ACCA SBL Question Pack - Exam Kit PDF

Preview

Summary

Exam Kit...

Description

Professional Examinations

Paper SBL

STRATEGIC BUSINESS LEADER

P A P ER S BL : STR A TE G I C B U SI N E SS L E A D E R

British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. Published by: Kaplan Publishing UK Unit 2 The Business Centre Molly Millar’s Lane Wokingham Berkshire RG41 2QZ

© Kaplan Financial Limited, 2017 The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties. Please consult your appropriate professional adviser as necessary. Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials. All rights reserved. No part of this examination may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without prior permission from Kaplan Publishing. Acknowledgements The past ACCA examination questions are the copyright of the Association of Chartered Certified Accountants. The original answers to the questions from June 1994 onwards were produced by the examiners themselves and have been adapted by Kaplan Publishing. We are grateful to the Chartered Institute of Management Accountants and the Institute of Chartered Accountants in England and Wales for permission to reproduce past examination questions. The answers have been prepared by Kaplan Publishing.

P. 2

K AP L AN P U B L ISH IN G

CONTENTS Page number Question

Answer

2

26

4

29

TMZ

5

33

BTS Company

7

36

8

38

9

40

10

42

13

46

15

50

LEADERSHIP 1

Academic Recycling Company (ARC)

GOVERNANCE 2

Rosh and Company

STRATEGY 3 RISK 4

TECHNOLOGY AND DATA ANALYTICS 5

Good Sports

ORGANISATIONAL CONTROL AND AUDIT 6

YAHTY

FINANCE IN PLANNING AND DECISION MAKING 7

Graffoff

INNOVATION, PERFORMANCE EXCELLENCE AND CHANGE MANAGEMENT 8

Country Car Club

CASE STUDY 9

Fishnet

K AP L AN P U B L ISH IN G

P. 3

P A P ER S BL : STR A TE G I C B U SI N E SS L E A D E R

P. 4

K AP L AN P U B L ISH IN G

QUESTIONS

K AP L AN P U B L ISH IN G

1

P A P ER S BL : STR A TE G I C B U SI N E SS L E A D E R

LEADERSHIP 1

ACADEMIC RECYCLING COMPANY (ARC) Ten years ago Sully Truin formed the Academic Recycling Company (ARC) to offer a specialised waste recycling service to schools and colleges. The company has been very successful and has expanded rapidly. To cope with this expansion, Sully has implemented a tight administrative process for operating and monitoring contracts. This administrative procedure is undertaken by the Contracts Office, who track that collections have been made by the field recycling teams. Sully has sole responsibility for obtaining and establishing recycling contracts, but he leaves the day-to-day responsibility for administering and monitoring the contracts to the Contracts Office. He has closely defined what needs to be done for each contract and how this should be monitored. ‘I needed to do this’, he said, ‘because workers in this country are naturally lazy and lack initiative. I have found that if you don’t tell them exactly what to do and how to do it, then it won’t get done properly.’ Most of the employees working in the Contracts Office like and respect Sully for his business success and ability to take instant decisions when they refer a problem to him. Some of ARC’s employees have complained about his autocratic style of leadership, but most of these have now left the company to work for other organisations. A few months ago, ARC was acquired by an international company Scat. Scat intend to leave the management of ARC completely in Sully Truin’s hands but want to integrate its activities into complementary activities carried out by the Scat group. As part of Scat’s human resource strategy every manager must attend one of Scat’s internal leadership programmes. Scat’s programmes actively advocate and promote a democratic style of management. Sully Truin attended once such course programme as part of the conditions for him retaining his managing directorship of ARC. The course caused Sully to question his previous approach to leadership. It was also the first time, for three years, that Sully had been out of the office during working hours for a prolonged period of time. However, each night, while he was attending the course, he had to deal with emails from the Contracts Office listing problems with contracts and asking him what action they should take. He became exasperated by his employees’ inability to take actions to resolve these issues. He discussed this problem with the leaders of Scat’s training programme. They suggested that his employees would be more effective and motivated if their jobs were enriched and that they were empowered to make decisions themselves. On his return from the course, Sully called a staff meeting with the Contracts Office where he announced that, from now on, employees would have responsibility for taking control actions themselves, rather than referring the problem to him. Sully, in turn, was to focus on gaining more contracts and setting them up. However, problems with the new arrangements arose very quickly. Fearful of making mistakes and unsure about what they were doing led to employees discussing issues amongst themselves at length before coming to a tentative decision. The operational (field) recycling teams were particularly critical of the new approach. One commented that ‘before, we got a clear decision very quickly. Now decisions can take several days and appear to lack authority.’ The new approach also caused tensions and stress within the Contracts Office and absenteeism increased.

