definition of corporate social responsibility
that is partly voluntary and partly imposed
Extended view - will promote: Social rights, Civil rights, Political rights
3. Ethical stances (Johnson and Scholes, 2017)
An organisation’s ethical stance relates to how it views its responsibilities to shareholders,
stakeholders, society and the environment.
An organisation’s ethical stance is defined by Johnson and Scholes as the extent to which it
will exceed its minimum obligation to stakeholders.
• Short-term shareholder interest
• Long-term shareholder interest
• Multiple stakeholder obligations
• Shaper of society

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 4. 7 Social Responsibility Viewpoints (Gray, Owen & Adams, 1996)
Gray, Owen and Adams in their book Accounting and accountability identify seven viewpoints
of social responsibility.
（1）Pristine capitalists
The private property system is the best system, companies exist to 48ehavior profits and
seek economic efficiency.
Businesses therefore have no moral responsibilities beyond their obligations to
shareholders and creditors.
（2）Expedients
Economic systems do generate some excesses, therefore businesses have to accept some
(limited) social legislation and moral requirements if such 48ehavior is in the business’s
economic interests.
（3）Proponents of the social contract
Organisations should behave in a way broadly in conformance with the ethical norms in
society because there is effectively a contract or agreement between the organisations in
power and those who are affected by the exercise of this power.
A business effectively enjoys a licence to operate. However this licence will only continue
to be granted by society if the business’s actions deserve it. A business may therefore have
to deliver benefits (or avoid causing harm) to society in general. It may also be responsible
for delivering benefits to the specific groups from whom it derives its power (such as
customers or employees).
（4）Social ecologists
Businesses leave a social and environmental footprint. In particular, problems exist with the
human environment that large organisations have created and need to eradicate.
Economic processes that result in resource exhaustion, waste and pollution must be
modified.
Organisations must adopt socially responsible positions accordingly. This may involve
going beyond what is required or regarded as desirable by society.
（5）Socialists seek to promote egalitarian equality. Business decision-making should no longer
be determined by the requirements of capitalism and materialism but should promote
equality.
（6）Radical feminists aim to promote feminine values such as co-operation and empathy
Social responsibility stances
（7）Deep ecologists
Human beings have no greater rights to resources or life than other species and do not
have the rights to subjugate social and environmental systems. Economic systems that
trade off threats to the existence of species against economic objectives are immoral.
三、report——integrated report （见 chapter 23）

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 Chapter 7 structure of board of directors
一、How to become an effective BOD
1. Formal schedule of tasks for an effective board:
a. Monitoring the CEO
b. Overseeing the strategy
c. Monitoring risks, control systems and governance
d. Monitoring the human capital aspects of the company
e. Managing potential conflicts of interest
f. Ensuring that there is effective communication of its strategic plans, both internally and
externally
g. Regular evaluation of board performance
2. Focus （substance over form） 不能形式主义
3.Membership —— Key issues for consideration for board membership are:
(1) Size
the balance needs to be struck between the benefits of having varied views and opinions,
alongside the need for coherence of decision-making.
(2) Inside/outside mix
the split between executive decision-making directors and non-executive directors.
Independent non-executive directors have a key role in governance. Their number and
status should mean that their views carry significant weight.
(3) Diversity
Diversity mix in terms of gender, ethnicity, backgrounds, experience, etc.
 Advantages of diversity
Diversity policy aims to achieve a board which is demographically representative of the
community in which it operates, such that no single demographic segment is over or
under-represented.
In the case of HWL, a diverse board of directors would provide several advantages.
a. First, it would make the board more representative of the community it is serving,
including its donors and supporters. In doing so, HWL would increase its social
legitimacy and enjoy a stronger social contract with its community and also with the
service users.
If the board were homogenous with a certain dominant demographic, it would be
open to the charge of being aloof and with a weak connection to the local ethnic
groups not represented on the board.
b. Second, diversity on the board will enable HWL to meet the local government
requirements for diversity and thus to continue receiving that portion of its funding
from the local government.
With a large proportion of HWL’s funding coming from the local government (40%),
HWL is effectively required to comply with the diversity requirements as it would be
difficult to replace such funding in the short term.
c. Third, diversity on a board allows the organisation to benefit from a wider pool of
talent than would be the case with a less diverse board. Having a wide range of
demographic segments represented should mean that a wider range of skills,

49
 abilities and competences are available.
A demographically narrow board would exclude the talents possessed by those
outside of the narrow representation and this would be against the board’s best
interests in seeking to be effective in its duties.
d. Fourth, a more diverse board would enable a wider range of views and opinions to
be expressed. The dominant opinion of the majority and the phenomenon of ‘group
think’ can lead to the adoption of positions and policies which can often be shown to
be inappropriate in the longer term.
So some contrary and challenging voices, especially from those speaking from the
perspective of a demographic minority, can be important contributions in policy
discussions.
4. Knowledge, skills and performance appraisal
二、structure of BOD （见上一章）

1. unitary boards ：single board structure with subcommittee（公司治理涉及的是一元架构）

2. Multi-tier boards （二元组织架构）

50
三、Role of the board
1. The board should be responsible for taking major policy and strategic decisions.
2. Directors should have a mix of skills and their performance should be assessed regularly.
3. Appointments should be conducted by formal procedures administered by a nomination
committee.
Roles of a nominations committee——five general roles
（1）The first role is to establish the appropriate balance between executive and
non-executive directors. In some countries, this is influenced by regulation. In the UK,
the UK corporate governance code specifies that a half of the whole board should be
NEDs.
（2）The second role is to ensure that the board contains the requisite skills, knowledge and
experience to effectively lead the company and provide leadership. Any identified gaps
in these requirements should be filled by new appointments.
（3） Third, the nominations committee is concerned with the continuity of required skills,
the retention of directors and succession planning.
（4） Fourth, it is responsible for determining the most desirable board size given the skills
needs, cost constraints and strategies of the company.
（5） Finally, the committee is likely to be concerned with issues of diversity and to ensure
that the company’s board is adequately representative of the society in which it
operates.
四、sources （如何招人）
1. Sources of non-executive directors
（1）有跨国经验的 NED
Companies operating in international markets could benefit from having at least one
non-executive director with international experience
（2）有法律、会计等专业背景的 NED
Lawyers, accountants and consultants can bring skills that are useful to the board
（3）来自于民营企业的 NED
Listed companies should consider appointing directors of private companies as

51
 non-executive directors
（4）来源于非盈利组织的 NED
Including individuals with charitable or public sector experience but strong commercial
awareness can increase the breadth of diversity and experience on the board
2. Sources of employees
（1）personally recommendations
（2）search companies
（3）advertise
五、Leaving office
1. Retirement by rotation
 Retirement by rotation is an arrangement in a director’s contract that specifies his or
her contract to be limited to a specific period (typically three years) after which he
or she must retire from the board or offer himself (being eligible) for re-election.
The director must be actively re-elected back onto the board to serve another term.
The default is that the director retires unless re-elected.
 Importance of Retirement by rotation
Retirement by rotation reduces the cost of contract termination for underperforming
directors. They can simply not be re-elected after their term of office expires and
they will be required to leave the service of the board as a retiree (depending on
contract terms).
It encourages directors’performance (they know they are assessed by shareholders
and reconsidered every three years) and focuses their minds upon the importance of
meeting objectives in line with shareholders’ aims.
2. Resignation with or without notice
3. Not offering himself/herself for re-election
4. Death in service
5. Failure of the company
6. Being removed
7. Prolonged absence
8. Being disqualified
9. An ‘agreed departure’
六、新旧员工
1. Director’s induction programme——对新员工扶上马再送一程
The overall purpose of induction is to minimise the amount of time taken for the new
director to become effective in his or her new job. There are four major aspects of a
director’s induction.
 To convey to the new starter, the organisation’s norms, values and culture. This is
especially important when the new employee is from a different type of culture.
 To communicate practical procedural duties to the new director including company
policies relevant to a new employee. In Sam’s case this would involve his orientation
with his place in the structure, his reporting lines (up and down), the way in which
work is organised in the department and practical matters.
 To convey an understanding of the nature of the company, its operations, strategy,
key stakeholders and external relationships. For a new director, an early

52
 understanding of strategy is essential and a sound knowledge of how the company
‘works’ will also ensure that he or she adapts more quickly to the new role.
 To establish and develop the new director’s relationships with colleagues, especially
those with whom he or she will interact on a regular basis. The importance of
building good relationships early on in a director’s job is very important as
early misunderstandings can be costly in terms of the time needed to repair the
relationship.
2. Continuing professional development (CPD) ——对旧员工持续培训
（1）The first advantage of CPD for Sonja Tan is to maintain and update the currency of her
skills and knowledge. If she trained as an accountant some time ago, it is likely that
changes to accounting procedures and local regulation have taken effect since she
qualified.
（2）CPD can also broaden Sonja’s skills. By learning about more general management and
management control issues, such as internal controls, she is developing skills alongside
her accounting expertise. By learning about, for example, technical computing issues,
logistics and other issues relevant to her work situation, Sonja can become a more
effective director, especially at a senior level such as FD where a good knowledge of the
whole business is assumed.
（3）As a profession, accounting enjoys the support of society and in return, professions such
as accounting have to continually ensure that its members are fit to serve society’s
needs. The maintenance of skills and knowledge ensures that the accountant is seen to
behave in the public interest and is able to continue to respond to the public need for
the profession’s skills. Maintaining the support and confidence of society is important for
any profession (such as accounting, medicine, banking) and the maintenance of a CPD
record is a good way to demonstrate this.
七、如何评价董事会成员的表现——Criteria for individual performance measurement
1. Independence – free thinking, avoids conflicts of interest
2. Preparedness – knows key staff, organisation and industry
3. Committee work – understands process of committee work, exhibits ideas and enthusiasm
4. Development of the organisation – makes suggestions on innovation, strategic direction
and planning, helps win the support of outside
stakeholders
八、components of the board——Chairman and CEO
1. Role of chairman
（1） The chairman is the leader of the board of directors in a private or public company
although other organisations are often run on similar governance lines.
（2） In this role, he or she is responsible for ensuring the board’s effectiveness as a unit, in
the service of the shareholders. This meansbagreeing and, if necessary, setting the
board’s agenda and ensuring that board meetings take place on a regular basis.
（3） The chairman represents the company to investors and other outside stakeholders. He
or she is often the ‘public face’ of the organisation, especially if the organisation must
account for itself in a public manner. Linked to this, the chairman’s roles include
communication with shareholders. This occurs in a statutory sense in the annual
report and at annual and extraordinary general meetings.

