T4 Case study - TOPCIMA. Strategic Analysis. EL Cars. Nick Best

Transcription

1 T4 Case study - TOPCIMA Strategic Analysis EL Cars Nick Best with

2 Welcome Welcome to Nick Best s T4 Case Study strategic analysis For those of you who don t know me, I ve tutored TOPCIMA for BPP, Kaplan, First Intuition and Reed Business School, am the author of the official CIMA T4 learning system, on which I worked together with one of the TOPCIMA examiners, and now work for Astranti Financial Training on their TOPCIMA Courses. For Mock Exams on the latest case, and a range of other TOPCIMA information visit

3 Introduction to the case It s the last ever T4 case study and the examiners have been kind to us as the car industry is the focus - an industry which is familiar to us all. We ve all driven in cars and many of us have purchased them and have our favourite models and brands. A good starting point then! The case company EL is a successful company operating worldwide. It is growing, has strong margins, a good record for R&D, a good marketing approach and brand, and above all a reputation for quality. Combined with a strong balance sheet that provides capital for investment and we have a company in a very strong position. There are a few key concerns the new CEO Mr B Tan, the weak relationships with suppliers and the lower than average skill levels of production staff with possible union issues. Something for us to get our teeth into then!

4 Strategic analysis the rational model This analysis uses the rational planning model of strategic analysis, summarised in the following diagram Business Environment PEST 5 Forces Internal analysis S W NOW O T Product analysis -Product life cycle -BCG matrix Business Strategy Generic strategies Ansoff s matrix Method of growth FUTURE Mission & Objectives Governance & Ethics Stakeholder Mapping

5 Mission The mission statement sets the direction and tone of the organisation, and guides strategic decision making. As is the case with most T4 Case Study exams, we are not given the company s mission statement. If it were to have one, we could perhaps conclude that it might focus on: Delivery strong returns for shareholders High quality production Good customer service Strong R&D and innovation Focus on local market needs International growth Environmental issues and good CSR and ethics.

6 Objectives and performance measurement The objectives provide a focused target to move towards to direct planning, motivate staff and enable accurate performance measurement. The only real targets are for the following year which are as follows: Increase in revenues by 9% to X$ 26,000m Increase in profits by 14% to X$ 2,520m These are tough goals, but are consistent with the previous year s increases so are also realistic. They are likely to have more specific strategic targets we are not told about. A possible question could focus on performance measurement, to include the balanced scorecard, as there appears little in the company in terms of nonfinancial performance measurement at present (or at least we are not told of anything).

7 Astranti TOPCIMA Courses Detailed video exam guides Full video debrief of the preseen 2 day long live master-classes covering: The exam and marking criteria Prioritisation of Issues Preseen analysis and discussion Keys to passing the exam Industry example knowledge share 5 full mock exams (7 for the November sitting) Marking and personal feedback on 3 mock exams 60 industry examples to use on exam day 3 mini-mock exams Personal feedback on 2 mini-mock exams Detailed course notes Calculations e-book to practise vital calculations Ethics e-book perfect your ethics sections Issues e-book to master issues structure and timings Private forum: debate the case with others focused tutor support Ongoing support Progress reviews Keeping you on track for a pass Hi Nick, I passed with 62% - huge relief. Thanks again for your support I m relieved I stumbled across you before signing up with one of the mainstream training providers. Kind Regards, Marc Marc Thomas Passed September 2011 I could not recommend this service strong enough and honestly feel this was the reason for my successful pass Paula Roberts Passed November 2009

8 Governance No independent Chairman too much power to Mr B Tan and his advisory team. EL do not appear to have Non-executive Directors lack of independent advice and guidance, and lack of independent on the audit, remuneration and ethics committees They do have remuneration, audit and ethics committees, although no nomination committee. Are these effective without NEDS? Little evidence in the case of other key governance issues such as: Disclosures of directors and pay Financial reporting and control Information and personal development for directors All directors involved in decision making Regular meetings with institutional shareholders Good use of the AGM Bear in mind that Mr A Tan, the previous CEO, delivered superb performance despite the poor governance. That shouldn t mean we should ignore governance in the future though, particularly now he as moved on.

9 Ethics and CSR Ethics is 10 marks in the exam and hence is a very important area Specific ethics issues in the case are: Environmental issues EL have a commitment to low carbon emissions Staff rights to join non-company trade union Other ethics issues could be: Staff treatment and safety Customer safety Bribery Whether to recall a product or not

10 Critical Success Factors The following are critical success factors: High quality products Excellent customer service Innovation through R&D keeping ahead of competitors in a fast changing industry Inventory and distribution management IT systems to manage production Production processes leading to high quality products

11 Stakeholder mapping Doing a stakeholder map as an appendix in the exam is almost always something which is useful to do. An appendix and done well will usually gain 2 marks possibly more. You must update the map for changes in the unseen, and add all new stakeholders which are in your top 4 issues Refer to your map in the main body of your text, adding a comment to say what the position of that stakeholder on the map means in relation to this specific issue (e.g. a key player should be involved fully through regular meetings, and incorporating their views into the final decision)

