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Notes
CIMA Paper E1
Enterprise Operations

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ExPress Notes
CIMA E1 Enterprise Operations

Contents
About ExPress Notes
1. 2. 3. 4. 5. 6. The Global Business Environment

3
7 11 15

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Internal & External Governance and Regulation Information Systems Operations Management Marketing 21 27 33 Human Capital

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ExPress Notes
CIMA E1 Enterprise Operations

START About ExPress Notes

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First, we would like to draw your attention to the terms and conditions of usage. It’s a condition of printing these notes that you agree to the terms and conditions of usage. These are available to view at www.theexpgroup.com. Essentially, we want to help people get through their exams. If you are a student for the CIMA exams and you are using these notes for yourself only, you will have no problems complying with our fair use policy. You will however need to get our written permission in advance if you want to use these notes as part of a training programme that you are delivering. WARNING! These notes are not designed to cover everything in the syllabus! They are designed to help you assimilate and understand the most important areas for the exam as quickly as possible. If you study from these notes only, you will not have covered everything that is in the CIMA syllabus and study guide for this paper. Components of an effective study system On ExP classroom courses, we provide people with the following learning materials:     The ExPress notes for that paper The ExP recommended course notes / essential text or the ExPedite classroom course notes where we have published our own course notes for that paper The ExP recommended exam kit for that paper. In addition, we will recommend a study text / complete text from one of the CIMA official publishers, but we do not necessarily give this as part of a classroom course, as we think that it can sometimes slow people down and reduce the time that they are able to spend practising past questions.

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How to get the most from these ExPress notes

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Your stage in study for each paper These ExPress notes ExP recommended course notes, or ExPedite notes Don’t use yet ExP recommended exam kit Don’t use yet CIMA online past exams Prior to study, e.g. deciding which optional papers to take Skim through the ExPress notes to get a feel for what’s in the syllabus, the “size” of the paper and how much it appeals to you. Work through each chapter of the ExPress notes in detail before you then work through your course notes. Don’t try to feel that you have to understand everything – just get an idea for what you are about to study. Don’t make any annotations on the ExPress notes at this stage. Have a quick look at the two most recent real CIMA exam papers to get a feel for examiner’s style. Don’t use at this stage. At the start of the learning phase Work through in detail. Review each chapter after class at least once. Make sure that you understand each area reasonably well, but also make sure that you can recall key definitions, concepts, approaches to exam questions, mnemonics, etc. Nobody passes an exam by what they have studied – we pass exams by being efficient in being able to prove what we know. In other words, you need to have effectively input the knowledge and be effective in the output of what you know. Exam practice is key to this. Try to do at least one past exam question on the learning phase for each major chapter.

For people on a classroom course, this is how we recommend that you use the suite of learning materials that we provide. This depends where you are in terms of your exam preparation for each paper.

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ExPress Notes
CIMA E1 Enterprise Operations

Your stage in study for each paper Practice phase

These ExPress notes

ExP recommended course notes, or ExPedite notes Avoid reading through your notes again. Try to focus on doing past exam questions first and then go back to your course notes/ ExPress notes if there’s something in an answer that you don’t understand.

ExP recommended exam kit This is your most important tool at this stage. You should aim to have worked through and understood at least two or three questions on each major area of the syllabus. You pass real exams by passing mock exams. Don’t be tempted to fall into “passive” revision at this stage (e.g. reading notes or listening to CDs). Passive revision tends to be a waste of time. Don’t touch it!

CIMA online past exams

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Read through the technical articles written by the examiner. Read through the two most recent examiner’s reports in detail. Read through some other older ones. Try to see if there are any recurring criticism he/ she makes. You must avoid these! Do a final review of the two most recent examiner’s reports for the paper you will be taking tomorrow.

Work through the ExPress notes again, this time annotating to explain bits that you think are easy and be brave enough to cross out the bits that you are confident you’ll remember without reviewing them.

Download the two most recent real exam questions and answers.

The night before the real exam

Read through the ExPress notes in full. Highlight the bits that you think are important but you think you are most likely to forget.

Unless there are specific bits that you feel you must revise, avoid looking at your course notes. Give up on any areas that you still don’t understand. It’s too late now. Avoid looking at them in detail, especially if the notes are very big. It will scare you.

At the door of the exam room before you go in.

Read quickly through the full set of ExPress notes, focusing on areas you’ve highlighted, key workings, approaches to exam questions, etc.

Leave at home.

Leave at home.

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Our ExPress notes fit into our portfolio of materials as follows:

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Provide a base understanding of the most important areas of the syllabus only. Provide a comprehensive coverage of the syllabus and accompany our face to face professional exam courses Provide detailed coverage of particular technical areas and are used on our Professional Development and Executive Programmes. To maximise your chances of success in the exam we recommend you visit www.theexpgroup.com where you will be able to access additional free resources to help you in your studies.

