CIMA E1 Official Learning System - Enterprise Operations Aug 2009

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The phased approach is less risky given that the project manager could be unavail-

able to oversee the change.

●

The project management risk (heightened by the absence of the project manager)

will be reduced as issues found in small-scale use of the new system can be rem-

edied in time for wider software roll-out.

B3(c) The ways in which particular individuals and groups within S & C are important

for implementation to succeed.

●

Partners. Support from the top is crucial. They must visibly support the imple-

mentation.

●

Users. Successful user acceptance and must buy-in is also key as they are the main

recipients of the change. Meaningful communication is necessary, also participa-

tion to get commitment through joint analysis of issues to engender feelings of

‘ownership’.

●

The users’ managers. These managers will be called upon to help ensure that

disruptions are kept to a minimum during and immediately after changeover.

Communication and involvement again is necessary (albeit to a different degree

to users).

●

Project manager. Effective project management is crucial which ensures that S &

C’s corporate performance does not fail. The project manager has been absent

with illness and matters cannot be allowed to ‘drift’. If the illness is long term, a

replacement project manager needs to be appointed swiftly.

●

HR Department. If system success depends on people behaving in certain ways

(e.g. sharing information across departments, taking greater responsibility, etc.)

reward systems may need to be adjusted possibly including new incentives, met-

rics and evaluation criteria. Effective training programmes will also be needed.

Formal policies and structures may also need adjustment.

●

Project steering group. Need to address the real sources of resistance to change and

means of overcoming them. Proposals are also needed in order to successfully

align ﬁ nancial systems and business processes (It is important that some members

of the group are available in the weeks after going live to answer questions and

give support to users).

B3(d) Users involvement in testing the system during the implementation phase.

As mentioned earlier, user acceptance is vital. It is also important to test the sys-

tem during the implementation phase. It is a good idea to combine these two

requirements.

Users might be usefully involved in a number of ways and could be used to:

●

Act as guinea pigs for any system developments through testing in association

with the new procedures and processes.

●

Contribute to quality circles and discussion forums.

●

Assess the effectiveness of training programmes, and so on and provide feed-

back.

●

Provide mutual mentoring/assistance ‘buddying’ to other new users of the sys-

tem.

●

Collect data on the costs and beneﬁ ts of the overall business change, not just the

software application.

●

Be involved and act as advocates of change to colleagues.

SOLUTIONS TO B STYLE REVISION QUESTIONS E1

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B3(e) The training topics to targeted groups within S&C.

The nature and content of training will inevitably need to be tailored to the

needs of the relevant groups, for example:

●

Partners. General overview of the system and its beneﬁ ts possibly through execu-

tive training seminars.

●

Users. Instilling detailed user knowledge on how to operate the new system.

Speciﬁ c detailed applications training (including procedures, commands and

data-entry requirements, etc.).

●

Users’ managers. Giving an understanding of the elements of the system for which

they are responsible, including particular business issues and security and control

features related to a particular system. Possibly general training in basic computer

literacy and user skills.

The sort of training provision might include:

●

Seminars and workshops and so on

●

User manuals, ‘help lines’ and dedicated support teams.

●

Online computer-based support.

●

On-the-job training while staff are actively using the new system.

●

Quality circles and discussion forums for users to address problem areas.

●

Short demonstrations and the use of DVD/ Video media support.

●

Updates as users become familiar with the system and require further knowledge

and skills development or consolidation of existing knowledge and skills.

This can be provided:

●

in-house

●

outsourced to specialists or

●

some combination.

B3(f) Aims of a post-implementation review.

Post-implementation review should be carried out as soon as the system is fully

operational, in order to assess the effectiveness of the system, adjustments that may

be required and lessons that can be learnt for the future. This should take place

possibly between 1 month and no longer than 1 year after changeover is com-

pleted. The ﬁ ndings and recommendations from the post-implementation review

should be formally reported on.

The speciﬁ c aims of the review will include:

●

Whether the system satisﬁ es user needs.

●

How the actual costs and beneﬁ t of the system compare with what was antici-

pated.

●

Making recommendations for improvement (if necessary).

●

Determining the quality of systems of change and project management.

●

Making recommendations that will help shape future management of implemen-

tation and change initiatives where necessary.

B4(a) Corporate governance concerns:

●

the ownership and control of proﬁ t making organisations and

●

the relationship between owners and managers.