53
 （4）Internally, the chairman ensures that directors receive relevant information in advance
of board meetings so that all discussions and decisions are made by directors fully
apprised of the situation under discussion.
（5）Finally, his or her role extends to co-ordinating the contributions of non-executive
directors (NEDs) and facilitating good relationships between executive and non-
executive directors.
2. Role of CEO
（1）lead the company and to protect shareholder interests above all others.
（2）Develop and implement policies and strategies capable of delivering superior
shareholder value.
（3）Manage the financial and physical resources of the company, monitor results, and
ensure that effective operational and risk controls are in place.
（4）Oversee the management team, co-ordinate the interface between the board and the
other employees in the company
3. 总结——chairman & CEO 职责

4.chairman 和 CEO 职责分离的好处——division of responsibilities

（1）The separation of roles offers the benefit that it frees up the chief executive to fully
concentrate on the management of the organization without the necessity to report
to shareholders or otherwise become distracted from his or her executive
responsibilities.
（2）The arrangement provides a position (that of chairman) that is expected to represent
shareholders’ interests and that is the point of contact into the company for

54
 shareholders.
（3）Having the two roles separated reduces the risk of a conflict of interest in a single
person being responsible for company performance whilst also reporting on that
performance to markets.
（4）Having two people rather than one at the head of a large organization removes the
risks of ‘unfettered powers’ being concentrated in a single individual and this is an
important safeguard for investors concerned with excessive secrecy or lack of
transparency and accountability.
（5）The case of Robert is a good illustration of a single dominating executive chairman
operating unchallenged and, in so doing, acting illegally.
5. importance of chairman’s statement
（1）In general terms, it is intended to convey important messages to shareholders in
general, strategic terms.
（2）As a separate section from other narrative reporting sections of an annual report, it
offers the chairman the opportunity to inform shareholders about issues that he or
she feels it would be beneficial for them to be aware of.
This independent communication is an important part of the separation of the roles of
CEO and chairman.
（3）Avoid dominance
九、components of the board —— NED

1. 定义
Non-executive directors have no executive (managerial) responsibilities.
Non-executive directors should provide a balancing influence, and play a key role in
reducing conflicts of interest between management (including executive directors) and
shareholders.
They should provide reassurance to shareholders, particularly institutional shareholders,
that management is acting in the interests of the organisation.
2. Role of non-executive directors
（1）The strategy role
In the strategy role, NEDs may challenge any aspect of strategy they see fit and offer
advice or input to help to develop successful strategy.
（2）The scrutinizing role
The scrutinising or performance role is where the NEDs’ independence is perhaps the
most important. NEDs are required to hold executive colleagues to account for decisions
taken and company performance. In this respect, they are required to represent the
shareholders’ interests against any vested interests or executive pressures.
（3）The risk role

55
 The risk role involves NEDs ensuring the company has an adequate system of internal
controls and systems of risk management in place.
（4）The people role
In the people role, NEDs oversee a range of responsibilities with regard to the
management of the executive members of the board.
This typically involve issues concerning appointments and remuneration, but might also
involve contract or disciplinary issues, and succession planning.
3. Independence of NED
（1）independence 的定义
Independence is a quality possessed by individuals and refers to the avoidance of being
unduly influenced by a vested interest. This freedom enables a more objective position
to be taken on issues compared to those who consider vested interests or other
loyalties.
（2）影响独立性的因素——over-familiary
Independence can be threatened by over-familiarity with the executive board, which is
why many corporate governance codes have measures in place to prevent this.
（3）维护 NED 独立性的措施
These include restrictions on share option schemes for NEDs and bans on
cross-directorships.
（4）NED 的来源——按独立性高低
 Outside the industry
In the case of the independence of non-executive directors, Mr Louse is arguing
that those with no previous contact with the other members of the board and who
come from outside the industry that Zogs is in, will be more independent than
those who may have some form of vested interest.
 Other companies within the same sector
 Succession to a NED role from an executive position in the same company
In this he is only partly accurate: whilst succession to a NED role from an
executive position in the same company is likely to threaten independence,
appointments to NED positions from other companies within the same sector are
quite common and still provide industry knowledge to a board.
（5）Greater independence 的优缺点
 Benefits of greater independence

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  Disadvantages of greater independence——cannot provide strategy advice
A key non-executive role, including in board committees, is providing strategic
advice. This can often arise from a thorough knowledge of the strategic issues in a
company or industry.
Retired executive directors sometimes serve as NEDs in the same company and
are thus able to bring their experience of that industry and company to bear on
committee discussions
4. 总结

十、Board committees
1. Nomination committee:
Responsible for recommending the appointments of new directors to the board.
完整版：
（1）Review regularly the structure, size and composition of the board and make
recommendations to the board
（2）Consider the balance between executives and NEDs on the board of directors
（3）Ensure appropriate management of diversity to board composition
（4）Provide an appropriate balance of power to reduce domination in executive selection by
the CEO/chairman
（5）Regularly evaluate the balance of skills, knowledge and experience of the board
（6）Give full consideration to succession planning for directors
（7）Prepare a description of the role and capabilities required for any particular board
appointment including that of the chairman
（8）Identify and nominate for the approval by the board candidates to fill board vacancies as
and when they arise
（9）Make recommendations to the board concerning the standing for reappointment of

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 directors
（10）Be seen to operate independently for the benefit of shareholders
2. Remuneration committee:
Responsible for advising on executive director remuneration policy and the specific package
for each director.
完整版：
（1）Determine and regularly review the framework, broad policy and specific terms for the
remuneration and terms and conditions of employment of the chairman of the board and
of executive directors
（2）Recommend and monitor the level and structure of the remuneration of senior managers
（3）Establish pension provision policy for all board members
（4）Set detailed remuneration for all executive directors and the chairman, including pension
rights and any compensation payments
（5）Ensure that the executive directors and key management are fairly rewarded
（6）Demonstrate to shareholders that the remuneration of the executive directors and key
management is set by individuals with no personal interest in the outcome of the
decisions of the committee
（7）Ensure that provisions regarding disclosure of remuneration, including pension, as set out
in the Directors’ Remuneration Report Regulation 2002 and the Code, are fulfilled
3. Audit committee:
Responsible for liaising with external audit, supervising internal audit and review the annual
accounts and internal
4. Risk committee:
Responsible for overseeing risk management
十一、Directors’ remuneration
1. roles of remuneration committee
（1）Firstly, the committee is charged with determining remunerations policy on behalf of the
board and the shareholders.
Policies will typically concern the pay scales applied to directors’ packages, the proportions
of different types of reward within the overall package and the periods in which
performance related elements become payable.
（2）Secondly the committee ensures that each director is fairly but responsibly rewarded for
their individual contribution in terms of levels or pay and the components of each
director’s package.
It is likely that discussions of this type will take place for each individual director and will
take into account issues including market conditions, retention needs, long-term strategy
and market rates for a given job
（3）Third, the remunerations committee reports to the shareholders on the outcomes of their
decisions, usually in the corporate governance section of the annual report (usually called
Report of the Remunerations Committee).
This report, which is auditor reviewed, contains a breakdown of each director’s
remuneration and a commentary on policies applied to executive and non executive
remuneration.
2. director’s reward

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（1）Different components of directors’ rewards
 Basic salary
The basic salary is not linked to performance in the short run but year-to-year changes
in it may be linked to some performance measures. It is intended to recognize the basic
market value of a director.
 A number of benefits in kind
A number of benefits in kind may be used which will vary by position and type of
organisation, but typically include company cars, health insurance, use of health or
leisure facilities, subsidised or free use of company products (if appropriate), etc.
 Pension contributions
Pension contributions are paid by most responsible available at higher contribution
rates than other employees.
 incentives
Finally, various types of incentives and performance related components may be used.
Short to medium term incentives such as performance-related annual bonuses will
encourage a relatively short term approach to meeting agreed targets whilst long term
incentives including share options can be used for longer term performance measures.
（2）Balancing of different elements
 fixed and variable elements
 immediate ad deferred elements
 long-term and short-term elements
 cash and non-cash elements
（3）Purposes of directors' remuneration
 留住人才
Clearly adequate remuneration has to be paid to directors in order to attract and
retain individuals of sufficient calibre.
 激励人才
Remuneration packages should be structured to ensure that individuals are
motivated to achieve performance levels that are in the company and
shareholders’ best interests as well as their own personal interests.
（4）remuneration policy
 Issues connected with remuneration policy may include the following:
• The pay scales applied to each director's package
• The proportion of the different types of reward within each package
• The period within which performance related elements become payable
 Good summary of remuneration policy
• Directors’ remuneration should be set by independent members of the board
• Any form of bonus should be related to measurable performance or enhanced
shareholder value【align their interests with those of shareholders】
• There should be full transparency of directors’ remuneration, including
pension rights, in the annual accounts.
3. NED’s remuneration
（1）基本原则 & Why：
 NEDs are usually not allowed to receive share options or other

