P3 Business Analysis

ACCA Professional Stage

Mr.J.Sathiyaseelan FCCA Pg.Dip
Marketing

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About the exam
 Formerly known as Paper 3.5 Strategic
Business Planning
 The exam format has been changed with the
exam having
 3 hours and 15 minute reading time
 1 Compulsory question 50 marks
 3 Optional questions 25 marks each
 All case study based

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About the paper (by
examiner)
 It builds from Paper F1 / T5
 It is also linked with paper P1 – ethical
implications of decisions
 It is linked with paper F7 / 2.5 – analysis and
interpretation of financial statements
 The paper supports paper P5, where the
similar ideas are brought into question
from a performance aspect
 Examiner: Steve Skidmore previous 3.4 and
2.1 examiner

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About the paper (by
examiner)
 Analysing the business
 Where it is currently?
 Where it needs to be in the future?
 How to get there?
 Is not exclusive to business, can include
public sector and not-for-profit
 ‘Strategy without implementation is the
slowest route to victory.
 Implementation without strategy is the noise
before defeat.’


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5 themes 9 sections
 Theme 1 is strategy.
 Theme 2 is business process
 Theme 3 is information technology,
knowledge management & project
management
 Theme 4 is quality
 Theme 5 is resources – HR and Financials

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5 themes 9 sections
 A, B and C = Strategic planning
 D = Business process change
 E = IT and e-business
 F = Quality
 G = Project management
 H = Financial analysis
 I = Human resource management

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Why students failed in DEC
07
 Lack of preparation – not knowing the
matter being questioned
 Poor time management – spending too much
time on Question 1 – 50 marks, preparing
over comprehensive answers
 Poor use of given data in the question
 Scatter gun approach in using models
studied


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Why did the giant loose out to
Microsoft?

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How did the leader loose out
to the newbie?

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Reasons
 QC
 Technology
 Partners
 Government
 Underestimate Competitors


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How did the small airline
manage to challenge the large
one?

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Reasons
 Cost management
 Segmenting the market effectively
 Good forecasting
 Independence
 Better understanding of market
 Clear strategy
 Branding
 Resourceful


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Chapter 1 – Nature of strategic
business analysis
 Strategic planning
 Approaches to strategic planning
 Levels of strategic planning
 Johnson, Scholes and Whittington Model
 Contextual application
 Understanding P3 syllabus

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Strategic planning

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Strategic planning
 Matching organisation, resources and
competence to environment
 Sustainable competitive advantage
 Considers stakeholders
 Integrates activities
 Gives direction
 Considers the whole organisation
 Long term planning


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Strategic planning -
advantages
 Influences future
 Provides direction
 Forces to look ahead
 Maximisation of resource utilisation
 Improves fit with the environment


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Strategic planning -
disadvantages
 Less relevant in times of crisis
 May ignore opportunities that arises later
 Bureaucracy develops
 Paralysis by analysis
 Cost


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Strategic planning -
important
 Many stakeholders impacted
 High capital expenditure
 Turn-around required
 Long lead time


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Approaches to strategy
 Rational “top-down” approach
 Emergent strategies
 Incrementalism
 Freewheeling opportunism


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Level of strategic planning
 Corporate strategy
 What business to be in/out?
 Business strategy
 SBU and mission, competitive advantage,
product/market decision
 Functional strategy
 How each function supports the corporate
and business strategy

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Johnson, Scholes &
Whittington
 Strategic position/analysis
 Strategic choice
 Strategic implementation

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Strategic position
 Environment
 Capabilities – Resources and competence
 Culture, belief and assumptions
 Stakeholder expectations

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Strategic choice
 Generation of options
 Evaluation of options
◦ Suitability to existing condition (SWOT)
◦ Feasibility - resources
◦ Acceptability - stakeholders
 Selection of option
◦ Judgement involved – not purely logical
 Options need to be considered for
◦ Corporate – scope and direction
◦ Business – how to compete
◦ Function – outsource / maintain

