Strategic analysis, choice and implementation

Question 1

Strategic analysis

Answer 1

This section focuses on understanding where the company would like to be and
where they are now, so that any strategy to address this gap can be analysed. This
should also include analysis of ESG (Environmental, Social, Governance) issues –
which is covered in more depth in chapter 9 – Ethics and Sustainability.
Analysis models were covered in detail in business strategy and technology and are
summarised in appendix 1 – Recap Business Strategy and Technology. You are
unlikely to be asked to, for example, produce a five forces analysis at the advanced
stage.
However, it may be beneficial to use such models (PESTEL / Porter’s five forces /
SWOT) to help you analyse the key issues in the scenario or to answer certain
requirements.

Question 2

Strategic analysis 1.1 Key analysis skills

Answer 2

When reviewing large, complex scenarios you should be able to:
 Analyse and evaluate the external environment that a firm faces
 Evaluate the industry environment in which a firm operates
 Analyse the current position of a firm, from both a financial and non-financial
perspective

Question 3

Strategic choice

Answer 3

Strategy choice questions have historically been common at the advanced stage. It
is possible to create a bank of ideas for your exam file for the common questions,
however it is essential that your answer is tailored to the scenario given.
Typical requirement:
Evaluate/analyse the strategy proposals/options given in the question.
Such questions could cover:
 Methods of development (e.g. franchising vs organic growth)
 Overseas expansion
 Generic strategies (e.g. whether to launch a lower cost product if the company
is currently a differentiator)
 Growth strategies from Ansoff (e.g. market development vs product
development)
 Digital strategy (e.g. the way in which technology can support overall corporate
strategy, in particular the way in which a business interacts with its customers).

In reality, these decisions will often be made at board level using the
analysis that has been prepared. The overall decision could rely on
the majority vote displaying democracy. The reports we provide with
the analysis should be suitable for all levels of technical
understanding, so that the best decision is made.

Question 4

Strategic choice 2.1 Exam technique

Answer 4

 Include calculations if numbers are given in the scenario
 Explain each point specifically using names, facts or figures from the scenario
where possible and provide a range of points
 Present a balanced argument by using appropriate headings, usually:
– Advantages / Benefits
– Disadvantages / Risks
Or
– Operational issues, strategic issues, financial issues, sustainability issues
Or
– Suitability, feasibility, acceptability
 Each point should be well-explained (FACT + RELEVANCE)
 Apply professional scepticism if appropriate
 Conclude overall (providing a clear answer to the question and the main reason
why)

You can use your knowledge of the generic pros and cons of different strategies from
the professional level and the following generic points to generate ideas. More
generic ideas lists can be found in the summary notes.

Question 5

Strategy Choice – Generic ideas

Answer 5

Financial issues
 NPV (if choosing between projects)
 Financial statement impact (e.g. increased sales/profits)
 Cash flow impact
 Access to high growth markets (if entering new markets)
 FX risk (if exposed)
 Impact on costs (training, redundancy, closure costs, legal and
professional fees)
 New strategy may have a higher level of risk than existing business
 Funding required
Operational
 May be able to utilise spare capacity
 Volume increases generate economies of scale
 More assets to offer as security/increased debt capacity
 Timescale to implement change
 Strain on management time
 Increased operating gearing (due to more automated/capital intensive
process)
 Compliance risk (particularly for new products/markets)
 Longer lead times (new product/OS manufacture)
 Adherence to local law and regulations (O/S manufacture or market)
Strategic
 Fit with current brand/generic strategy
 Diversify markets/customers
 Use existing competencies/experience
 Access to 3rd party expertise/knowledge (joint development strategies)
 Reputational impact
 Brand awareness (e.g. lack of brand awareness if entering a new market)
 Loss of control and quality issues (joint development strategies/
outsourcing)
Digital
 Impact of technology on products or services and transformation of the
way a product or service is delivered to the customer
 Digitisation can aid the automation of a business’s operations and
processes and can eliminate the middle man
 Unconstrained supply – give access to sources that were previously
impossible
 Allow unbundling/re-bundling to give tailored products to consumers
 Allow access to more useful data for analysis (e.g. big data can provide
access to better data for marketing purposes)
 Create new markets and make it easier for new entrants entering into
existing markets.

