Sample/practice exam 4 December 2018, answers PDF

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ACCA SBL Case Study “World Adventure Tours Co”

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Question 1 1 Slides and accompanying notes – Baldridge Model Slide 1

The Baldrige Model Organisational profile: ! environment, relationships and strategic situation

Strategic planning

Workforce focus

Leadership

Results

Customer focus

Operations

Measurement, analysis, knowledge management

unified whole, so that plans, processes, measures, and actions are consistent. 1.

First look at the environment, relationships and strategic position. For us at WAT this will determine our target markets, competitors, main suppliers and wider environment (such as PESTEL considerations). For example, is our holiday business threatened by ecological considerations, fuel prices and political events? Is our type of holiday still popular?

2.

Based on this analysis we can move on to look at leadership, strategic planning and customer focus. Think of this as: ๏ Strategy planning – where do we want to go? ๏ Customer focus – we need to ensure that customers are with us. ๏ Leadership – any change will need to be carefully managed and led.

For example, the letter of complaint suggests that (on that trip at least) customer focus was very poor as was local leadership. To improve that we need to plan strategically. How can we ensure consistent high-quality tours with motivated leaders? Are the holidays offered popular and do they correspond with the holidays delivered? Do we need to move away from free-lance guides? What maximum size should tours be (this has implications for our pricing structures)?

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4 of 17 3.

The right-hand part of the diagram looks at detailed implementation of the business plans. How will operations be carried out? What type of employees do we need and how do we motivate them?

4.

This should all feed into good or better results.

5.

The effects of the plans and changes all need to be carefully measured and analysed.

Slide 2 The Baldrige Model – applied to WAT Taking into account the letter of complaint and the recent newspaper article we need to look at: 1. Environment, competitors, reputation 2. What do our customers want? 3. How are we going to plan for higher quality holidays? 4. How should we structure and lead our business? 5. How do we ensure that all holidays run smoothly? 6. How do we recruit, train and motivate local guides and representatives? 7. What ambitions to we have for profits, sales, satisfaction and reputation and how should these be measured? Notes: 1.

Our reputation appears to have been damaged both by the experience of individual customers (see the letter of complaint - and there have been others) and perhaps by articles like the recent one in ‘The Watcher’. We might need to adjust our mission, products and marketing.

2.

Adjusting marketing implies knowing what customers want and value. It means looking at our products, pricing, target audience and promotion. In fact, all of the marketing 7Ps need to be considered.

3.

If we habitually offer chaotic holidays it will not be long before our poor service delivery becomes widely known (think Tripadvisor.com star ratings and reviews). It is a matter of urgency that we plan for quality improvements. Consistent, error-free products are essential and we have to decide how to quickly deliver those.

4.

Can the urgent improvements needed be delivered by existing management and management structures? Do we need outside help? Do we need to recruit experienced managers?

5.

Our holidays are complex: fluid bookings, flights, accommodation, dietary requirements, allowing as wide access as possible to a wide range of travellers, individual excursions to be booked, added days to be organised etc. Almost certainly the only way in which we can deliver consistent and reliable results is to use a sophisticated IT system.

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5 of 17 6.

Our local guides are often with tour groups for several weeks. We are a service business and the ‘people’ element is vital. The guides are crucial to customers’ impressions and satisfaction levels. Given the information that we have about guides’ motivation, the removal in meal allowances and the possible scam involving local representatives asking for back-handers to provide work it is imperative that we give urgent attention to our workforce.

7.

Realistic, but challenging targets for improvement and performance should be set. These must not just represent financial measures. Non-financial performance measures are essential: satisfaction, quality, guides’ local knowledge, hotel standards etc are all vital components that have to be measured.

(b) (i) BRIEFING PAPER To:

The board of WAT

From:

Product manager

About:

The contextual features of change, change pathways and POPIT

Date:

X/X/XX

Introduction Following my presentation on the Baldrige model I have been asked to draft a briefing paper setting out how the changes implied by that model could be implemented. In particular I will look at: (a)

The effects of the contextual factors influencing the change process; and

(b)

The POPIT model of change.

Contextual features and their implications Contextual features are used in the Balogun and Hope Hailey approach to change management. Simply think of the contextual features as variables which affect how change might be best accomplished. Below are the features and my interpretation of what they imply for WAT Co.