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Options that are available
 Direction of growth (Ansoff matrix)
 How to compete (Porter)
 Method of growth (Acquisition / Organic)
 Evaluation of options

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Strategy in action
 Organising and structuring
 Resources planning
 Managing change

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Contextual issue
 Small business
 Multinational
 Public sector
 Not-for-profit sector

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Small business
 Single market and limited product range
 Expectation of founder important
 Major problems to be faced
 Pressure from larger players
 Limitations in resource especially finance

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Multinational
 Diverse market and products
 Problems and issues
 Relationship with HQ and SBU
 Resource allocation and co-ordination of
activities between various SBU
 Control of business

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Public sector
 Significant government influence
 Planning horizon driven by politics rather
than market conditions
 Problems and issues
 Ideology
 Competition for resources – VFM
 Options limited by funding
 Strategic alliance key factor

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Voluntary & not-for-profit
 Key objectives non financial
 Funding not linked to recipient of service
 Problems & Issues
 Values and ideology critical
 Competition for funds


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Strategy lenses
 Johnson & Scholes – ways of viewing
“strategy”
 Strategy as design
 Strategy as experience
 Strategy as ideas

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Strategy as design
 Rational
 Logical process
 All information considered
 Deliberate approach

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Strategy as experience
 Incremental
 Based on past
 Emergent approach

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Strategy as ideas
 Innovation and new ideas
 Radically different and new development
 Sees strategy as opportunistic

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P3 Syllabus

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Chapter 2 – External
Analysis
 PESTEL Model – National Museum / EMS
 Porter’s National Diamond Model - ?
 Convergence - ?
 Porter’s Five Forces Model – BACTI /
AutoFone
 Life Cycle Model - Autofone
 Strategic Group Analysis - ?
 Market Segmentation - ?
 Opportunities and threat (SWOT) – Ona /
Greentech

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PESTEL Model
 Political
 Taxation policy
 Government stability
 Foreign trade regulation
 Ideology
 Economical
 Interest rates
 Inflation
 Business cycle


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PESTEL Model
 Unemployment rate
 Disposable income
 Energy availability and cost
 Social
 Population
 Demographics
 Social mobility
 Income distribution
 Lifestyle changes


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PESTEL Model
 Attitude to work & Leisure
 Levels of education
 Consumerism
 Technological
 Government spending on research
 New discoveries
 Industry focus on technological effort
 Speed of technology transfer
 Rates of obsolescence


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PESTEL Model
 Ecological/Environmental
 Pollution
 Energy usage
 Legal
 Taxation law
 Employment law
 Monopoly legislation
 Environmental protection law
 Data protection law



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Porter’s National Diamond

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Porter’s National Diamond
 Factor condition
◦ Availability of raw material & suitable
infrastructure
 Demand conditions
◦ The type of demand in home country and its
levels
 Related and supporting industries
◦ Spatial proximity of upstream or downstream
industries facilitates the exchange of
information and promotes a continuous
exchange of ideas and innovations
 Firms strategy, structure and rivalry
◦ The push in the local industry that creates WCM

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Why Proton Fails to deliver
value?
 Factor
◦ Malaysia has the raw materials but lacked in human
capital needed for the development of cars
 Demand
◦ Malaysian demand is insufficient to allow for the
establishment of economies of scale, malaysian
have a “tidak apa” attitude, which allowed poor
quality to be accepted
 Related industries
◦ Malaysia did not have a ready set of suppliers for the
manufacturing of car, each was established 1st time
 Firms strategy - cheapest due to import duties


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Convergence
 Impact of PESTEL on the industry
 Sector – public services
 Industry – group of firms selling the same
product
 Supply-led = where producers try to see the
connection between separate industries or
sectors
 Market-led = where buyers see or want
connections between separate
industries/sectors