12 Stakeholder Analysis Mendelow s Matrix Low Power Low Interest Minimal interest Employees of suppliers Occasional customers High Interest Keep informed Loyal customers Suppliers Most employees and minor directors Bank Keep satisfied Key Players (Keep close) High Power Governments (particularly Country X) Most institutional shareholders Debt holders Mr A Tan (previous CEO) Mr B Tan (current CEO) Advisory board members Trade Union

13 Strategic analysis the rational model Business Environment PEST 5 Forces Internal analysis S W NOW O T Product analysis -Product life cycle -BCG matrix Next we need to analyse the current position of the business This helps us ensure the strategies we decide upon are appropriate to the business current position and issues they face in the industry and more broadly This position is summed up in a SWOT analysis

14 SWOT On the following page you ll find my SWOT analysis. Remember that you MUST do a SWOT analysis as Appendix 1 in your answer. You will score 1 mark in the technical section for this, and up to 3 further marks in the application section - if done well. You must update this SWOT for unseen issues (underline or bold these in your exam script), and should aim to include ALL your top 5 issues in your SWOT. A recent CIMA student script review I read, also made it clear that 2-3 word points in the SWOT will not score as well as points made in more depth, so it is worth writing 5-6 words for each point in your SWOT AND aim for 4-5 points per heading.

15 SWOT Strengths 1. High quality excellent ratings 2. Growing business, profitable successful strategy no need for significant change 3. Low gearing, good cashflows, improving working capital, and significant cash balance allows for further investment 4. Strong home market (12% market share) 5. Tailored products for specific local markets 6. Product mix changes to luxury cars with higher margins is proving successful 7. Marketing has been strong and reputation of brand improving 8. Excellent design team 9. Significant R&D spend 10. Excellent processes resulting in high quality with improving throughput Opportunities 1. Online sales 2. Hybrid engines/electric cars 3. More localisation in specific markets 4. Growing economies e.g. China 5. Economic recovery may increase demand Weaknesses 1. Inconsistent supply strategy. No long term supplier relationships. Inconsistent with high quality focus. 2. Loss of Mr A Tan. Mr B Tan is far less experienced. Possible cultural difficulties due to loss of authoritarian approach. Power vacuum. 3. Staff skills lower than competitors, Staff unrest at times issues over Company union 4. Compact range is not profitable 5. Small player in market means lower economies of scale compared with larger companies 6. Structure too product focused possible conflict between local and central teams and lack of sharing of ideas between divisions. 7. Weak Governance no Chairman, No NEDs Threats 1. Competition 2. New Entrants from India and China 3. New technology not fully utilised 4. Strike action of staff

16 Astranti TOPCIMA Mock Exams and mini-mocks The best way to succeed at T4 in my opinion is to practise mock exams and get feedback on those mocks. These are key since: They focus on your case study not that from past exams You can master your Time Management, the critical problem for most students It focuses you on report structure, formatting, with strong business related content key to passing the exam They enable you to practise a range of issues that you may see in the real exam (our mocks are based on my top 10 issues list and my experience of what comes up in the exam) The Astranti Mock exams on this Case can be purchased at Hi Nick, I passed my CIMA T4 Part B with 26 credits. To say that I am extremely happy is a gross understatement! I would like to thank you for helping me cross that bridge (not an easy one) and achieve another milestone in my life. Your mocks made a big difference and really helped me - this was my 3rd attempt. There is something very right in what you are doing. Keep up the good work! Kind Regards, Edmore Chinhakwe Passed November 2011

17 PEST analysis On the following page you ll find my PEST analysis. The PEST analysis is always an optional appendix in this exam, although this is one of the best case studies for a long time for this model as there are so many relevant points. Do aim to add one or two additional issues from the unseen into your PEST if you do one in the exam You MUST cross reference your PEST in your script however, and many students do not do this well. Aim to do this 2-3 times in your script

18 PEST analysis Political/ Legal Economic Social (inc sustainabil ity) Technologi cal New laws on Health and Safety, carbon emissions Political Country X government likely to have an interest in EL. International business that must adapt to different laws in different countries. International labour laws e.g. working conditions, union membership Worldwide economic downturn ending markets for cars likely to grow, particularly higher cost cars Exchange rate impact of currencies against X$ Opportunities in growing economies e.g. China, Brazil Increasing customer awareness and focus on sustainability and environmental issues Opportunity in future in hybrid and electric cars Social trends e.g. towards SUVs. Changes by market so important to adapt to local differences New technologies, will be key to continued efficiencies and new product development EL have significant investment in R&D IT is critical to successful production

19 5 Forces Analysis The 5 forces analysis enables the analysis of the industry according to a range of key factors affecting that industry Each force can be given a strength (e.g. High, Medium, Low). Where all the forces are high, the profitability of the industry is low, and divestment may be a good strategy. The lower the forces the more attractive the industry is. Companies may look at the areas where forces are high and develop strategies which may lower these. The 5 forces analysis for this industry is on the next page: In this case the average of the forces is just above medium so the industry would be deemed just under averagely profitable. EL are therefore doing well to be in a strong position