Question 6

Risk management

Answer 6

Instead of evaluating a new strategy, we could be asked to:
 Identify or evaluate risks arising in the scenario
 Make recommendations on how to mitigate the risks identified
In addition, you may be asked to recommend an overall approach to risk
management.

Question 7

Risk management 3.1 Exam technique Identifying and evaluating risks

Answer 7

Use the scenario to generate ideas giving prominence to key issues, such as:
– Physical
– Economic
– Business
– Product life cycle
– Political
– Financial
– Reputation
– Cyber
– Data privacy
– Climate change / net zero transition
– Technology
– Compliance
– Sustainability and ESG
 Can use PESTEL / generic types of risk in the background to generate
additional ideas
 Be sure to explain why each factor identified is a risk
 Ensure points are specific to the scenario by using facts, figures, names etc.
from the scenario
 You can use the ‘factor/explain/likelihood’ approach; to ensure you fully explain
each risk include the following:
– The factor (ideally from the scenario)
– Explanation of how this affects the firm (impact using numbers if possible)
– The likelihood of this risk occurring.

Question 8

Risk management 3.1 Exam technique Recommendations on how to mitigate risks

Answer 8

 Explain specifically how you would address the risk – Transfer/Accept/Reduce/
Avoid
 Often this can be simple and practical advice, for example suggesting additional
staff training to mitigate a health and safety risk
 A good culture of risk management should be promoted from the senior staff.

Question 9

Risk management 3.1 Exam technique 3.2 Enterprise risk management (ERM)

Answer 9

Definition (based on that provided by the COSO): ERM is a process, effected by
an entity’s board and management, applied in strategy setting and across the
enterprise, designed to identify and manage risks.
ERM may sound new but actually it is just a slight variation on the generic risk
management process you saw in BST.
The 8 components of ERM are:
 Objective setting
 Event identification
 Risk assessment
 Risk response
 Internal environment and control environment
 Control activities or procedures
 Information and communication
 Monitoring

Question 10

Strategic implementation

Answer 10

Once a decision has been taken the company will need to implement it. This may
affect a number of areas of the business and you could be asked to advise on the
impact of a specific area.

Question 11

Strategic implementation Assumed knowledge

Answer 11

Your bought forward knowledge of the following areas may be useful in analysing
and interpreting exam scenarios, a reminder of these can be found in Appendix 1 –
recap chapter for Business strategy and technology:
 Generic pros and cons of organic growth, acquisition, and joint development
strategies
 Change management – including the management of climate change and the
transition to net zero
 Generic pros and cons of different organisational structures
 Marketing (the marketing mix and positioning are most likely to be useful)
In addition, there is also some new terminology that you may see in scenarios which
is covered in the rest of this chapter.

Question 12

Supply chain management 5.1 Supply chain management

Answer 12

Definition: The planning and management of all activities involved in sourcing and
procurement (upstream supply), conversion and all logistics management activities
(downstream, getting the product to the customer or distributor).
Thus a key element of supply chain management is knowledge sharing and
collaboration with suppliers and distributors, to ensure customer needs are met.

Question 13

Supply chain management 5.2 Drivers of supply chain performance

Answer 13

All the processes in a supply chain can be classified into one of two categories:
 Push processes – where demand is forecast from historical sales, such as
trainers sold within a traditional shop.
 Pull processes – where demand is driven by the customer, which is predictable,
such as customisable trainers from Nike By You.

The majority of companies will have a mixture of both and a company needs to
ensure they have a balance between efficiency and responsiveness to support the
competitive strategy.
When discussing the supply chain management of a company, the following
headings are useful:
 Facilities – Location, flexibility and capacity of facilities for production and
storage e.g. a cost leader is likely to prefer high capacity, centralised facilities to
maximise economies of scale.
 Inventory – Key decision is whether to carry a buffer of inventory to better meet
customer demand or to minimise inventory and thus holding costs.
 Transportation – Generally, there is a speed/time trade-off (e.g. an online
business can guarantee next day delivery but it will be more expensive).
 Knowledge sharing – Information shared across the supply chain (often using
shared IT systems) can significantly improve efficiency through better planning
and utilisation. However, this can also increase the risk to cyber security. This
required business trust between the two companies.
 Number of suppliers – The more suppliers that a company has, the more time
will be taken up to manage those suppliers. This could distract from the
strategic planning of a company.
 Sourcing – Choosing supply chain partners (often the key decision is whether
to perform a function in house or to outsource it).
 Pricing – The prices charged at each stage of the supply chain (generally,
more flexible/responsive partners will charge premium prices).
 Collaboration – Companies can choose to collaborate as an enterprise, which
can gain competitive advantage in the supply chain. E.g. A collaboration may
allow a shared ownership of key technology, which predicts demand more
accurately, resulting in more efficient supply. As an individual company this
technology may be too expensive to maintain.