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A number of reports have been produced to address the risk and problems resulting

from poor corporate governance. In the UK the most signiﬁ cant reports include

the Cadbury, Hempel and Greenbury reports. The recommendations are merged

into a Combined Code which comprises the purpose and principles of good cor-

porate governance for listed companies.

B4(b)

●

It is problematic for one person to hold both the role of Chairman and

Managing Director since this can result in too much concentration of power

being in the hands of one person, and the greater dangers of the misuse or abuse

of power. As illustrated in the scenario, it is difﬁ cult for other directors to chal-

lenge M’s decisions. M, through his dominance and associated behaviours, com-

bining chairperson and chief executive roles contravenes much of the recent

thinking on corporate governance. This advocates that the separation of the two

roles is essential for good control.

●

It is evident from the scenario that Board meetings are ineffective, they are held on

an irregular and infrequent basis with M wielding his power over other directors.

It would seem that he has forced through decisions that are in his own personal

interest, and could be detrimental to the company. One of the core principles of

the Combined Code is that listed companies should be led by effective Boards,

which meet regularly and membership should be a balance of executive and non

executive directors so that no individuals or small groups can dominate decision

making. It would be appropriate for non executive directors to be appointed to

the Board of OK1 to provide independent judgements on decisions.

●

It seems that there is a lack of adequate control, accountability and audit in the

company. The Board is responsible for presenting a balanced and understandable

assessment of the company’s ﬁ nancial position. It is responsible for maintaining a

sound system for internal controls to safeguard the company’s assets and sharehold-

ers’ investment. OK1 should establish through an audit committee formal and

transparent arrangements for considering how to apply the principles of ﬁ nancial

reporting and internal control. Non executive directors should satisfy themselves on

the integrity of ﬁ nancial information and that controls are robust.

●

M has determined his own remuneration package, which he is keen to keep covered

up. Good corporate governance practice states that no director should be involved

in determining his/her own remuneration. Non-executive directors should be

responsible for determining a policy on the remuneration of executive directors

and speciﬁ c remuneration packages for each director, a proportion of which should

be linked to corporate and individual performance. It is good practice to include a

report on the remuneration policy for directors in the annual accounts.

The above points would help support the Finance Director who has been placed

in an awkward situation regarding the questionable accounting practices and M’s

remuneration.

B4(c) Social responsibility is the concept that gives rise to how an organisation should

conduct itself within society and the need to deal with the impact of business deci-

sions on different stakeholder groups. However, the debates about the extent to

which organisations should consider issues under the heading ‘social responsibil-

ity’ when they are formulating and implementing business strategies continue to

SOLUTIONS TO B STYLE REVISION QUESTIONS E1

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provoke conﬂ ict and tension between different stakeholders. Organisations need to

weigh up the costs of socially responsible business decisions against the beneﬁ ts.

Acting in a socially responsible manner concerns the extent to which the organi-

sation should move beyond the minimum obligation provided through regulation

and corporate governance. This will vary from ﬁ rm to ﬁ rm but can include issues

related to a range of factors such as:

●

human rights (e.g. job security and good conditions of work for the employees,

non discrimination in employment);

●

providing products that are ﬁ t for the stated purpose; marketing practices, and

impact of product/service on customers (e.g. health and exclusion);

●

non-production of socially undesirable products;

●

environmental impact of products from creation to disposal, (e.g. issues relating

to environmental pollution and production of non-degradable products).

B4(d) M’s plans to close the existing factories and move operations to L country will

have signiﬁ cant HR implications. In L country there are low labour costs and lit-

tle employment legislation. It is not clear how many jobs will be lost or how many

new jobs will be created. The HR Director is aware of as need to develop human

resource plans in the light of M’s plans.

The main stages in developing HR plans and programmes following M’s

announcement might be as follows:

Forecast supply of labour

●

Analysis of existing human resources (number, skill mix, location, age proﬁ le,

etc.)

●

Projection of likely changes over the period (through natural wastage and turno-

ver of workers if not replaced, etc.).

Identify labour demand implied by M’s announcement

●

Stafﬁ ng levels required in factories opened in L country based on level of expertise

of the local workforce, levels of automation in new factories, etc.

●

Staff mix required implied by operating in another country

●

Stafﬁ ng requirements to operate factories that are to remain open.