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6 of 17 Feature Time

Implication Are the changes needed urgently? How long have we got? It would seem that the changes are very urgent. There seems to be a high level of dissatisfaction amongst customers, there has been an adverse newspaper article and also an accusation of bribery and corruption that has been made by one of our longest-serving tour guides against a local employee. Bad on-line reviews etc will soon hurt us. If the tour guide is not taken seriously there is a chance that he will go to the press: perhaps in The Watcher where the adverse article appeared. The implication for the change process is that it almost certainly has to be top-down and speedily imposed on staff and sub-contractors. We do not have the luxury of time to embark on a lengthy consultation process.

Diversity

This will be high because we have people operating in many countries and they will have their own cultures. They may expect the changes to be imposed differently, but the urgency of the required changes means that we will not be able to spend long tailoring the change process to each culture. It will be important to explain the need for urgent change, that it has to be imposed and that we expect people to comply uniformly.

Capacity

This refers to resources such as money and managerial time are available. It is not clear that sufficient resources are available. We must make an assessment of our resources and the time they can devote to the change process. We might need to get help – at least temporarily.

Preservation

There are some good parts to our business. For example, we have a brand name that is (so far) still worth something, we have expertise, contacts in many countries and a long-standing core of local guides who normally get excellent reviews from customers. Our changes need to try to preserve these assets. For example, at head office we must try to hold on to staff with experience and expertise even whilst we attempt to modernise and computerise our booking system. Locally, we must try to retain the best guides and they will not stay if they have to continually deal with booking errors and corrupt managers.

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7 of 17 Readiness

Are staff aware of the need for change and are they committed to making the changes work? The diverse cultures and experiences of staff might affect this. We assume local guides, bearing the brunt of customers’ anger, will readily embrace change. Local managers might resist, particularly if they are ‘on the take’ – but then we probably don’t want to keep them anyhow. We need to investigate the attitudes of head office staff. They might be complacent and comfortable and refer an easy life – or they might be aware of the company’s poor performance and so might also welcome change – particularly if it allows them to concentrate on more interesting parts of their jobs rather than routine bookings.

Capability

Do we have the capabilities to manage the change? By this we mean the technical abilities and expertise (basic resources have been covered already under ‘Capacity’). Change management can be fraught with difficulty if staff are not to become disillusioned and we are to avoid upsetting other stakeholders unnecessarily. We should give some consideration to hiring outside consultants as it is important to get the change implemented quickly and correctly. Even if general change consultants are not needed, we will certainly require outside help if we decide to develop a new IT system as we have practically no internal expertise.

Scope

How fundamental is the change? Is it a realignment or is it transformational? It is suggested that this is a realignment: the basic business model will probably stay the same but we need to improve our processes and image. This implied that the change process is less risk than it might have been, however, the urgency of the changes needed implies that the nature of the change is ‘big bang’ and this increases the risk profile once more. It is important to get it right and we will only get one shot. Again, outside consultants will allow us to transfer some to the risk to third parties.

Power

Do we have the power to push through the change? Undoubtedly ‘yes’. This is a private company and the owners have high power – though, as always, we have to keep key-player stakeholders on-board.

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(ii) The POPIT model This model for change considers: ๏ ๏ ๏ ๏

People Organisation Information technology Processes

You will see that there are considerable overlaps between these heading and those of the Baldrige model. The model says that for any change being considered, the organisation must give attention to each of these factors. People: roles, job description, skills, competence, training, progression, rewards, management activities, culture and motivation. For example, in WAT, we need to look at the important roles of customers-facing tour guides and the competence of head office staff. Organisation: structure, management processes, decentralisation, reporting lines. For example, in WAT we might decide that permanent employees in some countries is unnecessary and that head-office can liaise directly with guides. Information technology: the tasks that can be performed by the IT system. The web-site capabilities. Communication with customers. In WAT we know that it seems to be essential that we improve our IT system to provide greater consistency, though this has to be properly evaluated. Processes: What is our value chain? Why do people book through us rather than go independently on trips? Presumable we add value through providing convenience, knowledge (eg where to go, when to go, where to stay, what to visit how long to spend) and local support. We know that at WAT our processes have been failing and with that our value chain is liable to collapse.

