P3

Business Analysis

MSc. Le Tra My
 Lecturer
MSc., CMA. Le Tra My
- Bachelor of external trade, Foreign Trade University,
Vietnam
- Master of International Accounting, Swinburne
University of Technology, Australia
- Diploma of Certified Management Accountant, The
Institute of Certified Management Account, Australia
- Lecturer, Faculty of Accounting and Auditing, Foreign
Trade University
- Email: mylt@ftu.edu.vn, phone: 0982.230.387.
- Research interests: management accounting,
environmental accounting, sustainability accounting
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 COURSE ASSESSMENT
No Assessment items Value Notes

1 Class Attendance and 20%  Class attendance 5%

Participation  Active class discussion participation
 Active off-class discussions
 Active team member
 Random quizzes

2 Group works 20%  In this course, students have case studies to dicuss during
Midterm test and after class
 Preparation: This is a self-study exercise, designed for
students to dicuss during and after class. All groups then
present their work in class.
 Midterm test

3 Final Exam 60%  Understanding of the theory, concepts

 Ability to apply in real situations and business cases
 Format: To be announced, either Oral exam or Written exam

  Total 100%  

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 REQUIRED TEXTBOOKS

[1] ACCA, Paper 3 Business Analysis, 2016 (textbook and

revision kit)

[2] Investment Valuation: Tools & Techniques for Determining

the Value of Any Asset, 2nd edition by Damodaran, 2002.

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 SYLLABUS

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Business Strategy
1. Defining Strategy

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 Strategy
 
Strategy: the direction of an organization over the long term to achieve advantage in a
changing environment through the configurations of resources and competences with
the aim of fulfilling stakeholder’s expectations. (Johnson, Scholes and Whittington's
(JS&W’s) )

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 MISSION, GOALS & OBJECTIVES
Mission is the organisation's overriding purpose; it reflects the values or
expectations of stakeholders and answers the question 'what business are we
in?'.
Vision or strategic intent is the future state desired by the organisation's
strategists: they aim to guide the organisation's collective aspiration towards it.
A goal is a statement of a general aim or purpose that supports the mission. It
may be qualitative in nature.
An objective is a more specific aim or purpose and will probably be quantified.
Strategic capability flows from resources and competences. Unique resources
and core competences create competitive advantage. (We will define these
terms more precisely later in this Study Text.)
A business model describes the structure of product, service and information
flows between the parties involved.
Strategic control has two parts: monitoring the effectiveness of strategies and
actions; and taking corrective action when required.

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 2. LEVELS OF STRATEGY
Corporate Strategy
This looks at the industries in which the organisation operates. This may
mean deciding to leave existing areas or enter new ones. This is particularly
true if the organisation has a number of divisions.
Business Strategy
This looks at how the organisation (or subsidiary / division) competes.
This tends to mean either:
 The division is trying to win customers by being better than rivals in some
way.
 The subsidiary is trying to win customers by being cheaper than rivals.
Operational Strategy
This looks at how resources are used to carry out the strategies noted above.
In addition it looks at how areas like processes can be improved to help make
the strategy more likely to succeed.

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CORPORATE STRATEGIES

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Business-level strategy

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OPERATIONAL (FUNCTIONAL) STRATEGIES

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Crafting a Strategy

pesticides
Cosmetics
Polyester

Chemicals

A SINGLE
DIVERSIFIED BUSINESS
COMPANY STRATEGY
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 Responsibility of corporate A
level managers. Corporate DIVERSIFIED
Strategy COMPANY

Responsibility of business
level general managers. Business Strategy

Responsibility of heads of
Functional strategies
major functional activities
within a business unit. (R&D, manufacturing marketing, finance, human
resource, etc.

Responsibility of Operating strategies.

plant managers,
(Regions and districts, plants, departments
geographic unit
within functional areas.
managers and
lower level
supervisors. ©ACCA
 Responsibility of SINGLE
executive level
managers. Business
BUSINESS
Strategy STRATEGY

Responsibility of
heads of major
functional Functional strategies
activities within a (R&D, manufacturing , marketing, finance,
business unit. human resource, etc.

Responsibility Operating strategies.

of plant
(Regions and districts, plants, departments
managers,
within functional areas.
geographic unit
managers and
lower level ©ACCA

supervisors.
 Quick check

Ambledon Ltd is a company selling widgets. The finance

directors says, “ We plan to issue more shares to raise
money for new plant capacity- we don’t want loan
finance – which will enable us to compete better in the
vital and growing widget markets of Latin America, while
delaying the development of new products in new
business sectors. After all, we’ve promised the
shareholders 5% profit growth this year and trading is
tough”.
IDENTIFY THE CORPORATE, BUSINESS AND
FUNCTIONAL STRATEGIES IN THE ABOVE CASE.