20 Buyer Power Medium Supplier Power Medium/Low Competitors High New Entrants Medium Substitutes Medium/Low 5 forces analysis Factors increasing Force Some large customers large businesses, leasing companies, car hire companies Easy to switch from one car brand to another and a lot of choice of similar models Long term contracts, and close partnerships, make it harder for many companies to switch (EL have fewer supply contracts than the norm) Significant competition Government support for failing companies (e.g. GM) Oversupply in industry Opportunity for new brands from China and India to enter market using low cost business model and manufacturing expertise Lots of substitutes trains, buses, bicycles, aeroplanes, walking. Factors lowering force The majority of customers are individuals with no specific power Some loyalty of brand Significant numbers of parts suppliers lots of choice Car manufacturers are significant buyers who can negotiate discounts (EL successfully negotiate, keeping costs low) Significant barriers to entry: Cost of entry is very high Branding is key to success Skills and technology needs are high Much competition means many markets are already catered for Public transport is rarely as convenient People in rural locations may have few alternatives Culturally people are wedded to their cars

21 Strategic analysis the rational model Next we need to analyse the strategic options, and make a conclusion on the way forward for the business S W NOW O T Business Strategy Generic strategies Ansoff s matrix Method of growth FUTURE Mission & Objectives The usual approach to defining a business strategy is to begin with a definition of the generic strategies, followed by analysing options in Ansoff s matrix, looking at how these might be implemented with the Methods of Growth and then deciding upon a final strategy

22 Opportunities and Threats Products/Generic Strategy Products Generic Strategies BCG/ Product Life A range of products in the maturity phase, which are generating cash (Cash cows). Cost leadership ELs traditional strategy, but less relevant now they have a quality focus Cycle Investment in new products such as hybrid and electric cars for future Luxury Medium sized cars High Quality Excellent customer service Strengths Investment in electric cars Differentiate Compact cars Meeting local market needs Luxury and medium sized cars Weaknesses Focus

23 Industry analysis For your 5 Diversity marks in the exam it is vital you learn industry examples you can quote. For a free sample of industry examples visit and visit our T4 area. There you can also buy our pack of 60 industry examples to take some of the pressure off you doing your own research.

24 Ansoff s Matrix and methods of growth Ansoff s matrix enables the generation of strategic options. Those you ll find in my analysis over the page are just options, not my recommendations. You might like to add your own options (1) Based on your own ideas to take the business forward (2) Based on those in practise exams you undertake The final stage is then to decide on the methods which the organisation can use to take the options (as generated in Ansoff s matrix) again these are just possibilities at this stage

25 Ansoff s Matrix and methods of growth Existing Product Existing Market Further development of existing strategies: Marketing Continue quality focus Improve staff skills and relations New Market Emerging economies e.g. China, Brazil Corporate market (little discussion of this in case) New Product Possibly divest compact cars as unproftable Electric/Hybrid cars Car hire Car leasing Lorries, vans and other vehicles sold to commercial customers Design development for other manufacturers

26 Methods of Growth Internal Development Acquisition Marketing/branding New production facilities R&D Firms with new technology Struggling competitors Dealerships to bring in-house Joint Venture Technology To share resources e.g. Nissan and Renault Divest Compact cars possibly Leaving unprofitable markets

27 What should you do on weekday evenings for T4? Knowing how to prepare for the T4 exam is a key difficulty. The most important thing you can do is doing as many mock exams as possible to master time management, report structuring and dealing with key issues. BUT that takes over 3 hours, and is impractical on evenings. Our solution our ethics, calculations and issues e- books These enable you to practise one off exercises in time slots from 20 minutes to up to an hour to practise your time management and report structuring. They also include detailed guidelines for each of those sections. Why not try them before you buy by downloading the samples at

28 Defining a business strategy On the following page you will find my recommended strategy for the company. Remember that this is my view and is not a definitive answer Also remember that in the exam, you are NOT expected to define a way forward like this you MUST deal with the unseen issues and only those issues However, dealing with those issues in light of a strong logical approach to how the business should be taken forward can help you make a strong argument in your recommendations.

29 Nick s Strategies going forward Continue with the successful areas of the business Clear generic strategy Differentiation based on Quality and good customer service with a focus of being tailored to local markets Quality R&D Marketing/brand development Customer service warranties/breakdown service Refocus of product mix towards more profitable models Continued organic growth in existing markets Marketing & continued product development Over come some of the key weaknesses: HR strategies focus on training and development, Ensure union representation meets international standards New structure with a regional focus Skills development and training for Mr B Tan Develop long term relationships with fewer suppliers Wider expansion into new markets selling cars in the emerging economies. Long term development of hybrid and electric cars

30 Please Like the site So that s what I would do. I m sure you ll have your own views. Just remember not to hold onto these too tightly in the exam you must primarily deal with the unseen issues! If you ve found this useful, I would be most grateful if you could like our TOPCIMA page at This helps to raise our profile on search engines, which helps us reach as many people as we can. We provide exam tips on every 2-3 days on our facebook page, so do check these out, and Like our facebook page to get these posted to your facebook account as they are released