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Question 2 MEMORANDUM To:

IT Director

From:

Manager, Accounts Department

About:

Business case for a new IT system

Date:

X/X/XX

Introduction This memorandum explains, critically reviews and evaluates the business case created by for the new computer system for the booking system. Needs analysis A proper analysis of the type of IT system we need is not included in the proposal. The writer, a new recruit to the IT department, says that it has been clear for some time that the current IT system is inadequate and that a new system will prevent errors. This might be so, but no evidence has been produced as to what has caused the errors. For example, if our holiday offerings have not changed in pattern or complexity for several years, yet our delivery has deteriorated whilst using the same IT system, it is difficult to see why the IT system (a constant feature) is to blame. There has recently been higher staff turnover at head office and it might be that the relative inexperience of new employees is what has caused the problems. Having said that, a new and more comprehensive IT system might improve consistency and quality, but the case has not yet been convincingly made. Deliverables The first three items on the list of deliverables should be simple (and useful) to implement. The fourth matter (advice on visas, immunisation etc) implies that we will keep our system up-do date with detailed requirements for the many countries we visit and also with respect to the various nationalities of our customers. This could be a considerable administrative burden and we could be liable to customers if the wrong advice were given. We need to look carefully at how we can reliably keep this information up-to-date. In theory, the fifth matter, automatic booking of flights, accommodation and local trips, should provide great benefits to the company, but is likely to be a difficult system to develop. Customers will want to travel from different airports, might want to travel earlier or later, might be price sensitive, might be part of an air miles scheme so that they favour particular airlines. Plans might change, trips cancelled. Careful analysis is essential to assess how feasible this degree of automation might be. The final item, reliable booking of additional services, might also be difficult to achieve fully automatically as it will require two-way communication with local suppliers so that bookings made are confirmed automatically too.

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10 of 17 The cost-benefit analysis The following need to be investigated: 1.

The basis of the capital cost of $1m.

2.

The basis of the running cost figures and the implied 5% increase per year.

3.

The basis of the staff saving costs and the implied 5% increase per year.

Although these figures need to be substantiated, they are tangible costs and benefits and reasonable justification should be possible. Presumably the 5% uplifts are related to expected inflation. 4.

The basis of the figures for saving on booking errors avoided will be more difficult to estimate. Has an attempt been made to assess the cost of historical errors? Why do they increase at 10% pa?

5.

The basis for the figures relating to the increase in goodwill will be very difficult to estimate. These largely impossible even to estimate in retrospect as the value of goodwill is only crystallised upon sale. The calculation seems to show extra goodwill of $100,000 per year growing at 10% pa. This seems highly speculative. Most serious, however is that any increase in the value of goodwill is not an annual cash flow and should not be in an NPV calculation. Perhaps the drafter of the NPV calculation meant increase in net profit instead of increase in goodwill, but that needs to be confirmed. It would still be a difficult figure to estimate with confidence.

6.

How has the 10% discount rate been chosen?

7.

How has the project life of five years been chosen?

8.

Will benefits start at time 1?

The present value of the savings on errors avoided and the goodwill amount to $1,363,000 and $454,000 and; the NPV of the project is $202,000, so without either of these components the NPV would be heavily negative. Risk analysis It is essential that a risk analysis is carried out on this project. The new software system will be a fundamental part of WAT’s operations and if it does not work properly or performance will deteriorate further. Furthermore, the transition from the old to the new system is a particularly risky time and there would have to be careful changeover arrangements. Time horizon The project cost-benefit analysis has a time horizon is 5 years (justification needed), but no information has been provided when the new system will be operational. How long will it take to develop, test and implement the new system? Will it be ready in time to deal with the urgent need for WAT to improve its services?"

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Question 3 MEMORANDUM To:

CEO

From:

Assistant

About:

Evaluation of the suggestions for business growth

Date:

X/X/XX

Introduction This memorandum categorises and evaluates the various suggestions made for increasing profits and expanding the company. Four suggestions were made at the recent staff meeting: 1.

Cost cutting

2.

Attract older clientele.

3.

Offer other types of holiday in addition to adventure holidays.

4.

Expand into an entirely different type of business (fitness).

Categorisation of the proposals The changes can be categorised and evaluated using Ansoff ’s Matrix Existing products

New products

Withdrawal Existing market

Consolidation Penetration

Product development

Efficiency gains Diversification New markets

Market development

• Related • Unrelated

Cost cutting (existing markets, existing products) Cost cutting is a strategy which offers relatively low risk, but low returns. It is often not possible to radically cut costs without seriously interfering with the operation of the business and quality of the products offered. For example, we could not run trips unless at least 12 people are booked, but that will cause many more cancellations and hurt our reputation. We could increase the maximum number of people on trips, but this would again damage customer satisfaction as has been pointed out in the recent letter. Only if products can be delivered in a radically different way can revenue be preserved whilst costs are cut. In general, cost cutting will make marginal, limited improvements to profits."

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12 of 17 Attracting older clientele This can be categorised as developing a new market ie market development. The potential increase in profits can be substantial as an entirely new source of revenue is accessed. However, risks are higher be...