Articulate both forecasts in HR plan

Develop programmes with target dates to reconcile supply and demand

●

Key parties to be consulted with

●

Addressing recruitment, selection, training and development, transfers (if any),

redeployment (if any)

●

Redundancies required from current operations.

(Note: This explanation is based on Mullins (2005). It is not the only way of

understanding the stages. Other thinkers may express a need for internal and exter-

nal data collection and analysis using models such as PESTLE, etc. Valid alterna-

tive approaches to that suggested by Mullins will also receive credit.)

NOTE: IT IS IMPORTANT TO CONTAIN YOUR RESPONSES TO THE GIVEN

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C Style Revision

Questions

C1 The country Mythland contains several areas of high unemployment including one

where Cardinal Beers was until recently produced. Cardinal was an old, family-

owned brewery that supplied licenced outlets including local restaurants with their

beer. Cardinal represented one of the last local brewers of any size despite retaining

many working practices that were evolved at least a century ago. Situated on a (now)

underused dockside site, the company had over the years invested little in plant and

machinery and someone jokingly once suggested that much of the brewing equip-

ment should rightfully be in a museum! Despite having an enthusiastic, long-serving,

highly skilled workforce and a national reputation for the beer ‘Cardinal winter

warmer’ (thanks to winning several national awards), the company was forced to

cease trading last month. The workforce, many of whom have only ever worked for

Cardinal Beers, are now facing up to the difﬁ culty of ﬁ nding alter-native work.

In a press statement the owners said that the brewery’s closure was sad for

the town, the local workforce and traditionally brewed ale in general. The owners

blamed the situation on inefﬁ cient and expensive brewing methods, ﬁ erce competi-

tion from large rival brewers and limited geographical sales. They also mentioned

a dependence on seasonal sales that made cash ﬂ ow difﬁ cult (35% over Christmas

and the New year period). They concluded that they would like the Cardinal tradi-

tion to continue and sell the company as a going concern, however unlikely this was.

It is speculated that property developers may be interested in the site as the dockland

area is showing signs of regeneration as a leisure and tourism attraction (thanks to

the efforts of government). However, two of Cardinal’s managers would like to

save the business and are drawing up a business plan for a management buyout.

They have three main initiatives that they feel could in combination save the

enterprise:

●

Use the site as a basis for a living museum of traditionally brewed ale (with the

dated brewing equipment and methods of working as an attraction).

●

Produce bottled beer for sales in supermarkets.

●

Employ a more ﬂ exible but suitably experienced workforce.

One of the managers (your former boss) has asked for your help in advising him

how to draft a detailed human resource plan to inform the business plan.

Note: in the exam the value of sub questions in section C will total 30 per

question. Examples given here represent partial questions..

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Requirements

(a) Describe the main issues and stages involved in developing a human resource

(HR) plan for the Cardinal buy-out idea. (10 marks)

(b) Explain how the buy-out team can achieve workforce ﬂ exibility. (5 marks)

initiatives to save Cardinal Beers. (10 marks)

(Total ⴝ 25 marks)

C2 4QX is a large exclusive hotel set in an area of outstanding natural beauty. The hotel

is a little remote due to the relatively poor transport network. It is located ten miles

away from the region’s main centre Old Town (the castle ruins of which attract a few

tourists during holiday periods). The hotel has attained a high national star rating

and specialises in offering executive conference facilities. Unsurprisingly therefore, it

caters mainly for corporate guests.

It is a requirement of the hotel rating system that 4QX has, amongst other things,

sports and leisure facilities to an approved standard. In order to attain this standard

it has, within the last two years, installed a sports and ﬁ tness centre (‘the centre’),

employing fully qualiﬁ ed staff to give instruction and assistance. (Facilities include a

small indoor heated swimming pool, an extensively equipped gymnasium, a spa bath

and a steam room.) Due to legislation, children under the age of 16 staying in the

hotel cannot use the pool without adult supervision or the gymnasium without the

supervision of a suitably qualiﬁ ed member of staff. The centre is costly to maintain

and underused.

The hotel’s manager is currently drawing up a business plan for the hotel and is

reviewing all areas of operation. In discussions with sport and ﬁ tness centre staff, a

proposal has emerged to offer the facility to carefully selected non-guests at certain

times of the day in order to bring in some revenue. This could be in the form of

annual membership fees (the manager’s preferred idea) or a ‘pay-as-you-go’ charge.