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 Quick check

CORPORATE
Profit growth.
Entering new markets rather than producing new products .
BUSINESS
Those market including Latin America .
OPERATION/ FUNCTIONAL
Invest in new plant (production function)
Equity financing rather than debt financing (finance function)

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 3. Elements of strategic management (strategic
decisions)

Strategic position Strategic choices Strategic action

Characteristics of strategic decisions:

- Complex
- Uncertainty
- Impact on operational decision-making
- Intergrated approach
- Change

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Stage 1 – Strategic Position
Identify key stakeholders and their expectations.
Develop long-term objectives to satisfy these stakeholder
expectations.
Calculate financial and non-financial ratios to show position of
organisation.
Identify core resources and competences within the organisation.
The culture, beliefs and assumptions of the organisation
Identify key “factors” changing the environment outside the
organisation. i.e. the environment (competitors, markets, regulations,
discoveries etc. Opportunities and threats)
Use SWOT analysis (also known as a corporate appraisal) to
summarise the strategic position.

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Stage 2 – Strategic Choices
Generation of strategic options
Evaluation of the options to assess their relative merits and feasibility.
Selection of the strategy
 Consider possible exit from existing industries.
 Consider diversification into new industries.
 Consider developing new competitive advantages.
 Consider entry into new markets.
 Consider development of new products.

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Stage 3 - Strategy into
action/implementation

Implementing a strategy has three elements.

Organising/structuring. For example, should the organisation be split
into European, US and Asian divisions? How autonomous should
divisions be?
Enabling an organisation’s resources should support the chosen
strategy. For example, appropriate human resources and fixed assets
need to be acquired.
Managing change. Most strategic planning and implementation will
involve change, so managing change, in particular employees’ fears
and resistance, is crucial.

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Rationale Model

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Interdependencies between analysis, choice and implementation.

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Why Strategic Planning
(Rational Model) is necessary

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There are two extremes when deciding on
organisation’s future strategy:

Strategic planning

Free wheeling opportunism

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 Strategic planning
Involves formal analysis of each of the stages of
strategic position before a final strategic choice is made.
Strategic planning is useful because:
It forces managers to consider each stage of the strategic process
It forces managers to justify their actions
It forces managers to consider the effect of a strategy on all aspects
of the business
It allows managers to be proactive rather than reactive.

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Freewheeling opportunism
Freewheeling opportunists do not like planning. They prefer to see
and grab opportunities as they arise.
Intellectually, this is justified by saying that planning takes too much
time and is too constraining. Probably, the approach is adopted more
for psychological reasons: some people simply do not like planning.
Often such people are entrepreneurs who enjoy taking risks and the
excitement of setting up new ventures. However, once the ventures
are up and running, the owners lose interest in the day today
Repetitive administration needed to run a business.

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Alternative Ways of developing organisational
strategy other than “Rational” and “Free wheelers
Approach”.

 Incrementalism
 Emergent strategies
 The strategy lenses

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Emergent strategies
The research of Mintzberg (1987) suggests that few of the strategies
followed by organisations in the real world are as consciously
planned as the approaches above suggest.

He believes this to be an unrealistic view of strategic planning,

believing instead that strategies evolve over time (emerge) rather
than result from an in depth analysis of every aspect of the
environment and an impartial evaluation of every possible alternative.

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Incrementalism
Lindblom did not believe in the rational model to decision making as he
suggested that in the real world it was not used, citing the following
reasons.
Lindblom believed that strategy making involving small scale extensions of
past practices would be more successful as it was likely to be more
acceptable as consultation, compromise and accommodation were built
into the process. He believed that comprehensive rational planning was
impossible and likely to result in disaster if actively pursued.
Strategic Managers do not evaluate all the possible options open to them
but choose between relatively few alternatives.
It does not normally involve an autonomous strategic planning team that
impartially sifts alternative options before choosing the best solution.
Strategy making tends to involve smallscale extensions of past policy –
‘incrementals’ rather than radical shifts following a comprehensive search.
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 4. Strategy Lenses
This model argues that strategy can be set in different ways:
Strategy as design: A rational, top-down process — rational managers, clear objectives,
machine — like system
Strategy as experience: an adaptation of what has worked in the past — based on
experience, assumptions, decisions.
Strategy as ideas: Strategy based on innovation, diversity of ideas, informal interaction
and experimentation.