Notes

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ExPress Notes
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Chapter 1

The Global Business Environment

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START The Big Picture
Globalisation is the situation where local markets are increasingly dominated by global markets.

KEY KNOWLEDGE PESTEL (or PEST or SLEPT) Analysis
Global business is impacted by PESTEL analysis. An analysis of the external macro environment. The organisation is unlikely to be able to influence these factors but it should have an awareness of the issues. Political - global, national and local changes and trends. Taxation policies. Relationships between certain countries. Economic - global, regional and local issues. Exchange rates. Link to topical issues such as global recession, current interest rates for funding. Social - changes in behavior and expectations in society. Demographics, lifestyle.

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Technological - changes including hardware, software, e-issues, materials and services. Global communications. Environmental – what are the environmental considerations such as recycling, pollution, attitude of the media, customers, etc.

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Legal - changes and predicted changes to regional (e.g. EU) and national legislation. Regulatory bodies. Changes to employment law. Hofstede looked at international perspectives on culture. He identified five characteristics:

1. Power distance

• do cultures accept inferior positions? • do people work individually or together via collectivism? • how different is the focus on gender roles? • do cultures try to reduce uncertainty? • what is the attitude to change over time?

2. Individualism
3. Masculinity 4. Uncertainty
5. Long term orientation
Emerging market multinationals.

Previously, many companies located manufacturing facilities in developing countries. Over recent years this has changed with more service business elements being located within developing countries. There has also been an emergence of multinational companies originating from these so called developing countries. For example, the Indian company Tata is now the owner of the UK car manufacturer LandRover.

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KEY KNOWLEDGE The BRIC Countries

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The BRIC (Brazil, Russia, India and China) countries are the world’s largest emerging economies. The large population of these countries together with their economic potential has resulted in it being predicted that they could be the four most dominant economies by 2050. Liberalisation and economic nationalism. Over recent years there has been a trend of trade liberalization in certain parts of the world. For example, the enlargement of the European Union has resulted in it easier to trade between the 27 EU countries.

KEY KNOWLEDGE Outsourcing and offshoring
Outsourcing is where work which was previously done in-house is contracted out to specialist external providers. Advantages include:    Cost savings Access to expertise Flexibility (i.e. easier to switch the offshoring on or off rather than recruiting or laying off staff)

Disadvantages include:    Risk with confidentiality Loss of in-house expertise Potential loss of competitive advantage if other companies can outsource to the same entity

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KEY KNOWLEDGE Major Economic Systems

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There are 3 main types of economic systems:

government & partly by the free market
The vast majority of economies are a form of a mixed economy.

be utilised

A transition economy is one which is moving from a planned economy to a free market economy.

KEY KNOWLEDGE National Account Balances
Balance of payments record transactions between residents of a particular country and overseas residents. A balance of payment deficit is where there is a net outflow of funds from the country. A balance of payment surplus is where a nation has more funds from trade and investments coming in than it pays out to other countries.

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Chapter 2

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Internal & External Governance and Regulation

KEY KNOWLEDGE Stakeholder mapping
Stakeholders are individuals, groups or organisations that can impact or be impacted by, an organisation. Stakeholders can be classified into: Internal - e.g. employees and management Connected (sources of finance) – e.g. shareholders and banks External – e.g. general public and government Mendelow’s Matrix allocates stakeholders into quadrants according to their level of power and how likely they are to exercise that power (i.e. their interest).

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Low Low

Stakeholder Interest Minimum effort Keep informed

High

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Stakeholder Power Keep satisfied Key players High The separation of ownership and control arises when shareholders who own a company appoint directors to control it.

Shareholders
Appoint Own

Directors
Control

Company

Smaller companies may have the same persons as a shareholder and director. Larger companies will almost certainly have separate shareholders and possibly thousands of shareholders. Corporate governance refers to how a company is “governed”. i.e. the processes by which a company is controlled and directed. Areas of importance within corporate governance include:

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   

Non Executive Directors (NED) – directors who are not involved in the day to day activities but who primarily attend board meetings. Remuneration Committee – established to avoid directors setting their own remuneration levels. Audit Committee – acts as an interface between the board of directors and the external auditors.

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Public Oversight – this gives the public an insight into the company (e.g. via public open days). In the US, the Sarbanes–Oxley Act of 2002 (named after sponsors US Senator Paul Sarbanes and US Representative Michael Oxley and commonly called SOX), sets standards expected from all US public company boards, management and public accounting firms. The Act was enacted in response to a number of major accounting scandals including Enron and Worldcom. SOX is only applicable for US companies and for subsidiaries of US based companies.