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 performance-related elements as part of their reward packages.
 Because it could threaten their independence and hence their usefulness to the
company’s shareholders.
Whereas executive directors may, for example, be incentivised to take excessive
risks to maximise their own rewards, a non-executive, without the
performance-related element, will have no such incentive and will be likely to
take a more objective view of the strategy being discussed.
 In order to be effective in their roles, NEDs need to be motivated in different ways
to their executive colleagues and too much similarity can mean that the scrutiny
role is weakened.
（2）确保 NED 职位的 effective
 Remuneration committee 不能制定自己的薪酬
Because non-executives comprise the remuneration committee, it would be
inappropriate for them to decide on their own rewards. It would be an abuse of
the responsibility and trust invested in them by shareholders were NEDs to reward
themselves too much or incentivize themselves in an inappropriate way.
 Accordingly, it is usual for NEDs to be paid a fair rate based on external comparison
figures, so that there is no question of it being seen as excessive. A NED’s pay is
usually a small fraction of that for executive colleagues
 NEDs need to be motivated in different way

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 Chapter 8 public sector governance
一、public sector 定义
The public sector is different from the private sector in a number of ways but in general the
main differences are in the aims and purposes of the public sector, its sources of funding
and accountability.
二、level of public sector organisations
（1）Subnational
（2）National
（3）Supranational
三、characteristics of public sector organization
（1）Nature of the state
（2）Nature of democratic control
（3）Policy implementation
（4）Accountability and reporting
One way of measuring this is to evaluate performance against the three 'Es':
 Economy – obtaining inputs of the appropriate quality at the lowest price
available
 Efficiency – delivering the service to the appropriate standard at minimum cost,
time and effort
 Effectiveness – achieving the desired objectives as stated in the entity's
performance plan
四、public and private sectors arrangement
（1）Strategic objectives
In the public sector objectives are determined by the funding body in the first instance
although institutions may have a level of autonomy in how they operate and may be able
to set local targets to meet specific needs.
（2）Leadership
In the private sector leadership is provided by the board of directors and decisions are in
some cases (eg appointing the external auditor) ratified by a majority of shareholders.
Leadership in the public sector is founded on high standards of behaviour and leading
by example.
（3）Governance arrangements
Public sector organisations must have arrangements in place to demonstrate that public
money is being used appropriately and that specified objectives are being met in the
provision of public services. Audit or inspection regimes may be in place to report on
success in achieving objectives.

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 Chapter 9 reporting to stakeholders
一、Major institutional investors
1. 类型：
• Pension funds
• Insurance companies
• Venture capital organisations (investors particularly interested in companies that
are seeking to expand)
2.希望机构投资者发挥主观能动主义——Shareholder activism
This activism can be in the form of:
a) making positive use of voting rights
b) engagement and dialogue with the directors of investee companies
c) paying attention to board composition/governance of investee companies
d) presenting resolutions for voting on at the AGM (rarely used in UK)
 AGMs – purpose
Its purpose is to allow the board to present the year’s results, discuss the outlook
for the coming year, present the formal, audited accounts and to have the final
dividend and directors’emoluments approved by shareholders.
 Shareholder approval is signalled by the passing of resolutions in which
shareholders vote in proportion to their holdings. It is usual for the board to
make a recommendation and then seek approval of that recommendation by
shareholders.
e) requesting AGMs - purpose an EGM and presenting resolutions
 EGMs – purpose
Extraordinary meetings are called when issues need to be discussed and approved
that cannot wait until the next AGM. A full year can be a very long time. In some
business environments when events necessitate substantial change or a major
threat, an EGM is sometimes called.
Management may want a shareholder mandate for a particular strategic move,
such as for a merger or acquisition.
Other major issues that might threaten shareholder value may also lead to an
EGM such as a ‘whistleblower’ disclosing information that might undermine
shareholders’ confidence in the board of directors.
 Proxy votes
A proxy is a person appointed by a shareholder to vote on behalf of that
shareholder at company meetings.
 Attendance
Institutional shareholders often hold shares in hundreds of companies. It is
impractical to expect their representatives to attend every annual general
meeting.
It also gives smaller shareholders who cannot attend meetings in person the
chance to have some influence over the company's strategies and policies.
 Representative of the views of the shareholder body as a whole

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 3. 机构投资者在什么情况下会干涉企业——Intervention by institutional shareholders

二、Mandatory disclosures & Voluntary disclosures

1. Mandatory disclosures
（1）Mandatory disclosures are those statements that are compulsory under relevant
company laws or stock market listing rules.
（2）Compulsory external reporting on XX (internal controls)

2. Voluntary disclosures
（1）Voluntary disclosures are not required by any mandate but are provided, usually in
narrative rather than quantitative form.
（2）examples
The chairman’s statement, chief executive’s review, social and environmental
disclosure, intellectual capital reporting and risk reporting are all examples of
voluntary disclosure in most jurisdictions.
（3）Voluntary disclosures - Accountability to equity investors
Voluntary disclosures are an effective way of redressing the information asymmetry
that exists between management and investors.
More information helps investors decide whether the company matches their risk,
strategic and ethical criteria, and expectations.

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 Makes the annual report more forward looking (predictive) whereas the majority of
the numerical content is backward facing on what has been.
Helps transparency in communicating more fully thereby better meeting the agency
accountability to investors, particularly shareholders.
三、Environment & social report
1. sustainability
（1）定义：
In relation to the development of the world's resources, sustainability has been defined
as ensuring that development meets the needs of the present without compromising
the ability of future generations to meet their own needs.
（2）Extension of sustainability——triple bottom line
Key issues include whether sustainability just implies natural sustainability, or whether
social and economic sustainability are important as well.
One approach to sustainability is known as the triple bottom line (or 'TBL', '3BL', or
'People, Planet, Profit') approach.
• People means balancing up the interests of different stakeholders and not
automatically prioritising shareholder needs
• Planet means ensuring that the business's activities are environmentally sustainable
• Profit is the accounting measure of the returns of the business
（3）Strong and weak sustainability
 Weak sustainability believes that the focus should be on sustaining the human
species and the natural environment can be regarded as a resource. The weak
sustainability viewpoint tends to dominate discussion within the Western
economic viewpoint
 Strong sustainability stresses the need for harmony with the natural world; it is
important to sustain all species, not just the human race. They see a requirement
for fundamental change, including a change in how man perceives economic
growth (and whether it is pursued at all).
2. Environmental footprint
（1）定义：Environmental footprint is the impact that a business's activities have upon the
environment including its resource environment and pollution emissions. It
concerns the environmental consequences of a business’s inputs and outputs.
（2）两个维度：
 Ways of assessing the impact of inputs include the measurement of key
environmental resources used such as energy, water, inventories or land.
 Measurement of the impact of outputs includes the proportion of product
recyclability, tonnes of carbon or other gases produced by company activities,
waste or pollution.
（3）两类影响：
Measures of impact can apply directly and narrowly to the organisation, or they can be
applied more broadly to the indirect, associated impacts that it has.
For a manufacturer, indirect measures could report on the forward and backward
supply chains which it uses from sourcing its raw materials to bringing its products to
market. A bank could include the environmental consequences of the activities it

64
 finances through its business loans.
 Direct impacts
 indirect impacts
3. Social footprint
A ‘social footprint’ is the impact on people, society and the wellbeing of communities.
Impacts can be positive (such as the provision of jobs and community benefits) or negative,
such as when a plant closure increases unemployment or when people become sick from
emissions from a plant or the use of a product.
4. Environmental report
（1）The purpose of an environment report is to report on some of the details of the
company’s environmental impact or ‘footprint’.
（2）The contents of an environment report typically include information on the company’s
direct environmental impact（through its own manufacturing and distribution）and also
its indirect impacts（through its forward and backward supply chains）.
usually in respect of two aspects: consumption and production
（3）advantages of external social and environmental reporting

5. Environmental audit
（1）Three key stages:

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 （2）benefits of environmental audit
 improved decision making
The audit will enable the board to understand their specific environmental risks and
ensure that appropriate measures are taken to manage these risks.
 Resource consumption.
Understanding how the company interacts with its natural environment allows it to
more efficiently use its resource, particularly non-renewables.
 Compliance
An environmental audit will provide independent evidence that the organization is
meeting its specific statutory requirements.
6. importance of good quality information
（1）relevant
（2）Timely
（3）free from errors
（4）come from authoritative sources （reliability）
（5）clearly presented

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 Chapter 10 leadership
一、leadership
定义 & 领导力的三个层次 & 从三个立场来看待领导
（1）定义：Buchanan and Huczynski define a leader as ' someone who exercises influence
over other people'.
Another definition is: Leadership is an interpersonal influence directed toward
the achievement of a goal or goals.
（2）Three important parts of this definition are the terms Interpersonal, influence, and
goal
（3）leadership can be viewed from three stadpoints:
 An attribute or a position
 A characteristic of a person
 A category of behavior
二 、How to be an effective leadership
1. Theories
（1）Trait theories——☆ 'leaders are born, not made'
 内容——leadership qualities
physical traits, such as drive, energy, appearance and height
personality traits, such as adaptability, enthusiasm and self-confidence; and
social traits, such as co-operation, tact, courtesy and administrative ability
 The criticisms on the theory:
(a) Certain qualities in the theory have never been substantiated.
(b) The qualities listed have been vast, varied and contradictory.
(c) Not everybody with leadership "traits" turns out to be a good leader.
（2）Behavioral/style theories
 The Ashridge Management College Model

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  Blake and Mouton's Managerial Grid

 Theory X and Y
Theory X: Most people have to be coerced, controlled or directed. Managers who operate
according to these assumptions will tend to supervise closely, apply detailed
rules and controls, and use 'carrot and stick' motivators.
“人本性懒惰---People dislike work inherently”
Theory Y: People should be motivated to seek challenge and responsibility. A manager
with this sort of attitude to his staff is likely be a consultative, facilitating leader,
using positive feedback, challenge and responsibility as motivators.
“人本性勤劳---People don't dislike work inherently”
（3）Contingency/contextual theories

Adair argued that the leader needs to adapt to three competing needs:
The needs of the group: communication, team building, motivation, discipline
The needs of individuals : coaching, counselling, motivating and developing
Task needs : setting objectives, planning tasks, allocating responsibilities and performance
standards.