2

K AP L AN P U B L ISH IN G

Q U E S TION S

At the next staff meeting, employees in the Contracts Office asked Sully to return to his old management style and job responsibilities. ‘We prefer the old Sully Truin’, they said, ‘problems are again referred up to him. However, he is unhappy with this return to the previous way of working as he feels that this may upset the new company owners. He is also working long hours and is concerned about his health. On top of this, he realises that he has little time for obtaining and planning contracts and this is severely restricting the capacity of the company to expand in order to integrate activities with other parts of the Scat group. Scat performs a 100 day review of all newly acquired businesses. This 100 day review examines the impact of the acquisition after the first 100 days of Scat ownership. A review of ARC has determined that ARC has yet to achieve integration targets that were set as objectives for the first 100 days post acquisition. The Scat human resource director is concerned that this may be caused by a poor management style employed by Sully Truin or that perhaps Scat’s own internal training programmes are not as effective as hoped. She believes that the management training course promotes the best approach to leadership, one that she herself employs across all of Scat’s business units. Required: You work as a member of the 100 day review team at Scat. Prepare a brief report for the Scat HR director to explain why the change of leadership style at ARC was unsuccessful and whether this reflects a poor approach to Scat’s management training programme. (15 marks) Professional skills marks will be awarded for demonstrating commercial acumen in demonstrating awareness of the wider external factors that may have affected the success of Sully Truin’s new management style. (3 marks) (Total: 18 marks)

K AP L AN P U B L ISH IN G

3

P A P ER S BL : STR A TE G I C B U SI N E SS L E A D E R

GOVERNANCE 2

ROSH AND COMPANY Mary Hobbes joined the board of Rosh and Company, a large retailer, as finance director earlier this year. Whilst she was glad to have finally been given the chance to become finance director after several years as a financial accountant, she also quickly realised that the new appointment would offer her a lot of challenges. In the first board meeting, she realised that not only was she the only woman but she was also the youngest by many years. Rosh was established almost 100 years ago. Members of the Rosh family have occupied senior board positions since the outset and even after the company’s flotation 20 years ago a member of the Rosh family has either been executive chairman or chief executive. The current longstanding chairman, Timothy Rosh, has already prepared his slightly younger brother, Geoffrey (also a longstanding member of the board) to succeed him in two years’ time when he plans to retire. The Rosh family, who still own 40% of the shares, consider it their right to occupy the most senior positions in the company so have never been very active in external recruitment. They only appointed Mary because they felt they needed a qualified accountant on the board to deal with changes in international financial reporting standards. Several former executive members have been recruited as non-executives immediately after they retired from full-time service. A recent death, however, has reduced the number of non-executive directors to two. These sit alongside an executive board of seven that, apart from Mary, have all been in post for over ten years. Mary noted that board meetings very rarely contain any significant discussion of strategy and never involve any debate or disagreement. When she asked why this was, she was told that the directors had all known each other for so long that they knew how each other thought. All of the other directors came from similar backgrounds, she was told, and had worked for the company for so long that they all knew what was ‘best’ for the company in any given situation. Mary observed that notes on strategy were not presented at board meetings and she asked Timothy Rosh whether the existing board was fully equipped to formulate strategy in the changing world of retailing and whether a nominations committee would help address weaknesses. She did not receive a reply. Timothy Rosh has subsequently approached you, an external consultant, to see if there are any weaknesses in the current governance structures of Rosh and Company. He also wanted your views on the role and usefulness of a nominations committee. Required: Write a report to Timothy Rosh criticising the governance arrangements of Rosh and Company and assessing the usefulness of a nominations committee to the company. (18 marks) Professional skills marks will be awarded for demonstrating scepticism skills in probing into the governance structure at Rosh and Company. (3 marks) (Total: 21 marks)

4

K AP L AN P U B L ISH IN G

Q U E S TION S

STRATEGY 3

TMZ TMZ is a music company based in the developed country of Artazia. It was founded in 1963 when it started to sign emerging rock and roll artists to its record label. TMZ offers a contract in which the artists receive royalties based on the sales of their music. As part of this contract, TMZ record the music, distribute it and promote it. Most of the contracts are for a defined number of songs or records. For example, in 1980, TMZ contracted the heavy metal band, Vortex31, to produce ten albums, to be delivered over seven years. Extracted financial data for the period 1965–2000 is given in Table one. During these years TMZ successfully signed bands offering different and emerging types of music (pop, punk, garage, grunge, patio) and also successfully altered the physical media of distribution, from vinyl records to tape cassette and subsequently to compact disc (CD). All figures in $million Revenue Gross profit Net profit

1965 10 4 3

1970 70 30 22

1980 120 45 30

1990 150 50 30

2000 170 50 25

Table one: Revenue and profit information: TMZ (1965–2000) The company remained profitable in this period, despite musicians taking longer to produce albums and senior management adopting a relaxed and indulgent approach to their creative artists. In 1999, the first file sharing company was formed in Artazia, allowing people to easily share their music files with each other. During the next decade, numerous file sharing and digital downloading companies were launched. As early as 2003, the possible implications of this growth in file sharing and digital downloading were highlighted by a number of employees in TMZ. However, senior management at TMZ were dismissive of this threat, suggesting that the contracts with their artists were ‘watertight’. Table two shows revenue and profit information for 2003–2007. All figures in $million Revenue Gross profit Net profit