The discussions with staff conﬁ rm a number of facts:

●

The local economy is extremely healthy. The local population is relatively afﬂ uent

with high levels of disposable income.

●

Professional groups are used to paying annual membership fees for the local thea-

tre, a nearby golf club (the manager is also a member and has contacts there), and

substantial fees for their children’s activities (e.g. dance academies and junior foot-

ball teams and so on).

●

Old Town has a public swimming pool that is dated but almost of Olympic stand-

ards. It is used mainly by school children in the day and by a swimming club in

the evenings. Taking advantage of government tax incentives to help keep the pop-

ulation ﬁ t and healthy, a privately operated, female only, health and beauty facility

has recently opened in Old Town. Beyond these facilities, little else in the way of

sports and ﬁ tness provision exists in the region.

The manager explains that:

●

the hotel is unlikely to upgrade the centre’s facilities any further in the short term,

despite the fact that new, more sophisticated ﬁ tness equipment is coming onto the

market all the time

●

any promotional budget to attract members would be limited

●

an estimate of additional revenue potential is needed to complete the business plan.

C STYLE REVISION QUESTIONS E1

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Requirements

(a) Conduct a PEST analysis that is relevant to the centre. (5 marks)

(b) Explain how the centre should undertake market segmentation and describe the

most likely segmentation variables that will be identiﬁ ed by such a process.

(10 marks)

(Total ⴝ 25 marks)

C3 National Secure is a large insurance company. The company is structured into four

Divisions and supported by a small headquarters that includes the personnel func-

tion (recently renamed the Human Resourcing (HR) Division). The post of Head of

HR is vacant following the retirement of the long-serving post-holder, and the HR

strategy is in urgent need of review and revision.

National Secure has recently announced a new corporate initiative of continu-

ous improvement through the empowerment of its workforce. The Chief Executive

explained: ‘We value our people as our most prized asset. We will encourage them

to think, challenge and innovate. Only through empowering them in this way can

we achieve continuous improvement. Staff will no longer be expected just to obey

orders; from now on they will make and implement decisions to bring about con-

tinuous improvement. We want to develop clear performance objectives and be more

customer focused.’

Your line manager is one of the four Divisional directors and will soon form part

of a panel that will interview candidates for the vacant role of HR director. She is

particularly keen to ensure that the successful candidate would be able to shape the

HR Division to the needs of the organisation. She is aware of your CIMA studies

and has asked for your help in preparing for the interview.

Requirements

Produce outline notes for your Divisional director which discuss the main points

you would expect candidates to highlight in response to the following two areas she

intends to explore with candidates at the interview, speciﬁ cally:

(a) The likely role that the HR function will perform in the light of the changing

nature of the organisation. (10 marks)

(b) The aspects of a revised HR strategy that will show signiﬁ cant change given the

nature of recent organisational developments. (10 marks)

(Total ⴝ 25 marks)

C4 D is an international logging company, which cuts down timber and supplies saw-

mills where the timber is seasoned and then cut to appropriate sizes for use in a range

of industries. D will work with any timber, ranging from softwoods used in construc-

tion or paper manufacture to exotic hardwoods used in expensive furniture. Its usual

approach is to secure the rights from a landowner, or in some cases a national govern-

ment, to cut timber. This can often involve the payment of large initial cash deposits

to these suppliers, money which D usually borrows. A logging team then cuts down

the trees as quickly as possible and hauls the timber to a convenient river where it is

ﬂ oated to a sawmill. Moving on rapidly to the next site, the loggers usually leave con-

siderable surface damage behind them.

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Since an increasing proportion of the company’s work has been in the tropical

rainforest, it has recently come under pressure from environmental groups that have

protested that it is not socially responsible to act in this way. Whilst the softwood

forests can be regenerated in a couple of decades by replanting, hardwoods in tropical

forests take far longer to mature.

The Chief Executive of the company has argued that he is not concerned about

these protests since, as far as he is concerned, the company always acts ethically, as it

has the agreement of the national government in any country in which the company

operates.

A recent development in the timber industry has been the harvesting of timber

from the bottom of reservoirs which have been created by ﬂ ooding valleys. Although

the capital equipment required for this approach is signiﬁ cantly more expensive than

that used in conventional logging, the operating costs are lower. Waterlogged trees

in reservoirs have balloons attached, are cut, ﬂ oat to the surface and are towed to

a sawmill. The underwater process is quieter and less disruptive to wildlife and the

environment.