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2. strategic change
（1）types of strategic change——matrix

（2）Contextual features of change

（3）Resistance to change

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  Overcoming resistance - Lewin
Kurt Lewin developed a simple model for achieving successful change and overcoming
resistance in three steps:
a. Unfreezing
create the initial motivation to change by convincing staff of the undesirability of the
present situation.
b. The change process itself
mainly concerned with identifying what new behavior or norm should be. This stage
will often involve new information being communicated and new attitudes, culture
and concepts being adopted.
c. Refreezing or stabilizing the change
ensuring that the new process and systems becomes a natural part of the
organisations culture (implying reinforcement of the new pattern of work or behavior
through changed rewards systems etc)
 Overcoming resistance - Leadership Styles

（4）Changes to the business system ——保证战略变革的成功

POPIT model

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 3. skills
三、culture —— The cultural web

1. Stories are told by employees in an organisation. These often concern events from the
history of the organization and highlight significant issues and personalities.
2. Symbols include logos, offices, cars, titles and the type of language and terminology
commonly used within the organisation.
3. Routines and rituals concern the ‘way we do things around here’
4.The control systems of the organization include measurement and reward systems.
5. Organisation structure – this will determine formal and informal relationships and what is
important, for example a hierarchical structure suggest a ‘top
down’ approach
6. Power structures – people holding power in the organisation. This may not just be based

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on seniority, e.g. in professional firms technical experts may hold
significant power

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 chapter 11 structure and process
一、organisational structure
1. Simple/Entrepreneurial

（1）优点：Decision-making is quick and flexible

Control and goal congruence
（2）缺点：Not possible or effective once the organisation goes over a certain size
Reliance on leader
2. Functional

（1）优点：Efficient
Gives economies of scale in operations
Offers clear career progression
（2）缺点：Can lead to co-ordination and communication problems
Leads to “silos” where people do not understand how the whole business works
3. Divisional/holding company

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 （1）优点：Scaleable
Specialism on basis of divisionalisation
Provides clear performance measurement and accountability for divisional
managers
Gives authority to divisional managers and prepares them for senior
management
（2）缺点：Divisions may duplicate each others’ functions, leading to waste
Complexity of management and reporting - having head office or a holding
company imposes additional costs
4. Matrix structure

（1）优点：Allows for flexible deployment of staff as requirements change

Improved communication and cooperation
（2）缺点：Increased potential conflict between managers
Complex to run and can lead to slow decision-making
（3）Three variants on the matrix structure are:
 Transnational structure combines some independence for national units, with certain
functions that are run globally. For instance a specialised R&D function may be based in
one country but used by all territories.
 Team-based structure gives cross-functional teams some responsibility for particular
processes such as product design and delivery
 Project-based structure brings people together from across the organisation for
projects of a limited duration.
二、process

1. Input controls
（1）Direct input controls – direct supervision is a common control in small organisations
and/or where managers understand the business well. Plans
such as budgets and priorities work best in simple and stable

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 environments
（2）Indirect input controls – include employee self- control, resulting from strong motivation
And culture. These are topics covered elsewhere in the syllabus
2. Output controls
（1）direct output controls
 performance targets
 balanced scorecard
（2）Indirect output process
 internal markets
tools such as transfer pricing can be used to bring market disciplines into an
organisation’s internal workings.
三、relationship
1. internal – degree of centralisation
2. external – alliances, networks, flexible firm and virtual organisations
 Boundary-less organisations are those which have structured their operations to
allow for collaboration with external parties. Building relationships with suppliers,
competitors and customers should increase the organisations flexibility to respond to
change.
（1）key aspects: Outsourcing, and offshoring
（2）类型：
Hollow structure – the majority of the company’s non-core processes (such as
HR and IT) are outsourced to specialist providers, leaving the
company free to concentrate on its value adding activities.
Modular structure – where part of production is outsourced.
Virtual structures – virtual organisations rely heavily on information technology
to link people, asse and ideas to form an organisation. A
virtual organisation appears as a single entity from outside
to its customers, but is in fact a network of different
organisational nodes (individuals, teams or even entire
organisations) often linked through technology
四、Baldrige model
The Baidrige model assesses and organisation across seven categories:
① Leadership — how the organisation’s leadership guides, governs and sustains the
organisation’s performance.
Leadership will consider an organisation in areas such as whether:
• its leaders provide clear, well communicated goals and lead by example
• its corporate governance — for example, in whether best practice is
being applied and all stakeholder views are considered
• it has considered its wider social responsibilities
② Strategy — the ability to successfully plan, develop and implement strategies.
Strategy will consider an organisation in areas such as:
• whether it has clear objectives
• its ability to create strategic plans
• how strategies are developed and implemented

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 • whether suitable and sufficient resources are provided for strategic
implementation
• whether it measures success or failure of strategic objectives
③ Customers — the success in building and sustaining strong, lasting relationships with
customers.
Customers will consider an organisation in areas such as:
• the level of customer support
• customer complaint management
• the level of customer interaction and engagement
• whether customers are segmented and products/services personalised
to segments
④ Workforce — how the organisation enables and empowers its workforce to achieve
organisational goals
Workforce will consider an organisation in areas such as:
• recruitment and retention
• workforce career progression
• workforce training and development
• reward schemes and controls
• Appraisals
⑤ Operations — the design and effectiveness of organisational processes and whether
these are improving and meeting strategic needs.
Operations will consider an organisation in areas such as:
• whether processes are reviewed and assessed
• whether processes are improved
• how effective processes are in delivering customer value and strategic
value
⑥ Results — the performance and improvement of the organisation, relative to competitors,
in the key categories of the model.
Results will consider organisational improvement in all key areas such as:
• product and process results
• customer results
• workforce results
• leadership and governance results
• financial and market results
• The category asks about performance levels relative to those of
competitors and other organisations with similar product offerings.
⑦ Measurement, analysis, and knowledge management
— how data is stored, managed, analysed and used within the organisation.
Measurement analysis and knowledge management will consider an
organisation in areas such as:
• whether organisational knowledge is managed and shared
• whether benchmarking is used
• which performance measures are used and how data is collected
• whether action is taken as a result of performance measurement

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77
 Chapter 12 Ethics
一、Corporate code of ethics - Purposes
1. The first is communicating the organisation’s values into a succinct and sometimes
memorable form. This might involve defining the strategic purposes of the organization and
how this might affect ethical attitudes and policies.
2. Second, the code serves to identify the key stakeholders and the promotion of stakeholder
rights and responsibilities. This may involve deciding on the legitimacy of the claims of
certain stakeholders and how the company will behave towards them.
3. Third, a code of ethics is a means of conveying these values to stakeholders. It is important
for internal and external stakeholders to understand the ethical positions of a company so
they know what to expect in a given situation and to know how the company will behave.
This is especially important with powerful stakeholders, perhaps including customers,
suppliers and employees.
4. Fourth, a code of ethics serves to influence and control individuals’ behaviour, especially
Internal stakeholders such as management and employees. The values conveyed by the code
are intended to provide for an agreed outcome whenever a given situation arises and to
underpin a way of conducting organisational life in accordance with those values.
5. Fifth, a code of ethics can be an important part of an organisation’s strategic positioning. In
the same way that an organisation’s reputation as an employer, supplier, etc. can be a part of
strategic positioning, so can its ethical reputation in society. Its code of ethics is a prominent
way of articulating and underpinning that.
二、Fundamental principles
1. Integrity
2. Objectivity
3. Professional competence and due care
4. confidentiality
5. professional behaviour
三、Ethical threats
1. Self-interest
Financial or other interests of a professional accountant or of an immediate family member
Inappropriately influence judgement or behaviour
eg Having a financial interest in a client
2. Familiarity
A close relationship resulting in excessive trust in, or sympathy for, others
eg Audit team member having family at the client
3. Self-review
Evaluation of a judgement by the accountant who made the judgement, or a member of the
Same organisation
eg Auditing financial statements prepared by the firm
4. Advocacy
Accountant promoting a position or opinion to the point where objectivity may be
compromised
eg Advocating the client's case in a lawsuit

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 5. Intimidation
Accountant not acting objectively because of actual or perceived pressures
eg Threats of replacement due to disagreement
四、Bribery and corruption
1. Why bribery and corruption are problems
（1）Lack of honesty and good faith
（2）Conflicts of interest
（3）Economic issues: Bribery and corruption results in a misallocation of resources.
Contracts do not go to the most efficient producer, but the producer
that pays the highest bribes.
（4）Reputation
2. Combat bribery and corruption

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五、Public interest
Ann Koo owes a duty to the public interest both as an accountant and as a company director.
This means that it is her duty to behave in such a way as to maximise the public good and
not act in terms of pursuing personal interests only.
Accounting and other professionals are bound to recognise this duty and to comply with it
regardless of the temptation or inducement to act otherwise
六、评价项目
1. American Accounting Association (AAA) model
(a) What are the facts of the case?
(b) What are the ethical issues in the case?
(c) What are the norms, principles and values related to the case?
(d) What are the alternative courses of action?
(e) What is the best course of action that is consistent with the norms, principles and values
identified?
(f) What are the consequences of each course of action?
(g) What is the decision?
2. Tucker’s 5-question model
• (a) Profitable?
• (b) Legal?
• (c) Fair and equitable?
• (d) Right, which is prone to subjective judgement?
• (e) Sustainable or environmentally sound