2003 165 45 20

2004 150 30 5

2005 130 10 (15)

2006 100 0 (20)

2007 80 (10) (30)

Table two: Revenue and profit information: TMZ (2003–2007) Senior management at TMZ believed that this decline in performance was due to them providing the ‘wrong music, promoted to the wrong people at the wrong price’. During this period the company signed new artists, increased advertising and cut prices. However, this did not halt its decline. Losses were also made in 2008 and 2009 and the company was only kept afloat by fresh injections of shareholder capital. During these years, the company took legal action against what they considered illegal downloading and file sharing. It won a number of small cases but its actions angered many music fans, who felt that music labels had been greedy in the past. It also upset some of its artists who now benefited from the opportunity the internet gave them to sell music directly to their fans. In 2009, a new CEO was appointed from outside the music industry. In 2010 he announced a new strategy. TMZ was no longer interested in contracting new artists to the label. Instead it would focus on deriving profit from its established artists and music catalogue. K AP L AN P U B L ISH IN G

5

P A P ER S BL : STR A TE G I C B U SI N E SS L E A D E R

He came to licensing agreements with some large digital downloading operators and stores, allowing them to access or sell the music of established artists. However, he continued litigation against others. He also began to generate revenue from licensing the music for use in computer games, television advertisements and personalised ringtones. In 2011 the company reported a gross profit for the first time since 2005. In each subsequent year it recorded a small net profit. The CEO stated that TMZ was now a ‘slimmer, fitter company. We are a learning organisation, developing the resilience needed to trade successfully in the ever-changing digital music age’. However, he warned that TMZ, like others in the industry, would continue to pursue actions against the illegal downloading of music. ‘There is a generation where many people consider music and all creative content should be free. However, we see signs that this assumption is becoming less widely held. The next generation is questioning it. Like many others, we continue to seek ways of distributing music which is fair to both the consumer and the artist. We are constantly monitoring trends and patterns in consumer behaviour. We will not get caught out like we were ten years ago. We won’t be fooled again!’ Required: The CEO of TMZ is concerned by the past strategic drift of the company. He wants to learn from the organisation’s past mistakes. Analyse the performance of TMZ from 1965 to the present, including any evidence of past strategic drift. (15 marks) Professional skills marks will be awarded for demonstrating analytical skills in considering the causes of the strategic drift. (2 marks) (Total: 17 marks)

6

K AP L AN P U B L ISH IN G

Q U E S TION S

RISK 4

BTS COMPANY The BTS Company manufactures and sells chairs and sofas for use in the ‘sitting’ or ‘living’ rooms of houses. The company’s products are displayed on an internet site and orders received via this site only. Order processing takes place on the company’s in-house computer systems along with inventory control and payment to suppliers. The computer systems are managed in-house with no external links other than the Internet for selling. Production is carried out in BTS’s factory. There is little automation and production is dependent on the knowledge of Mr Smith and Mr Jones, the production controllers. Similarly, BTS rely on the Woody company for the supply of 80% of the wood used in the manufacture of BTS products. BTS’s supplier policy is to pay as late as possible, providing little information on future production requirements. Other raw materials purchased include fabrics for chair and sofa covers. However, a minority of sales orders are lost because the correct fabric is not available for the customer. The main reason for these stock-outs appears to be that the procurement manager forgets to order the fabric when inventory levels are low. BTS’s products are distributed by FastCour – a nationwide courier firm. However, due to the size of the chairs and sofas it is essential that the customer is available to take delivery of the goods when the courier arrives at their house. FastCour offer a 2-hour ‘window’ for delivery although only 55% of deliveries are actually meeting this criteria providing poor publicity for BTS and an increasing number of customer complaints. The board of BTS do not believe a strategic review of courier services is required at this time. Required: Identify and explain any strategic, tactical and operational risks affecting the BTS company. For each risk, discuss method(s) of alleviating this risk. (12 marks)

K AP L AN P U B L ISH IN G

7

P A P ER S BL : STR A TE G I C B U SI N E SS L E A D E R

TECHNOLOGY AND DATA ANALYTICS 5

GOOD SPORTS Good Sports Limited is an independent sports goods retailer owned and operated by two partners, Alan and Bob. The sports retailing business in the UK has undergone a major change over the past ten years. First of all the supply side has been transformed by the emergence of a few global manufacturers of the core sports products, such as training shoes and football shirts. This consolidation has made them increasingly unwilling to provide good service to the independent sportswear retailers too small to buy in sufficiently large quantities. These independent retailers can stock popular global brands, but have to order using the Internet and have no opportunity to meet the manufacturer’s sales representatives. Secondly, UK’s sportswear retailing has undergone significant structural change with the rapid growth of a small number of national retail chains with the buying power to offset the power of the global manufacturers. These retail chains stock a limited range of high volume branded products and charge low prices the independent retailer cannot hope to match. Good Sports has survived by becoming a specialist niche retailer catering for less popular sports such as cricket and hockey. They are able to offer the specialist advice and stock the goods that their customers want. Increasingly since 2000 Good Sports ...