Question 14

Customer relationship management
(CRM) 6.1 Definitions

Answer 14

CRM: The use of database technology and ICT systems to help an
organisation develop, maintain and optimise long-term, mutually
valuable relationships between the organisation and its customers.

Database marketing: Builds a database of all communications with
customers and then uses individually addressable marketing media
(e.g. email) to contact them further (e.g. with promotional messages).

Question 15

Customer relationship management
(CRM)

Answer 15

Benefits
 Global reach
 Lower cost
 Ability to track and measure results
 24-hour marketing
 Personalisation
 Better conversion rates
 Accessible from any point, to ensure consistent messages given to the
customer
 Support the branding message
 Ability to focus on larger spenders to obtain a greater impact on sales
Web 2.0 technologies: Refers to a new generation of web technologies and
software (mainly related to social media).
Web 2.0 technologies such (as blogs, Twitter, podcasts etc.) can be used by
companies to strengthen their brands and their relationships with customers. They
allow both positive and negative feedback from customers generating better
customer relationships and brand reinforcement.
E-marketing: The application of the internet and related digital technologies to
achieve marketing objectives. Although the General Data Protection Regulations
(GDPR) has provided a challenge for organisations, in collecting data from
customers.
Big data analytics: refers to the ability to analyse larger quantities of data, or more
unstructured data (i.e. data not in a database), such as key words from conversations
people have on Facebook or twitter and content they share, such as photos. This is
a key tool for a company to be able to identify potential customers and market their
products to the correct demographic.
These internet and online techniques often play an important role in the three phases
of CRM described below.

Question 16

Customer relationship management
(CRM) 6.2 The three phases of CRM

Answer 16

These could be used to generate ideas of how to apply CRM and database
marketing to a scenario:
Customer acquisition: Attracting customers to make their first purchases (using
promotions, incentives and direct email).
Customer retention: Encouraging customers to become repeat purchasers (using
personalised promotions and loyalty schemes).
Customer extension: Encouraging existing customers to make additional
supplementary purchases (using personalised recommendations/direct email and
personalised on-site promotions).

Question 17

Customer relationship management
(CRM) 6.3 CRM strategies

Answer 17

 Develop appropriate staff incentive schemes to encourage staff to retain
customers.
 Provide consistent standards to provide customer expectations
 Obtain senior management buy-in
 Monitor customer relationships by gathering detailed information and
developing specific loyalty-focused rewards
 Implement systems that can support the process.

Question 18

Business Process Re-engineering

Answer 18

Definition: BPR is the fundamental rethinking and radical redesign of business
processes to achieve dramatic improvements in measures such as cost, quality,
service and speed.
BPR is similar to zero based budgeting as it involves looking at a process from first
principles.
One example of this was for a drive-in restaurant in the 1940’s owned by Dick and
Mac McDonald. They served an extensive menu, had slow service and was not
performing well. They decided to streamline the menu, implement a self-service
operation and produced the food like an assembly line. At the same time they
renamed the business McDonalds.

Question 19

Human resource management 8.1 Definition

Answer 19

HRM includes all the activities management engage in to attract and retain
employees, and ensure that they perform at a high level and contribute to achieving
organisational goals.

Question 20

Human resource management 8.2 Exam context

Answer 20

The ICAEW Workbook introduces some new HRM models (for example, Guest’s
model) in addition to the assumed knowledge from BTF and BST.
However, you will not be expected to discuss the theory of any of these models by
name in your exam. Rather, you will be expected to apply the key concepts in a
practical context.
For example, you should be aware that there is a link between the reward system
and performance.
Therefore, if a scenario describes concerns around performance and provides details
of the reward system, you should consider whether the reward system is contributing
to the performance issues.
For more information about a good quality remuneration scheme, see Appendix 3 –
Recap of Corporate Governance.