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 Chapter 13 internal system
一、internal control
1. 定义 & objectives
Internal control is a process effected by an entity's board of directors, management and other
personnel designed to provide reasonable assurance regarding the achievement of objectives
in the following categories:
• Effectiveness and efficiency of operations
• Ensure the reliability of internal and external reporting.
• Assist Compliance with laws and regulations'
• Safeguard the shareholders’ investment and the company’s assets.
2. Limitations of internal control
a. Costs of internal control
b. Collusion
c. The possibility of controls being bypassed are overridden by management or employees
d. Poor judgement in decision making
e. The potential for human error and fraud
f. Controls depending on the method of data processing
g. Controls only being designed to cope with routine and not non-routine transactions
h. Controls not being updated over time
3. pyramid of controls
（1）corporate control
（2）management control
（3）process control
（4）transaction control
二、internal control systems
1. Purposes of control systems
(a) Facilitate its effective and efficient operation by enabling it to respond appropriately to
significant business, operational, financial, compliance and other risks to achieving the
company's objectives.
This includes the safeguarding of assets from inappropriate use or from loss and fraud and
ensuring that liabilities are identified and managed.
(b) Help ensure the quality of internal and external reporting.
This requires the maintenance of proper records and processes that generate a flow of
timely, relevant and reliable information from within and without the organisation.
(c) Help ensure compliance with applicable laws and regulations, and also with internal
policies with respect to the conduct of businesses.
2. characteristics of sound internal control system
（1）Be embedded in the operations of the company and form part of its culture
（2）Be capable of responding quickly to evolving risks within the business
（3）Include procedures for reporting immediately to management significant control failings
And weaknesses together with control action being taken(whistleblower provision)
3. Typical reasons - Ineffective internal controls
（1） Costs outweighing benefits.

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 This is when an IC system provides more assurance than is needed (i.e. the control is
over-specified). In such a situation, the control will not be supported or trusted by
those working alongside the control, and this will reduce its effectiveness.
（2） Failures in human judgement when assessing a control, or fraud in measuring or
reporting a control.
Where a control relies upon human measurement, error is always a possibility either
through lack of training, incompetence, wilful negligence or having a vested interest in
control failure
（3） Collusion between employees, perhaps with a vested interest in misapplying or
circumventing a control.
The risk of this is greater when two or more people believe they may gain by it.
（4） Non-routine or unforeseen events can render controls ineffective if they are intended to
monitor a specific process only. Most internal controls are unable to cope with
extraordinary events and so need to be adapted when such events occur.
（5） Previous or existing controls can become obsolete because they are not updated to
meet changed conditions.
Changes to key risks, for example, need to modified if they are to continue to remain
effective
三、Guidance on internal control——COSO’s framework

1. Internal/control environment
（1）定义：The internal or control environment is influenced by management’s attitude
towards control (tone at the top), the organizational structure and the values
and abilities of employees.
（2）内容：The following factors are reflected in the internal environment.
 The philosophy and operating style of the directors and management
 The entity's culture, whether control is seen as an integral part of the organisational
framework, or something that is imposed on the rest of the system
 The entity‘s organisational structure and methods of assigning authority and
responsibility (including segregation of duties and supervisory controls)

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  The integrity, ethical values and competence of directors and staff
2. objective setting （无对应内容）
3. event identification
 具体内容
（1）Entrepreneurial risk
Entrepreneurial risk is the necessary risk associated with any new business venture or
opportunity.
（2）business risk
These are risks which can threaten the survival of the business as a whole and they
can arise from many sources.
This is when the continuation of a business in its present form is uncertain because of
external threats to the business at a strategic level, or a failure of the business’s
strategy.
（3）financial risk
These are the risks which arise from the way a business is financially structured, its
management of working capital and its management of short and long-term debt
financing.
（4）Liquidity risk
Liquidity risk refers to the difficulties that can arise from an inability of the company to
meet its short-term financing needs, i.e. its ratio of short-term assets to short-term
liabilities.
（5）Credit risk
Credit risk is the risk to a company from the failure of its debtors to meet their
obligations on time.
The most common type of credit risk is when customers fail to pay for goods that they
have been supplied on credit.
（6）Currency risk/ Exchange rate risk
Currency risk is the possibility of loss or gain due to future changes in exchange rates.
（7）Interest rate risk
If a firm has a significant amount of variable (floating) rate debt, interest rate
movements will give rise to uncertainty about the cost of servicing this debt.
（8）Product risk
Product risks will include the risks of financial loss due to producing a poor quality
product. These include the need to compensate dissatisfied customers, possible
loss of sales if the product has to be withdrawn from the market or because of loss of
reputation and the need for expenditure on improved quality control procedures.
（9）Market risk
Market risk is a risk of gain or loss due to movement in the market value of an asset.
Market risk is a risk arising from any of the markets in which a company operates,
including resource markets (inputs), product markets (outputs) or capital markets
(finance).
（10）Legal risks
Legal risks may therefore be strongly correlated with other risks
（11）Political risk

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 Political changes may occur that are favourable to businesses, for example the
election of a government that is committed to outsourcing to the private sector
activities previously carried on in the state sector.
Political risks may also be strongly linked to serious reputation risks.
（12）Technological risks
（13）Health and safety risk
（14）Environmental risk
An environmental risk is an loss or liability arising from the effects on an organisation
from the natural environment or the actions of that organisation upon the natural
environment.
（15）Reputation risk
Reputation risk is a loss of reputation caused as a result of the adverse consequences
of another risk. Of all the major risks, reputation risk is the risk that is most strongly
correlated to other risks, since its level partly depends on the likelihood that other
risks materialise.
（16）Knowledge management risk
Knowledge management risk concerns the effective management and control of
knowledge resources.
Threats might include unauthorised use or abuse of intellectual property, area or
system power failures, competitor's technology or loss of key staff.
（17）Fraud risk
（18）Probity risk
4. risk assessment

（1）定义：risk assessment is the process of evaluating the importance of a risk by making

an eatimate of two vairables : the probability of the risk event being realized
and the impact that the risk would have if it were realized.
（2）why there needs to be a continuous and ongoing risk assessment
 The first reason why there needs to be a continuous and ongoing risk assessment is
because of the strategic importance of many risks and because of the dynamic nature
of those risks being assessed.
【注】Why risk assessment is dynamic
Risk assessment is a dynamic management activity because of changes in the
organisational environment and because of changes in the activities and

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 operations of the organisation which interact with that environment.
Changes in the environment might include changes in any of the PEST (political,
economic, social, technological) or any industry level change such as a change in
the competitive behaviour of suppliers, buyers or competitors.
 Second, it is necessary to always have accurately assessed risks because of the need to
adjust risk management strategies accordingly.
【注】Importance of accurate risk assessment：
a. If the assessment process underestimates the importance of the risks, risk
management procedures may be inadequate.
b. If the importance of risks is exaggerated by the risk assessment process, then
excessive measures may be taken to manage these risks.
解题思路——objective and subjective risk perception
objective assessment: high degree of certainty,
subjective assessment: quantitative accuracy is not possible and the risks have to
be subjectively assessed
5. risk response
（1）TARA’ model——as low as reasonably practicable (ALARP).

（2）risk response strategies

 Controllable and uncontrollable
How controllable risks are considered to be is likely to be an important influence on
management strategies.
Risks that are largely uncontrollable may not be tackled effectively by risk reduction
measures, so the choice may be between accepting the risk and avoiding the activity
that causes the risk. （对于非常不可控的风险则就不能采取减少的方式，只能接受）
 Stop and go
(a) Stop errors
Stop errors are where activities are abandoned as too high-risk that would have
produced returns that were higher than the costs incurred. The error was to stop
the activity rather than go ahead with it.
(b) Go errors
Go errors are where activities are pursued and risks are retained, the risks
crystallise and costs are incurred that are greater than expected revenues. The error
was to go ahead with the activity rather than to abandon it or drop it.
 Risk appetite

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6. Control activity——SPAMSOAP （internal control measures）
（1）Segregation of duties, with no one person having total control of an area eg the
chairman/CEO roles should be split (Cadbury)
（2）Physical measures to secure the custody of assets eg access control to buildings
（3）Authorisation and approval of all business activities by appropriate persons eg
non-executive directors to decide directors’ pay and sit on a remuneration committee
（4）Management should provide control through analysis and review of accounts eg tasking
internal audit
（5）Supervision of the recording and operations of day-to-day transactions eg budget
monitoring through exception or variance reports
（6）Organisation identify reporting lines, levels of authority and responsibility. This ensures
everyone is aware of their control (and other) responsibilities, especially in ensuring
adherence to management policies
eg enabling named staff to act independently within areas of delegated power
（7）Arithmetical and accounting to check the correct and accurate recording and processing
of transactions eg bank account reconciliation
（8）Personnel Attention should be given to selection, training and qualifications of personnel,
as well as personal qualities eg checking reference during a recruitment process
7. Information &communication
（1）information
 Types of information
a. Strategic information
b. Tactical information
c. Operational information
 The qualities of good information
a. Accurate
Figures should add up, the degree of rounding should be appropriate, there should
be no typos, items should be allocated to the correct category, and assumptions
should be stated for uncertain information.
b. Complete
Information should include everything that it needs to include, for example external
data if relevant, comparative information or qualitative information as
well as quantitative.
c. Cost-beneficial
It should not cost more to obtain the information than the benefit derived from
having it. Providers of information should be given efficient means of collecting and
analysing it. Users should not waste time working out what it means.
d. Relevant
Information that is not needed for a decision should be omitted, no matter how
'interesting' it may be.
e. User-targeted
The needs of the user should be borne in mind, for instance senior managers need
strategic summaries, and junior managers need detail.
f. Authoritative

