Thursday

Question 1

What are the four strategies? What are relevant factros for Robobryce to consider?

Answer 1

Emergent Strategies
* Useful for smaller organisations, in uncertain environments with fast changes

Rational Model
* Analysis - of current position, including objective setting, SWOT, PEST
* Choice - develop strategic choices, then choose one
* Implementation and control - convert the overall plan into detailed plans and controls (feedback)

Logical Incrementalism
* Small scale extensions of past policy
* Not suitable for new organisations as they have no past experience

Freewheeling Opportunism
* Don’t bother with strategy but take opportunities as they arise
* Could end up constantly reacting

Factors relevant to Roboryce
* Uncertain Environment
* Culture of Innovation
* Managers need to become flexible
* Need more information to effectively grab opportunities
* Is the organisation to big?

Question 2

Business Valuation Methods

Answer 2

Net Asset Valuation
* Estimates a minimum value that we could pay based on the principle that an investor wouldn’t pay more for the business than the cost of buying similar assets themselves.
* Difficult to determine asset value if specialised or not often traded
* Doesn’t take into account future profitability of organisation

Historic/Book value
* Value of net assets from SOFP, but is not accurate due to depreciation and historic costs
* Unlikely to be acceptable to any seller and we shouldn’t use it

Replacement value (also NRV)
* Better method to use and uses replacement values to determine the costs to setup that company today
* Still difficult to determine values and due to intangible assets like goodwill and experience and knowledge, it is likely to provide a minimum value still
* NRV more useful for organisations going into liquidation that will be broken up

Dividend valuation model
* Based on the theory that the value is the future expected stream of dividends. Determined as the present value of a constantly growing future dividend stream
* Useful for investors focused on dividend returns and minority stakeholders
* Needs an appropriate cost of capital

NPV of future cash flows
* To create wealth for shareholders we shouldn’t pay more than the value of future cash flows.
* Provides the best upper limit to pay
* Difficult to accurately forecast so independently verify through due diligence
* Discount rate also needs to be determined

P/E Earnings Valuation
* Distributable earnings multiplied by the P/E ratio
* Reflects the markets appraisal of the businesses future prospects
* P/E only available for quoted companies so depending on the company we may need to compare with a similar sized, quoted company, this can be difficult

Question 3

Evaluating Negative Press

Answer 3

Typical pros of being considerate
1. Caring employer
1. Does it link with our Values?
1. Proactive
1. Possibly cheaper
1. May reduce press (negative)

Typical cons of being considerate
1. Could be considered bribery if money is involved
1. Admission of guilt
1. Sets precedent (very important if legal dispute)
1. Could be expensive
1. No guarantee of it not getting in the press (where NDA’s are involved, how robust is the NDA?)

Question 4

SAF Framework

Answer 4

Suitable - is the plan a good strategic fit for the organisation
* Mission, vision, values
* Do we already have the same skillset or assets?
* Does it give competitive advantage?

Acceptable - will stakeholders support the plan and the level of risk involved
* Risk, renewal, reputation
* List the stakeholders
* Shareholders - risk vs return
* Staff - can be broken down into departments
* Customers - major and minor

Feasible - can it be done (ie. can we afford it, does the technology exist, do we have the skills for it?)
* Technical, financial and operational feasibility
* 9 M’s model - expertise
* Financial capability