KEY KNOWLEDGE Social responsibility in business
Corporate Social Responsibility (CSR) refers to the organisation’s duty to look after all of its stakeholders as opposed to just the shareholders. Traditionally, CSR was often seen as a burden on a company but now it is often seen as a source of opportunity (e.g. improvement in a company’s reputation). CSR often involves a Stakeholder Needs Analysis whereby organisations identify their key stakeholders and what their needs are.

Business-government relations in developed and developing economies. In developed countries there is likely to be a higher level of government lobbying present that that which is found in developing countries. Government lobbying is where

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representatives from individual businesses or business associations meet with the government to discuss or promote certain ideas. Regulation in the national and international context and its impact on the firm.

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One particular area is that of the regulation of the level of competition in the market. For example, in the UK the government is keen to encourage competition. Competition is seen to be positive in that it encourages innovation and helps keep prices low.

There are a number of areas of regulation present within the business environment. For example, company legislation.

Country & Political Risk

Country risk
The risk of operating in a particular country. e.g. economic, cultural and political risk.

Political risk
A component of country risk and includes political stability and political corruption.

Country risk is the risk arising from operating or investing in a particular country, with risks relating to matters such as political interference, political stability, the social and economic infrastructure, the culture of the country and its attitude to foreign business. Country risk is a much more general term than political risk and relates to all of the risks of operating or investing in a particular country.

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Chapter 3

Information Systems

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KEY KNOWLEDGE Information Systems

Raw data is just a collection of data such as figures. It needs to be processed by way of an information system to provide suitable management information. Information systems can range from a relatively simple Excel spreadsheet through to a sophisticated purpose built database.

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Good information is “ACCURATE” using the following pneumonic: Accurate Complete Cost-beneficial Understandable Relevant Adaptable Timely Easy to use

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There are both internal users (e.g. management) and external users (e.g. shareholders or banks) of information.

Porter’s 5 Forces
Information Systems can be used by an organisation to improve its performance and market position. Using Porter’s 5 Forces model as an illustration: This model examines the role of 5 forces close to an organisation that impact on its ability to make a profit and hence how attractive a particular market or industry is. There are 5 forces as follows:

Entrants

Suppliers

Competition

Customers

Substitute

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1. Threat of substitute products If there are similar products, a customer will be more likely to switch rather than stay with a product when there are price rises (elastic demand). An advanced IS infrastructure could help an organisation identify new innovative substitute products.

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2. Competitive rivalry The rivalry will depend on the number and strength of competitors, economies of scale and exit barriers. Advanced IT systems for stock control for example can help with reducing cost of manufacture compared to competitors. 3. Threat of new entrants Markets generating high returns will attract new entrants which in turn could reduce industry profits. Barriers to entry such as government licenses (mobile phone operators) are important in reducing the threat of new entrants. 4. Power of customers The stronger the power of the customer the more pressure it can place on the company. Issues to consider include the size of the customer relative to the firm’s customer base, switching costs and availability of substitute products. An advanced CRM system can help the relationships with customers. 5. Power of suppliers Suppliers of materials and services can exercise power over an organisation. This depends on the level of differentiation of the product, presence of substitute products, etc. Compare the power of Intel supplying computer chips to the computer industry vs. a sugar producer supplying sugar to a soft drinks manufacturer.

KEY KNOWLEDGE Customer Relationship Management Systems (CRM)
An emerging trend in a lot of organisations is the establishment of sophisticated CRM systems. These aim to ensure that the customer relationship is developed and information is shared across the various business functions such as customer service, marketing and product design and innovation.

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KEY KNOWLEDGE Virtual Organisations

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These organisations utilise relationships with external organisations to undertake work that would previously have been performed in-house. This is more than outsourcing an individual component of the business and in some situations can involve the majority of the business being performed by 3rd party providers outside of the organisation. For example, the key components of product design, product manufacture, product delivery and corporate branding can all be performed by entities that are external to the “host organisation”.

The growth of the internet and advancement of e-relationships has driven the virtual organisation.

KEY KNOWLEDGE Emerging Trends – Social Networking
More and more companies are building and maintaining relationships by way of social media networks such as Facebook, LinkedIn and Twitter. These enable companies to develop relationships with large numbers of people but need a different approach when compared to the more traditional relationship methods. As a result companies should have a defined social networking strategy.

KEY KNOWLEDGE Costs & Benefits of Information Systems
Both costs and benefits of Information Systems can be either tangible (e.g. cost of hardware and software) or intangible (e.g. distraction to the staff during training period). Generally, it can be argues that costs of IS implementation are easier to identify than the benefits.

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