Domain I – Business Acumen – Section A : Organizational Objectives, Behaviour, and Performance

Question 1

Strategic planning

Answer 1

refers to the efforts an organisation utilises to:

• Set up its goals
• Identify the firm’s future direction
• Strengthen its operations
• Identify and allocate required resources

Question 2

SWOT analysis

Answer 2

a. Strengths (an internal factor) – what the organization is good at, in order to select a strategy that capitalizes on the identified strengths.
b. Weaknesses (an internal factor) – what the organization is not good at, in order to select a strategy that improves the weaknesses or avoid them.
c. Opportunities (an external factor) – what the available opportunities are that the organization could pursue.
d. Threats (an external factor) – what events might adversely affect the organization in the process of achieving its objectives so that the organization can mitigate or avoid.

Question 3

Mission Statement also known as: Vision Statement

Answer 3

A mission statement is a statement of a person’s or group’s goals and objectives. The mission statement should highlight the person or group’s priorities and values. A mission statement can be used to focus people on the important elements of their business and personal lives. An organizational mission is a clear, formally written, and published statement that is the cornerstone of any planning system.

Question 4

The four competitive environments are:

Answer 4

 Pure competition
 Monopolistic competition
 Oligopoly
 Monopoly

Question 5

Pure Competition

Answer 5

is the situation in which there are numerous firms in an industry producing almost standardized products and none can individually influence market prices.
=> Large number of both suppliers and buyers; products are standard; no collusion between the suppliers; no entry barriers to the market; no firm control the market prices; lack of competition.

Question 6

Monopolistic Competition

Answer 6

is the situation in which there is a large number of firms that differentiate their products from those of competitors.
=> Firms would slightly differentiate their products and normally would set their own price.

Question 7

Oligopoly

Answer 7

is the situation in which the market has only few sellers and usually also has substantial entry restrictions. Under this state of competition, a small number of sellers would make interdependent pricing and output decisions.
=> Firms usually seek non‐price competition such as product and/or service differentiation and barriers to collusion are greater.

Question 8

Michael E. Porter’s “Competitive Strategy”

Answer 8

The structural analysis of a firm usually involves:
 Analyzing the profitability potential of an industry,
 Identifying the strengths and weaknesses of the firm,
 Choosing a competitive strategy.

Question 9

Profitability Potential of an Industry

Answer 9

– the collective force of the following competitive forces determines the profitability potential of an industry:
 Threat of entry
 Intensity of rivalry among existing competitors
 Pressure from substitute products
 Bargaining power of buyers
 Bargaining power of suppliers
 Governments

Question 10

Three generic competitive strategies of Michael E. Porter

Answer 10

 Cost Leadership
 Differentiation
 Focus

Question 11

Cost Leadership

Answer 11

is a strategy that focuses on controlling costs while not ignoring the other attributes of quality and service.

Question 12

Differentiation

Answer 12

is a strategy that focuses on differentiating the firm’s products and/or services to create an image of uniqueness.

Question 13

Focus

Answer 13

is a strategy that focuses on a particular target such as buyer group, segment of the product line, or geographic market, etc.

Question 14

Porter identifies four diagnostic components to a competitor analysis:

Answer 14

 Future Goals
 Assumptions
 Current Strategy
 Capabilities

Question 15

Three types of industries

Answer 15

 Fragmented industries
 Emerging industries
 Declining industries
 Global industries (which could be fragmented, merging, or declining)

Question 16

Fragmented industries

Answer 16

are those industries in which no single firm has a significant market share that enables it to strongly influence the industry outcome. From a competitive analysis standpoint, the most important feature of these industries’ environments is the lack of market leaders with the power to shape industry events.

Question 17

Emerging industries

Answer 17

are those industries that are either newly formed (or reformed) as a result of new technologies, significant changes in cost relationships, new customer needs,
and/or any other economic or social changes that make the new product or service to become viable. From a competitive analysis standpoint, the most important feature of these industries’ environments is the lack of the “rules of the game”.

Question 18

Declining industries

Answer 18

are those industries that have had declining sales over a sustained period. For the industry to be considered in its declining stage, the decreasing sales should not be attributable to a recession or other similar coincidental economic, social, and/or temporary factors.