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 The source of the information should be a reliable one.
However, subjective information (eg expert opinions) may be required in addition to
objective facts.
g. Timely
The information should be available when it is needed. It should also cover relevant
time periods, the future as well as the past
h. Easy to use
Information should be clearly presented, not excessively long, and sent using the
right medium and communication channel (email, telephone, hard-copy report).
 MIS & IT system control
（2）Communication with employees
a. Communication of control and risk management issues and strong human resource
procedures reinforce the control systems.
b. Improving staff awareness and attitudes
Turnbull stresses that it is important that all staff understand that risk management is
an integral, embedded part of the organisation's operations.
8. Monitoring
（1）Aims of monitoring
 Monitoring should help ensure that internal controls continue to operate effectively
and that systems produce accurate and reliable information.
 Correction of root causes
 Ongoing monitoring
 Separate evaluation
Separate evaluation is generally carried out by the audit committee and internal audit,
and also includes annual reviews of control procedures.
（2）Communication structure for monitoring
The results of monitoring need to be reported to the right people and corrective action
taken. Deficiencies in internal controls should be reported to the person responsible for
the control's operation and to at least one level higher.
The deficiencies need to be assessed in the same terms as risks, the likelihood that a
control will fail to detect or prevent a risk's occurrence and the significance of the
potential impact of the risk.
（3）Monitoring - Audit committee
 基本要求：
The UK Smith report recommends that the audit committee should consist entirely of
Independent non-executive directors, and should include at least one member with
significant and recent financial experience
上市公司必须要有审计师委员会
审计师委员会必须是独立的 NED
审计师委员会至少要有一个财务方面的专家
 Benefits of audit committee
a. Create a climate of discipline and control which will reduce the opportunity for
fraud
b. Strengthen the position of the external auditor, by providing a channel of

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 communication and forum for issues of concern
c. Strengthen the position of the internal audit function, by providing a greater degree
of independence from management
（4）Monitoring - Internal audit
 Role
The role of internal audit will vary according to the organisation's objectives but is
likely to include review of internal control systems, risk management, legal compliance
and value for money.
 The need for internal audit
上市公司不强制要求有内审部门，但每年必须 review 是否需要一个内审部门
The Turnbull report in the UK stated that listed companies without an internal audit
function should annually review the need to have one, and listed companies with an
internal audit function should review annually its scope, authority and resources.
 Factor - The need for internal audit
a. The scale, diversity and complexity of the company’s activities. The larger, the
more diverse and the more complex a range of activities is, the more there is a
need to monitor.
b. The number of employees. As a proxy for size, the number of employees signifies
that larger organisations are more likely to need internal audit to underpin investor
confidence than smaller concerns.
c. Cost-benefit considerations. Management must be certain of the benefits that will
result from establishing internal audit and it must obviously been seen to outweigh
the costs of doing so.
d. Changes in the organisational structures, reporting processes or underlying
information systems. Any internal change is capable of changing the complexity
of operations and, accordingly, the risk.
e. Problems with existing internal control systems. Any problems with existing systems
clearly signify the need for a tightening of systems and increased monitoring.
f. An increased number of unexpected events. System failures or similar events are a
clear demonstration of internal control weakness.
（5）Risk auditing
 定义
Risk-based audits are a development of systems audits. Auditors will be concerned to
see that managers have put in place risk assessment processes that are capable of
identifying risks on a timely basis, and have designed robust risk management
processes and internal control systems.
Auditors will attempt to confirm that these risk management processes and controls
operate to mitigate risks and ensure that management receives accurate information
about risks, particularly high consequences-likelihood risks, risks outside the
organisation’s risk appetite or risks that have materialised due to serious deficiencies in
internal control.
 The stages in a risk audit
a. risk identification
b. Once identified, each risk must then be assessed

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 c. review of controls
d. issue a report to management for future planning and decision-making.
 Internal and external risk audit
Internal risk audit is one undertaken by employees of the company being audited
and is usually carried out by the internal audit function.
Externally, consultants provide this service to clients. In some cases, this is a
non-audit service offered by accounting practices and other consultancies specialize
more specifically on risk including the provision of risk audit services
 Advantages of external risk audit
a. First, an external risk audit will avoid familiarity threats by the auditor.
b. Second, an external risk audit will be neutral and independent in its approach.
c. Third, an external risk audit, assuming it is accompanied by a report to
shareholders, will enhance investor confidence in the process and in XX’s risk
management.
d. Finally, we believe that current thinking and best practice can be more effectively
transferred when the audit is undertaken by external parties
9. COSO Cube 总结

四、Internal audit
1. accountabilities
(a) Review the accounting and internal control system
Reviewing the design of the systems
Monitoring the operation of the systems by risk assessment and detailed testing
Recommending cost effective improvements
(b) Examination of financial and operating information
(c) Review the “3E” of operations.
(d) Review the compliance
(e) Review the safeguards of the assets
(f) Review the implementation of corporate objectives

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 (g) Identification of significant business and financial risks
(h) Special investigation into particular areas, for example suspected fraud.
2. The internal audit department reports to the audit committee who will carry out an annual
review of the internal audit function using the following criteria:
（1） Organizational status
（2） Scope of function
（3） Technical competence
（4） Due professional care
3. Qualities of internal audit

4. Audit committee
Drawbacks of an audit committee:
• Not clear what they do or how effective they have been in doing it
• May act as a drag on the drive and entrepreneurial flair of the company’s senior executives
• The effectiveness of the audit committee may be compromised if it acts as a barrier
between the external auditors and the main board
• Less effective if it falls under the influence of a dominant board member

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 Chapter 14 risk management
一、risk concept
1. risk 的定义
Risk is a condition in which there exists a quantifiable dispersion in the possible results of any
activity. Hazard is the impact if the risk materialises.
Uncertainty means that you do not know the possible outcomes and the chances of each
outcome occurring.
2. types of risk
（1）分类一
 Fundamental risk : beyond the control of any one individual.
 Particular risk : an individual may have some measure of control
 Speculative risk : either good or harm
 Pure risk : only possible outcome is harmful.
（2）分类二
 Strategic risk
These arise from the overall strategic positioning of the company in its
environment. Some strategic positions give rise to greater risk exposures than
others.
Because strategic issues typically affect the whole of an organisation and not just
one or more of its parts, strategic risks can potentially concern very high stakes –
they can have very high hazards and high returns.
 Operational risk
Operational risks refer to potential losses arising from the normal business
operations. Accordingly, they affect the day-to-day running of operations and
business systems.
（3）分类三
 Related risk
Related risks are risks that vary because of the presence of another risk or where
two risks have a common cause. This means when one risk increases, it has an effect
on another risk and it is said that the two are related.
 Risk correlation
Risk correlation is a particular example of related risk.
3. risk appetite
Risk appetite describes the willingness of an entity to become exposed to an unrealised loss
(risk). It is usually understood to mean the position taken with regard to two notional
preferences: risk aversion and risk seeking.
Both preferences are associated with different levels of returns: those that are risk-seeking
favour higher risks and higher returns with the converse being true for the risk averse.
二、risk committee
1. role and function of risk committee
（1）risk management strategy
（2）reports
（3）overall exposure

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 （4）effectiveness
（5）emerging risk
（6）conjunction
2. NED 作为 risk committee membership 的缺点（即 ED 作为 membership 的好处）
3. risk manager
三、risk management
1. understanding 四个等式
Risk = measurable uncertainty
Risk = return
Total risk = Business risk + Financial risk
Total risk = Speculative risk + Pure risk
2. risk culture
Culture is 'the pattern of basic assumptions that a given group has invented, discovered, or
developed, in learning to cope with its problems of external adaptation and internal
integration, and that have worked well enough to be considered valid and, therefore, to be
taught to new members as the correct way to perceive, think and feel in relation to these
problems.'
3. Embedding risk awareness
 Risk awareness is a capability of an organisation to be able to recognise risks when
they arise, from whatever source they may come.
A culture of risk awareness suggests that this capability (or competence) is present
throughout the organization and is woven into the normal routines, ways of thinking
and is embedded in all parts of the company and in all employees.
 Methods to embed
a. Aligning individual goals with those of the organisation and building these in as
part of the culture. The need for alignment is important because risk awareness
needs to be a part of the norms and unquestioned assumptions of the
organisation.
b. Communicating risk awareness and risk management messages to staff and
publishing success stories. Internal communications is important in developing
culture and continually reminding staff of risk messages. Training of staff at all
levels is essential to ensure risk is embedded throughout the organisation.
c. Including risk responsibilities with job descriptions. This means that employees at
all levels have their risk responsibilities clearly and unambiguously defined.
d. Establishing reward systems that recognise that risks have to be taken (thus
avoiding a ‘blame culture’).
Those employees that are expected to take risks (such as those planning
investments) should have the success of the projects included in their rewards.
e. Establishing performance indicators that monitor and feedback information on
risks to management.
This would ensure that accurate information is always available to the risk
committee and/or board, and that there is no incentive to hide relevant
information or fail to disclose risky behaviour or poor practice. A‘suggestion box’
is one way of providing feedback to management.