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Convergence
 Convergence in substitute – where one
technology replaces another
 Convergence in complements – where 2
technologies from separate industries work
better together

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Convergence

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Porter’s five forces

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Threat of new entrant
 the existence of barriers to entry (patents,
rights, etc.)
 economies of product differences
 brand equity
 switching costs or sunk costs
 capital requirements
 access to distribution
 absolute cost advantages
 learning curve advantages
 expected retaliation by incumbents
 government policies


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Bargaining power of
customer
 buyer concentration to firm concentration ratio
 bargaining leverage, particularly in industries
with high fixed costs
 buyer volume
 buyer switching cost relative to firm switching
costs
 buyer information availability
 ability to backward integration
 availability of existing substitute products
 buyer price sensitivity
 differential advantage (uniqueness) of industry
products
 RFM Analysis (Recency, Frequency, Monetary
value)



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Bargaining power of
suppliers
 supplier switching costs relative to firm
switching costs
 degree of differentiation of inputs
 presence of substitute inputs
 supplier concentration to firm concentration
ratio
 threat of forward integration by suppliers
relative to the threat of backward
integration by firms
 cost of inputs relative to selling price of the
product


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Rivalry
 number of competitors
 rate of industry growth
 intermittent industry overcapacity
 exit barriers
 diversity of competitors
 informational complexity and asymmetry
 fixed cost allocation per value added
 level of advertising expense
 Economies of scale
 Sustainable competitive advantage through
improvisation


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Subsitute
 buyer propensity to substitute
 relative price performance of substitutes
 buyer switching costs
 perceived level of product differentiation


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Stages of lifecycle
Sales and
Profits ($)

Sales

Profits

Time

Product Introduction Growth Maturity Decline

Develop-
ment

Losses/
Investments ($)
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Strategic Group Analysis
 Helps identify who the most direct
competitors are and on what basis they
compete.
 Raises the question of how likely or possible
it is for another organization to move from
one strategic group to another.
 Strategic Group mapping might also be used
to identify opportunities.
 Can also help identify strategic problems.


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SGA Characteristics
 Extent of product (or service) diversity
 Extent of Geographic coverage
 Number of Market segments served
 Distribution Channels used
 Extent of Branding
 Marketing Effort
 Product (or service) quality
 Pricing policy


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 Strategic Maps of the United States Airline Industry
The Late 1970s The Early 1990s
Pan International
International Laker
TWA Am

World
United
North American
Braniff west

Conti- Northwest
nental Delta
Eastern
Geographic Scope

TWA
United

USAir
Delta
National National
American

Continental

South-
Western
RepublicOzark west

USAir Piedmont
America
AirCal West
South- Frontier Kiwi
west
PSA Reno Others
Texas Int’l
Regional Regional Air

No Frills Full Service No Frills Full Service

Quality of Service Quality of Service
Market segmentation
 Division of market into segements
 Size
 Homogeneous
 Measureable
 Accessible
 Sustainable
 Unique

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Basis of segementation
 Geographic – B/C
 Socio-economic C
 Demographic C
 Psychographic C
 Benefit sought C
 DMU B
 Type of buy B
 Size of company B
 Industry B

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Prepare segmentation for
ACCA market
 Demographic
 AGE – 19-23 / 24 AND ABOVE
GENDER – MALE/FEMALE
AUDIT FIRM/CORPORATE/FULLTIME
DEGREE ROUTE/ACCA ROUTE
 Geographic
◦ KL
◦ PJ
◦ DAMANSARA
◦ KLANG


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Conclusion of analysis
 Identification of threats
◦ What are the threats
◦ How will it impact the competitors and the
company
 Identification of opportunities
◦ What are the opportunities
◦ Profit making potential?
◦ Can it be exploited?
◦ Comparative ability of competition
◦

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Analysis
 Item from case + Model + O/T = Answer
 One year period for certification indicates
that it will be hard to enter & compete
directly. This makes it harder for new
entrants.


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