Question 19

A firm can engage in international business using one of three methods:

Answer 19

1. Licensing
2. Export
3. Direct foreign investment

Question 20

Licensing

Answer 20

refers to granting other firms the right and know‐how to produce or market products/services in a given territory in return for a fee.

Question 21

Export

Answer 21

refers to the movement of goods produced in one territory to the related markets.

Question 22

Direct foreign

Answer 22

investment is considered the most sophisticated form of involvement in the global market since it has the highest costs associated with it and it implies that the
firm will be doing careful assessments to reduce the risks associated with the investment.

Question 23

Strategic Alternatives in Global Industries are:

Answer 23

1. Broad Line Global Competition
2. Global Focus
3. National Focus
4. Protected Niche

Question 24

Broad Line Global Competition

Answer 24

involves taking advantage of the available sources for
achieving global competitive advantage and competing worldwide with the full product line of the industry to achieve differentiation or an overall low‐cost position.

Question 25

Global Focus

Answer 25

is a strategy that targets only one segment of the industry and competes globally in this segment either by differentiating or achieving an overall low‐cost position.

Question 26

National Focus

Answer 26

focusing on a national market and attempting to compete against global firms.

Question 27

Protected Niche

Answer 27

is applicable in markets where the government requires a high proportion of local content. The firm would establish itself in the market and produce
accordingly benefiting from the government’s requirements to deter global competitors who do follow suit.

Question 28

The three typical strategic decisions are:

Answer 28

 Strategic analysis of vertical integration
 Capacity expansion
 Entry into new businesses

Question 29

Vertical integration

Answer 29

is a strategy that allows a company to streamline its operations by taking direct ownership of various stages of its production process rather than relying on external contractors or suppliers.

Question 30

Horizontal integration

Answer 30

is a business strategy in which one company acquires or merges with another that operates at the same level in an industry.

Question 31

Capacity expansion

Answer 31

is a major strategic decision because of the capital required, and the complexity of the analysis. The question is how to add the capacity needed to support the firm’s objectives without creating overcapacity in the industry.

Question 32

Entry through internal development (entry into new businesses)

Answer 32

involves the setup of a new business within an industry including the setup of production capacity, distribution channels, sales force, etc. The entering firm would typically have to deal with the structural entry barriers and the expected reaction of other firms within the industry.

Question 33

Entry through acquisition (entry into new businesses)

Answer 33

changes occur within the industry without the addition of new capacity into the industry. An efficient market generally exists for the purchase and sale of companies whereby abnormal profits from making an acquisition are eliminated. The market price is subject to demand and supply factors, however, the current owners of a business will only sell it if the sales price equals or exceeds the net present value of future cash flows.

Question 34

The product life‐cycle

Answer 34

is a concept that divides the life‐cycle of any product to four stages:
 Introduction
 Growth
 Maturity
 Decline

Question 35

Introduction (product life-cycle)

Answer 35

The product is launched during this stage into the market usually along with a large‐scale marketing program.

Question 36

Growth (product life-cycle)

Answer 36

The product becomes accepted in the market and the sales, and profits rise rapidly.

Question 37

Maturity (product life-cycle)

Answer 37

During the early phase of maturity, sales may be increasing but at a decreasing rate, however, this sales increase will ultimately level‐off, prices are probably at their lowest, and profits start to decline.

Question 38

Decline (product life-cycle)

Answer 38

The product becomes less desirable, and its need diminishes usually in the presence of a better, and/or less expensive product (i.e., sales are likely to decline).

Question 39

The performance measurement system

Answer 39

involves collecting, evaluating and communicating
information about the performance of an organization, an operation, a function, or a component.
NB: Performance is usually measured along two
dimensions: productivity and effectiveness.

Question 40

Productivity

Answer 40

refers to a measure of output in relation to the used inputs. For example, measuring the revenues per salesperson.

Question 41

Effectiveness

Answer 41

is a measure of how well the intended outcome is being achieved. As herewith discussed, motivation energizes, directs, and sustains employee behavior.