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3. risk management process——6 steps
（1）establish responsibilities
 Risk manager’s responsibilities：
Leadership of enterprise risk management

Developing common risk management policies

Establishing a common risk language
Dealing with insurance companies
Implementing risk indicators
Allocation of resources based on risk
Reporting to the CEO / board / risk committee as appropriate
（2）set risk appetite / preference
【注】risk appetite = risk attitude (preference) + risk capacity
 Risk appetite describes the nature and strength of risks that an organization is
prepared to bear.
 Risk attitude is the directors’ views on the level of risk that they consider desirable.
 Risk capacity describes the nature and strength of risks that an organization is able to
bear.
（3）identify risks——classification
 Categorizing risks by scope：
a. Strategic risks are those risks that relate to the fundamental long-term decisions
that directors take about the future of an organization. The most significant risks
are focused on the impact they would have on the company’s ability to survive
in the long term
b. Operational risk is the risk of loss from a failure of internal business and control
processes and will affect day-to-day operations
 Categorizing risks by function：
(a) Business risk
(b) Financial risk
(c) Market risk
(d) Liquidity risk
(e) Credit risk
(f) Legal and political risk
(g) Technological risk
(h) Environmental risk
(i) Fraud risk
(j) Probity risk
(k) Product risk
(l) Reputation risk
（4）assess risks——risk mapping
（5）respond to risks——TARA & ALARP（As low as reasonably practicable）
（6）monitor and review the process and adapt if necessary

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 Chapter 15 E-business
一、E-business 的定义
E-business has been defined as “the transformation of key business processes through
the use of internet technologies”. It cove
rs application of technology to any part of an
organisation’s value chain.
二、Type of e-business
Delivery by (sold to)
Business Consumer
B2B Business models B2C Business models
eg alibaba.com eg amazon.com
C2B Business models C2C Business Models
eg priceline.com eg eBay.com
三、The stage of e-business
1. Web presence
2. E-commerce
3. Integrated e-commerce
4. E-business
四、benefit of e-business
1. cost reduction
2. increased revenue
3. better information for control
4. increased visibility
5. enhanced customer service
6. improved marketing
7. market penetration
【注】the combination of the above should be to enhance the company’s competitive
advantage.
五、Barriers to e-business
Barriers to e-business can be seen in both the organization itself and in its suppliers and
customers. They include:
• Technophobia
• Security concerns
• set-up Costs
• running costs
• Limited opportunities to exploit e-business
• limited IT resources in house
• customers not likely to be interested in e-business
六、information technology risks
1. Dissatisfied employees might deliberately modify or destroy information in the system
2. A hacker or industrial spy might break into the system
3. Viruses or malicious software could be introduced
4. Accidental mistakes could be made on input to the system

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 5. Inadequate security of the hardware or data
6. Faults in the hardware system
七、information system control
1. general control
2. application control
3. software control
4. network control

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 Chapter 16 supply chain management
一、定义
The term supply chain refers to all activities involved in transforming goods from original raw
materials through to when the goods are consumed or discarded.
Supply chain management may be upstream (relate to suppliers) or downstream (relate to
customers)
Supply chain activities cover everything from product development, sourcing, production, and
logistics, as well as the information systems needed to coordinate these activities.
二、Managing the chain
1. inventory control
• number, location and size of warehouses and distribution centres
• production scheduling (including life cycle management to ensure that new products can be
successfully integrated into the chain)
• a transportation strategy (in terms of routes, timing etc.)
2. Information management
• potential levels of end-user and customer demand
• daily production and distribution plans
• resource availability and utilisation
3. Fund management
• For the system to work it needs to be sufficiently liquid at all nodes to ensure that
bottlenecks are avoided and supply can be sustained. There also needs to be a strong
relationship of trust between each party in the chain.
三、supply chain models——Push vs Pull
1. 内容
• Traditional supply chain models were based on a push model, whereby goods are produced
according to schedules based on historical production patterns.
Push models are often poor at responding to changes in consumption.
• Instead of being driven by forecasts, the pull model is driven directly by customer demands.
A customer order for a product will “pull” it through the supply chain.
Modern communications technology makes this possible.
• In practice, a supply chain will usually be a combination of push and pull. For example, some
components are manufactured based on forecasts but are only assembled into the final
product when the customer places an order.
2. Pull 相对于 Push 的优缺点比较

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 Disadvantages
• Disruption at any point in the supply chain will stop production, which may mean lost
sales
• Heavy investment in IT required to co-ordinate the process
• Quality of supplies must be consistent, otherwise production will be disrupted
四、supply chain management——Upstream SCM - E-procurement
1. benefits of E-procurement
（1）E-sourcing
（2）E-purchasing
（3）E-payment
（4）E-branding
2. Risks of E-procurement
（1）fictitious or fraudulent suppliers
（2）Investment in systems and training required
（3）lose control over spending
（4）Putting a company’s data online raises the risk of it being stolen
五、Restructuring the supply chain
• Vertical integration – manufacturing in-house
• Virtual integration – the majority of supply chain activities are undertaken by third parties

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 Chapter 17 marketing and pricing
一、marketing mix——7P
a) Product – what is actually being sold? From a customer’s point of view, this will be a solution
to a problem or package of benefits.
b) Place – how is the product delivered to customers? Sold in shops? Mail order?
c) Promotion – anything that tells customers or potential customers about the product, e.g.
advertising, sales promotions, public relations
d) Price – setting an appropriate price with reference to factors such as cost, competitors’
prices, perceived quality, firm strategy etc.
e) People – the interaction between customers and staff in person or over the telephone
f) Processes – fast and efficient processes (e.g. booking a service) may be a significant
marketing advantages
g) Physical evidence – because services are intangible, it is sometimes important to provide
evidence of ownership, e.g. a ticket to travel or certificate of attainment
for training
二、Market segmentation——ways
1. Benefits sought
2. Occasion of purchase
3. Behaviour of purchasers
4. Usage
5. Lifestyle
6. Age
7. life cycle
8. Gender
9. Social class
10. Geography
三、Pricing——process
1. Set a pricing objective
2. Assess the target market
3. Determine the price elasticity of demand
4. Analyse the relationship between demand, cost and profit.——analysing marginal
costs and revenues
5. Evaluate competitor prices
6. Determine your basis for pricing.
7. Select a pricing strategy
I. Differential pricing
II. New product pricing
 Price Skimming
 Penetration Pricing
III. Product-line pricing
IV. Psychological pricing
V. Promotional pricing

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四、E-marketing
1. Traditional marketing media are mostly push media – the company broadcasts to the
customer.
On the internet, it is usually the customer who initiates contact by looking for
information – pull media.
2. the changes brought about by e-marketing——6Is
（1）Interactivity
Dialogue between company and customer becomes much easier via email (if the
customer provides their address), discussion boards or RSS feeds
（2）Intelligence
Companies can gain a lot more information about their actual and potential customers
by analysing data such as page views and how many viewers go on to buy
（3）Individualisation
Marketing can be tailored to the individual, based on their segment or past buying
patterns
（4）Independence of location
Even a small company can market itself globally, whatever its location
（5）Integration
E-marketing can be integrated with more traditional tools, for example you can often
fill in a web form and request a representative to call you, and information gathered
about someone’s internet buying can be combined with other customer data held
（6）Industry structure
E-marketing may lead to large changes in industry structure such as disintermediation

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 Chapter 18 Customer relationship management （CRM）
一、three stages to customer relationship management (CRM)
a) Acquisition – attracting customers to make their first purchase(s)
Ways : • Use your own web site as a “shop front”, using good design and tools such as
videos to differentiate
• Pay search engines to return your organisation as a sponsored search result
• Design your website to be high in the ranking of search results (known as
search engine optimisation)
• Send emails to potential customers
• Place banner advertisements and links on sites where potential customers may
be looking (e.g. airline sites often have sponsored links to car hire and hotel
companies)
• Tailored advertising on social networking sites such as Facebook and LinkedIn
• Place videos promoting your product on YouTube
• Use viral marketing to create interest in your product. For example, some
companies send samples of their products to influential bloggers, hoping they
will write favourably about the product
b) Retention – encouraging customers to buy the same product or a similar product again
c) Extension – encouraging customers to buy additional products
Organisations use various techniques to retain and extend customers including:
• Emails with information and discounts, particularly for customers becoming less
active
•
Personalising home pages
•
Making ordering easier by storing customer details
•
Using the site to track orders and deliveries
•
Setting up online communities for customers to increase loyalty, gather
information and publicise new products
• Using data about past purchases to identify potential future purchases
二、CRM software
Many organisations use specialist software to maintain and analyse data about their
customers and potential customers. This helps to ensure e-marketing is correctly targeted.

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 Chapter 19 Big data
一、Characteristics of big data (Laney) ——3Vs
1. Volume: a very large amount of data, more than can be easily handled by a single computer,
spreadsheet or conventional database system
2. Variety: disparate, non-uniform data of different sizes, sources, shape; arriving irregularly;
Some from internal sources and some from external sources; some structured, but
much of it is unstructured
3. Velocity: data arrives continually and often has to be processed very quickly to yield
useful results
4. Veracity : Truthfulness of the captured data
二、The processing of big data——big data analytics
1. Data mining: analysing data to identify patterns and establish relationships such as
associations (where several events are connected), sequences (where one
event leads to another) and correlations.
2. Predictive analytics: a type of data mining which aims to predict future events. For example,
the chance of someone being persuaded to upgrade a flight.
三、优缺点分析
1. Benefit BIG DATA
The analytical findings can lead to:
• Better marketing
• Better customer service and relationship management
• Increased customer loyalty
• Increased competitive strength
• Increased operational efficiency
• The discovery of new sources of revenue.
2. Dangers of big data
（1）Cost
（2）Regulation
（3）Loss and theft of data
（4）Employee monitoring
3. 冲刺直播的总结：

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四、Cloud and mobile computing
1. 含义：Cloud and mobile computing is computing based on the internet. It avoids the needs
for software, applications, servers and services stored on physical computers. Instead
it stores these with cloud service providers who store these things on the internet
and grant access to authorised users.
2. Benefits of cloud and mobile computing:
• Sharing data
• On-demand self-service
• Flexibility
• Collaboration
• More competitive
• Easier scaling
• Reduced maintenance
• Back-ups
• Disaster recovery
• Better security
3. Risks of cloud and mobile computing:
• Reliance on the service provider
• Regulatory risks
• Unauthorised access of business and customer data
五、Disruptive technologies
There is evidence that large, successful, high technology companies are particularly
vulnerable to ignoring the challenge from disruptive new technologies which can replace the
need for certain high technology products and services overnight.