Question 21

Human resource management 8.3 Impact from technology

Answer 21

The workplace has changed with the development of technology and HRM needs to
understand the changes in order to fully benefit from them.

Big Data analytics – more companies are making use of big data and so require
employees with the necessary skills to use it. As well as requiring analysts this can
also apply to new job roles being created. For example, the development of machine
learning and artificial intelligence might require a technology supervisor on a shop
floor rather than the previously employed till staff.

Flexible workforce management – to help with costsand work/ life balance, more
companies are choosing to adopt flexible work places for their employees, such as
home working. This is facilitated by the advances in technology such as cloud
computing software and easier ways to communicate.

Question 22

Human resource management 8.4 Impact from ESG

Answer 22

Areas in which HR can improve ESG goals:
 Executive remuneration linked to ESG targets
 Closing the gender pay gap
 Paying a living wage
 Diversity and inclusion
 Reduce the ratio between CEO’s pay and average worker
 Identify, prevent and remedy any issues around modern slavery
 Health and safety
 Training

Question 23

Digital strategy

Answer 23

Digital disruption relates to the impact that new technologies have on ‘business as
usual’ and digital transformation refers to the way those impacts can be proactively
managed. When incorporating this into the digital strategy of a company, it needs
careful change management.

Question 24

Digital strategy 9.1 Implementing a digital strategy

Answer 24

Key barriers:
 Lack of understanding
 Resistance to change
 Lack of resources
 Technology choices
 Evolving customer needs
 Cybersecurity
Solutions:
 Understand the current position and corporate strategy
 Assess ability / readiness to implement change
 Define the change you are trying to achieve
 Have a good change management process
 Measure success

Question 25

Digital strategy 9.2 Technology developments

Answer 25

Digital assets – these are assets in digital form, such as company logos. These
need to be held and managed securely.
Internet of things – this is the interconnection of computing devices, via the internet,
embedded in everyday objects.
Intelligent systems – this is a computer-based system that can represent, reason
and interpret data. An example is a smart meter for a home heating system. This is
often associated with Artificial Intelligence, although there are subtle differences
between the two.
Automation – robotic process automation is particularly useful in rules-based,
repetitive processes.
Chatbot – a chatbot is a service, powered by rules and artificial intelligence that
people interact with, such as Amazon’s Alexa.
Distributed ledger technology – is a database that exists across several locations
and with multiple participants. Records are only stored when they have consensus
amongst all parties involved. This is used for blockchain and cryptocurrency.
Blockchain – blockchain provides an effective control mechanism for recording data.
It is a chain of blocks of data that is accessible to anyone on the internet. When a
change to the data occurs, once verified by all parties to the transaction, all records
are updated simultaneously. Effectively like a public form of bookkeeping. This
combats cyber security as all parties have to verify the transaction before it is
recorded. Hence why it is used for cryptocurrency – like Bitcoin.
Cryptocurrency – This is any form of digitalised currency and uses cryptography to
secure and verify transactions. They do not have an intrinsic value like coins and
notes. Bitcoin is one of the more recognisable cryptocurrencies and large
organisations, like Expedia, are now allowing Bitcoin to be used for payment of
goods or services. These currencies are less regulated and so banks and financial
institutions are yet to recognise them.
Benefits
 Frictionless transactions, avoiding currency translation
 removes intermediaries
 reduce risks, eliminates credit risk.
Limitations
 multiple cryptocurrencies may still cause value fluctuations
 acceptability
 volatility
 borrowing is not available in cryptocurrency.
Platform economy
The platform economy is the use of digital platforms to connect sellers and
customers, such as the ones used by Amazon, AirBnB or Paypal.
These companies focus on maximising the number of providers and customers
rather than the provision of goods / services.
Having access to a large number of buyers / sellers not only makes the platform
more attractive, but provides access to a high volume of data. This data provides
market intelligence and can be key to achieving a competitive advantage.
Software selection
Digital transformation makes organisations faster and more adaptable. Companies
require software to be integrated within the whole system and meet the demands of
the digital strategy.
Selection criteria
 Product specifications
 Price and value for money
 Quality and reliability
 Vendor viability