Question 42

Efficiency

Answer 42

is a measure that is usually associated with effectiveness. It refers to how economically the organizational objectives are being achieved. It compares a ratio of the outputs to the inputs. For example, the number of units produced per day
would be one measure of efficiency.

Question 43

Product Profitability

Answer 43

is the difference between the revenues earned from, and the total costs associated with, a product over a specified period of time.

Question 44

Business Unit Profitability

Answer 44

– A business unit (BU) is usually an independent profit
center which focuses on a product offering or a market segment. BUs typically have a discrete marketing plan, analysis of competition, and marketing campaign, even
though they may be part of a larger business entity.

Question 45

Customer Profitability Analysis

Answer 45

is defined as the analysis of the revenue streams and service costs associated with specific customers or customer groups.

Question 46

Return on Investment (ROI)

Answer 46

– ROI is defined as a profitability measure that evaluates the performance of a business by dividing net profit by the net worth investment.

Question 47

Key Performance Indicators (KPIs)

Answer 47

can be defined as a set of quantifiable (measurable) business metrics (measures) that a firm uses to gauge or compare performance in terms of meeting its strategic and operational goals crucial to the success of the firm.

Question 48

The balanced scorecard

Answer 48

is a performance measurement tool that integrates financial and nonfinancial measures to enable managers to understand how their efforts impact the organization’s success as a whole.
=> Balanced scorecards typically consist of measures from four integrated perspectives: financial, customer, internal business process, and innovation and learning.

Question 49

Financial performance

Answer 49

include measures that focus on improving financial performance such as value added to the shareholders, profitability, revenue growth, gross margin percentage, residual Income, and ROI. “Is the organization adding value to the shareholders?”

Question 50

Customers

Answer 50

include measures that focus on improving customers’ attitude towards the organization such as customer satisfaction, and market share “What is the customer’s attitude towards the organization?”

Question 51

Internal business processes (operational efficiency)

Answer 51

include measures that focus on improving internal operations of the organization such as products manufacturing, services delivery, unit cost, and customer service. “What must the organization standout with?”

Question 52

Learning, growth, and innovation

Answer 52

focus on the ability of the organization to capture information and convert it into competitive advantages through learning, employees’ training, and innovation. “What is required of the organization to increase the valueadded activities?”

Question 53

Quality

Answer 53

refers to the degree to which a product or service meets its specifications.

Question 54

Total Quality Management (TQM)

Answer 54

is the comprehensive approach to emphasize quality in

all aspects of the organization from the supplier to the consumer.

Question 55

Quality costs may be classified as follows:

Answer 55

• Preventative costs
• Appraisal (Detective) costs
• Failure costs (i.e. internal and external)
• Nonfinancial quality costs

Question 56

Preventative costs

Answer 56

are incurred to prevent the production of products that do not conform to specifications.
=> These include the usage of non‐defective raw materials with consistent standards, adequately training workers, reviewing designs, and preventative maintenance programs.

Question 57

Appraisal (Detective) costs

Answer 57

are those costs incurred to detect which products do not conform to specifications.
=> These include activities such as product inspection, product testing, and statistical quality control programs.

Question 58

Failure costs

Answer 58

are costs incurred in the repair of nonconforming products. Failure costs may be internal and/or external:

• Internal failure costs are costs incurred after the product is produced but before shipment (e.g., rework, scrap)
• External failure costs are typically incurred after the shipment of the product (e.g. liability costs, costs associated with warranty repairs, costs associated with non‐adherence to statutory or environmental laws, loss of customers’ goodwill).

Question 59

Statistical control charts

Answer 59

are graphic aids for monitoring the status of a process subject to variations.
=> These charts are used to measure various quality attributes.

Question 60

C‐Charts

Answer 60

are attribute control charts showing the number of defects per item

Question 61

P‐Charts

Answer 61

are attribute control charts showing whether an item is acceptable or unacceptable.

Question 62

R‐Charts

Answer 62

show the range of dispersion of a variable such as size, weight, or volume within a subgroup.

Question 63

X‐Bar Charts

Answer 63

are one of the statistical control charts that aid in the monitoring of the status of any process subject to random variation.