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 Chapter 20 integrated reporting
一、Aim
The aim of integrated reporting is to demonstrate the linkage between strategy,
governance and financial performance and the social, environmental and economic
context within which the business operates.
By making these connections, businesses should be able to take more sustainable
decisions, helping to ensure the effective allocation of scarce resources.
Investors and other stakeholders should better understand how an organisation is really
performing. In particular they should make a meaningful assessment of the long-term
viability of the organisation’s business model and its strategy.
二、考题分析思路——six capital types
1. financial
Funds available for use in production obtained through financing or generated
through operations.
2. manufactured
Manufactured physical objects used in production or service provision:
 Building
 Equipment
 Infrastructure
3. human
This can be described as consisting of peoples health, knowledge, skills and
motivation.
All these things are needed for productive work. Enhancing human capital through
education and training is central to a flourishing economy.
4. social and relationship
This can be described as being concerned with the institutions that help us maintain
and develop human capital in partnership with others, e.g. families, communities,
businesses, trade unions, schools, and voluntary organization.
5. intellectual
Intellectual capital can be described as the value of a company or organisation’s
employee knowledge, business training and any proprietary information. This form of
capital that may provide the company with a competitive advantage.
 Patents, copyrights, software, rights and licences
6. natural
Input to goods and services and what activities impact:
 Water, land, minerals and forests
 Biodiversity and eco-system health
三、integrated reporting——Guiding principles
1. Strategic focus and future orientation
Insights into strategy, and how it relates to organisation's ability to create value in the
short, medium and long term, and how it affects the capitals
2. Connectivity of information
A holistic view of the combination, interrelatedness and dependencies between the

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 factors the affect the ability to create value over time
3. Stakeholder relationships
The nature and quality of relationships with key stakeholders and how their legitimate
needs and interests are taken into account
4. Materiality, conciseness, reliability and completeness
Provision of important and reliable information including all material items, both
positive and negative, in a concise manner
5. Consistency and comparability
Consistent over time and comparable with other organisations

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 Chapter 21 project management
一、The phase of a project

二、project initiation document （PID）

The key elements of initiating a project are project selection, appointing a project manager and
project sponsor, determining the scope, time & cost and developing the business case. All of
these will often be documented in project initiation document.
1. appointing a project manager and project sponsor
（1）The project sponsor is usually the person who has the authority to allocate resources to
the project. They will not be directly involved in the management of the project but will
have a role of oversight and support.
（2）The project manager runs the project and has ultimate responsibility for its success or
failure.
2. developing the business case
（1）定义： business case provides information to decide whether the organisation should
make the investment or not.
（2）内容： It will generally include:
① an assessment of the current strategic position
② the constraints that are likely to exist for any project
 Scope
Series of tasks to be performed ;
Quality level expected of each task
 Costs
Initial budget for project ;
Need to prove the benefits of project exceed costs
 Time
Overall time constraints on completion of project ;
Time budget – amount of man-hours, ect.
③ the risks that might arise for the project and how these will be managed
④ an assessment of the benefits and costs of performing the project and how these
will be managed

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  Project benefits
• Observable benefits can only be determined by judgement or experience
e.g. improved staff morale
• Measurable benefits will either improve an existing measure or a new
measure can be put in place to determine improvement. However, it is not
possible to estimate by how much performance will improve
• Quantifiable benefits are measurable improvements that can be estimated
prior to implementation. This estimate may be based on statistical evidence,
computer models, benchmarking or a pilot implementation
• Financial benefits can be reliably quantified in money terms. These are usually
reductions in, or avoidance of, costs. Revenue increases may be included, but
reliable forecasting is much harder
 Project costs
• capital investment costs
• development costs
• centrally allocated costs/infrastructure costs
• external consultancy costs
• resource costs
• quality costs
• flexibility costs
• disruption costs
三、project control
1. Scope measures- both product scope and project scope
2. Expenditure (cost)
3. Schedule (time) performance-avoiding schedule slippage is a key objective
4. Quality performance review
5. Issue management performance
6. Client satisfaction measures （本公司替客户实施项目时才需要考虑）
四、completion
1. A post-project review （PPR）
This happens at the end of the project and allows the project team to move on to other
projects. It can often be the last stage of the project, with the review culminating in the
sign-off of the project and the formal dissolution of the project team. The focus of the
post-project review is on the conduct of the project itself, not the product it has delivered.
The aim is to identify and understand what went well and what went badly in the project
and to feed lessons learned back into the project management standards with the aim of
improving subsequent project management in the organisation.
2. A post-implementation review （PIR）
A PIR is an essential component of the benefits management process. A post-
implementation review focuses on the product delivered by the project. It usually takes
place a specified time after the product has been delivered.
This allows the actual users of the product an opportunity to use and experience the
product or service and to feedback their observations into a formal review. The
post-implementation review will focus on the product's fitness for purpose, The review will

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 not only discuss strategies for fixing or addressing identified faults, but it will also make
recommendations on how to avoid these faults in the future. In this instance these lessons
learned are fed back into the product production process. Without a PIR. A business cannot
demonstrate that its investment in the project was worthwhile PIRS can sometimes be an
on-going element of project management that may be used at project gateways to examine
changes implemented to date.
五、Business process change / improvement
1. Harmon’s process-strategy matrix
（1）坐标：横坐标——strategy importance
simple processes are fairly straightforward, with clearly defined rules to follow
and little change over time. Complex processes require high levels of judgement
and may change frequently.
纵坐标——process complexity
how much value does the process add to an organisation’s products and
services. A high strategic importance process is a core competency and a source
of competitive advantage. A low strategic importance process simply needs to
be done so that a company can do something else that adds value.
（2）process 的分类

a) Low complexity-low strategic importance

processes need to be carried out as efficiently as possible but there is little scope for
improving them.
These should be automated as far as possible using standard off-the-shelf software and
may be best outsourced, e.g. purchase ledger.
b) Low complexity-high strategic importance
processes are key to the organisation’s success.
Automation should be used to reduce costs and gain efficiency. We should also be
aiming to improve these processes, e.g. product assembly
c) High complexity-low strategic importance
these processes will cause problems if they aren’t done but don’t add much value.
Because they are complex, they may be hard to automate. Organisations may decide to
outsource these processes to a specialist, e.g. large-scale logistics and distribution
【注】凡是能够外包出去的必然 cannot be a basis of competitive advantage
outsource 的优点：
 The provider should have economies of scale which will lead to cost

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 reductions
 Management time is freed up to focus on core competencies
 The specialist provider may bring greater expertise than the organisation
can supply internally
Outsource 的缺点：
 It leads to a reduction of control, particularly in relation to quality. Firms
try to mitigate this by having clear service level agreements in place and
devoting resources to relationship management
 Firms may be tied in to long-term contracts and find it hard to change
suppliers even if their supplier is unsatisfactory
 Outsourcing can mean a firm loses competencies and becomes dependent
on suppliers, giving them increased bargaining power even when the
contract ends
d) High complexity-high strategic importance
These are critical and involve a lot of human expertise.
These processes will be a priority for major improvements, e.g. negotiating
partnerships, new product development
【注】Bear in mind that the same process may be in a different category for different
companies.
2. Process improvement
• Are any activities duplicated or redundant?
• Do the staff seem to have the right skills to perform their tasks?
• How effective are the transitions (“hand-offs”) from one team or department to
another? This is frequently where problems arise.
• Are there any activities that don’t add value to the customer or end user?
• Are there opportunities to automate any activities? How could this be done? What
would the benefits be?

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 补充内容：Finance in Planning and Decision-making
一、Impact of technology on finance function
a. Business partner approach
b. Outsourcing
c. Shared or global business services
二、Financial analysis and decision-making techniques
1. Expected value
（1）优点：Take uncertainty into account by including the probability of each possible
outcome.
It is an easy and relatively simple method
（2）缺点：√ The EV is a weighted average. Thus, it does not represent one-off project.
√ The EV does not take account of risk associated with decision.—too risky
since EV may be a value that will never occur.
√ The probabilities used are usually subjective. (manipulation)
√ EV gives no indication of the dispersion of possible outcomes.
2. Decision tree
（1） Decision tree is a diagrammatic method to represent a multi-decision problem. It
incorporates a sequence of interrelated decisions and their probabilities and value of
expected outcomes.
（2）Approach:
 Draw the tree from left to right and mark the appropriate decisions with outcomes.
A square represents a decision point and a circle is used for a chance point.
 Evaluate the tree from right to left, first calculate an EV at each decision point, and
then choose the best option at each decision point.---rollback analysis
 Recommend a course of action to management.
（3）方框代表：take the highest benefit at the decision point
椭圆代表：is the probability point, calculate the EV
3. Costing
Full cost: total amount sacrificed to achieve a particular objective, including all relevant
costs.
Full cost supports decision making in a number of areas including:
 Pricing and output



4. Forecasting
（1）Qualitative and based on judgment
 The Delphi technique: selecting a panel of experts, each of whom is asked to
produce an independent forecast. These forecasts are shared and each then
goes on to produce a revised forecast.
 Sales force opinions: a sales manager gathering input from the sales team and
collating their opinions into an aggregated forecast.
 Executive opinions: arise from meetings of high level managers during which
 they develop forecasts based on their knowledge of their own individual areas
of responsibility
 Market research: the use of customer surveys to evaluate potential demand
（2）Quantitative and based on historic data
 Linear regression: measures the relationship between two variables
 Time series: aims to separate seasonal and cyclical fluctuations from
long-term underlying trends.
5. Budgeting

6. Standard costing and variance analysis

（1） Variance analysis:
The process by which the total difference between the standard and actual results
is analyzed.
（2）Limitations of variance analysis:
Standards can quickly become out of date
Out – of – the - control factors
Lines of responsibility can be difficult to define
Once a standard has been met, no incentive to improve
Undesirable behavior
7. Relevant and marginal costing
In summary, there are basic two types of decision where relevant costing is used.
(a) Decisions about whether to do something or whether not to do something.
(b) Decisions that involve selecting between two or more different options about what
to do.

 Make or buy

 Further processing

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