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The strategy lenses
Different approaches taken by managers to formulate the strategies of an organization

Strategy as design Strategy as experience Strategy as ideas

Logical and rational Based on adaptation of past strategies, Based on new ideas and innovation
process influenced by managers’ experience
Uses analytical and Adaptive approach, incremental Emphasizes importance of variety
evaluation techniques and diversity
Most common Driven by the taken-for-granted Ideas likely to come from anywhere
approach assumptions
Top-down approach Adopted by risk adverse managers Top managers - creators of the
context
Found in conservative For stable and static environments Adopted by risk takers in
dynamic organizations environments
If environment dynamic, strategic drift Commonly used by innovative
occurs organizations e.g. 3M and Google

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The strategy lenses
Lenses Advantages
Strategy as design Structured process
Logical, makes sense
Many academic models
Strategy as experience Managers learn from experience
Strategy as ideas High on creation and innovation
Includes everyone
Can lead to massive competitive
advantage
Disadvantages
Does not encourage lower level
participation
Rigidity
Paralysis by analysis
Low on innovation
Low on logic
Strategic drift
Lack of structure
Not all great ideas translate into great
commercial products
High risk
High cost (failure cost)

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The strategy lenses
New ideas/high
innovation
Ideas

Design

Experience
Conformity/low
innovation

Low rationality High rationality

Summary: Something as complex as strategy should be viewed in a number of complementary ways i.e.
by looking through all three lenses

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Illustration – The strategy lenses

Choosing a family holiday. A family is considering a

holiday. The family has for five years gone to the same resort,
Vinpearl which has been perfectly suitable. Applying the
strategic lenses to this modest planning exercise could result
in the following approaches:

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Illustration – The strategy lenses

Strategy as design. The family gets lots of holiday brochures and

makes extensive queries on the internet. Checklists of family
members’ requirements are drawn up and the holidays are scored
against these. Careful budgeting exercises are carried out. The result
of this rational, logical process is that another resort, ‘Six Senses ’
seems to be a better fit to what the family needs.

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Illustration – The strategy lenses

Strategy as experience. Despite the analysis carried out, the head

of the family would like to return to Vinpearl. There is strong
emotional attachment to that resort, the facilities and activities
available are well known and holidays there have always been
enjoyed.

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Illustration – The strategy lenses

Strategy as ideas. An old school friend of the head of the

family now lives abroad and has just emailed with the
suggestion that the two families do a house swap for a couple
of weeks. Both families live in interesting and attractive areas
of their countries and the house swap would be cheap,
comfortable and interesting.

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Illustration – The strategy lenses

Of course, there is no right answer as to where the family

should go on holiday, and assessment of the success of the
holiday can only be carried out retrospectively. But one thing
is clear, all three of the lenses have a part to play in trying to
make a good decision.

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5. THE IMPORTANCE OF CONTEXT

The context of strategy is the organisational setting in which

it is developed. Small businesses tend to have limited
resources and strong competition; multinationals are more
concerned with problems of structure, resource allocation and
logistics. Public sector and not-for-profit organisations are
influenced by ideology, politics, and the influence of a range of
stakeholders. Intangible aspects have become very important
for companies dealing in physical products.

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Small businesses

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Multinationals

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The public sector

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Not-for-profit organisations

Not-for-profit organisations also have their particular features.

(a)  Importance of underlying values and purposes
(b)  Diverse sources of funds that may have to be competed
for
(c)  Potential for conflict between stakeholders and need for
transparency of governance may require centralised
decision-making

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Intangible products

There has been an element of strategic convergence between

companies supplying manufactured goods, on the one hand
and those supplying services, on the other. While the nature
of the physical product is still strategically important for the
manufacturer, it has become common for competitive
advantage to depend as much on the customer's perception of
the intangibles that are included in the complete market
offering. Factors such as product information, after-sales
service and brand values have become as strategically
important to manufacturers as intangibles, such as staff
competence and manner, have always been to providers of
services.

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 Chapter Roundup

  Strategy
is the direction and scope of an organisation 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 decisions are made under conditions of complexity
and uncertainty; they have wide impact on the organisation and often lead to major change.
  Strategies are developed in order to achieve desired outcomes. These are inherent in the
organisation's mission or defining purpose. Mission guides strategic decisions and provides
values and a sense of direction.
  A structure of goals and objectives derives from mission and supports it. All the parts of this
structure should be mutually supportive.
  Strategy has its own vocabulary, though usage varies. JS&W provide a very useful list.
  There are many levels of strategy in an organisation.
–  Corporate:
the general direction of the whole organisation
–  Business:
how the organisation or its SBUs tackle particular markets
–  Operational/functional:
specific strategies for different departments of the business

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 Chapter Roundup
  JS&W suggest a three part structure for thinking about strategy.
 –  Strategic position
 –  Strategic choices
 –  Strategy into action
  The context of strategy is the organisational setting in which it is developed.
Small businesses
tend to have limited resources and strong competition
Multinationals
are more concerned with problems of structure, resource allocation and logistics
Public sector and not-for-profit organisations
are influenced by ideology, politics, and the influence of a range of stakeholders
Intangible aspects
have become very important for companies dealing in physical products.

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 Chapter Roundup

  The study of business strategy is fairly new and opinion as to

its nature and content is only just beginning to settle. The breadth
of opinion about it can be analysed into three different
approaches or 'lenses' for looking at individual strategies. These
lenses are:
- strategy as design,
- strategy as experience,
- strategy as ideas.

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