It has been estimated that there are over half a billion trees, or 20 years’ supply,

submerged in reservoirs across the world, but it can take considerable research and

expense to ﬁ nd them.

As long as the timber has remained submerged deeply enough, it is of the same

quality as timber harvested from the land. There is currently only one company con-

ducting underwater logging, although a number of other companies are also consid-

ering this development.

Some of the Board of Directors feel that D should pursue this underwater

approach and abandon land-based logging. The Chief Executive and one other direc-

tor feel that the underwater approach carries too high a risk.

Requirements

(a) Brieﬂ y explain the differences between business ethics and corporate social

responsibility (CSR). (5 marks)

(b) Discuss the CSR issues relating to D’s business and how the company might

improve its CSR position. (8 marks)

which you think is most appropriate for D. (12 marks)

(Total ⴝ 25 marks)

C5 CTC, a telecommunications company, has recently been privatised by the gov-

ernment of C after legislation was passed which removed the state monopoly and

opened up the communications market to competition from both national and over-

seas companies – a process known as deregulation.

Prior to the deregulation, CTC was the sole, protected, supplier of telecommuni-

cations and was required to provide ‘the best telecommunications service the nation

can afford’. At that time the government dictated the performance levels required

for CTC, and the level of resources it would be able to bring to bear to meet its

objectives.

The shares were ﬂ oated on the C Stock Exchange with 80% being made available

to the population of C and up to 20% being made available to foreign nationals.

C STYLE REVISION QUESTIONS E1

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The government of C retained a ‘golden share’ to prevent the acquisition of CTC by

any foreign company. However, the privatisation meant that many of the traditional

ways in which the industry had operated would need to change under the new regu-

lations. Apart from the money received from the ﬂ otation, the government privatised

CTC in recognition of both the changing global environment for telecommunica-

tions companies, and the overseas expansion opportunities that might exist for a pri-

vatised company. The government recognises that foreign companies will enter the

home market but feels that this increased competition is likely to make CTC more

effective in the global market.

You have recently been appointed as the management accountant for CTC and

have a background in the commercial sector. The Board of Directors is unchanged

from CTC’s pre-ﬂ otation days.

Requirements

(a) Explain to the Board of Directors why the objectives of CTC will need to change

as a result of the privatisation of CTC and the deregulation of the market.

(Total ⴝ 10 marks)

C6 CQ4 is a leading European industrial gas production company. CQ4’s directors are

each responsible for a geographical region comprised of several small strategic busi-

ness units (SBUs). SBU managers report in monthly review meetings in great detail

to their directors. CQ4 is showing signs of declining proﬁ tability and a new chief

executive has been appointed and wishes to address the situation. She has complete

freedom to identify organisational problems, solutions and strategies.

She announces two new initiatives ‘to address the lost years when managers were

prevented from delivering truly excellent CQ4 performance’:

●

Revision of the existing performance appraisal system. Bonuses paid on sales will

be replaced by performance-related pay for achievement of individual ‘performance

target contracts’. Individual SBU managers will sign contracts to deliver these targets.

Performance will now be reviewed at yearly rather than monthly meetings with direc-

tors. The remuneration package will be adjusted appropriately with the current empha-

sis on increasing turnover shifting to proﬁ tability and innovation. At their annual

conference she tells SBU managers that they hold the key to improved company per-

formance. She has a vision of CQ4 achieving longer-term strategic goals of increased

proﬁ tability, risk taking and innovation. Under the slogan ‘support not report’ directors

will in future support and provide assistance to their managers to a greater degree, and

the frequency and detail of reporting by managers will be reduced.

●

A structural review to focus resources and efforts of SBUs on improving net proﬁ t. Part

of the restructuring will involve SBUs no longer providing their own ‘enabling’ services

such as ﬁ nance, information technology and health and safety. These ‘distractions from

doing the real job’ will in future be organised centrally. SBUs will, however, receive far

greater responsibility, autonomy and inﬂ uence over their own proﬁ tability.

She tells managers that she is stripping away the things that stop them doing their

job properly. In return they must manage their SBU in the way they see most appro-

priate. They will be better rewarded and ‘star achievers’ will be fast tracked to senior

positions. SBU managers are informed that already the HR department has been

tasked with redesigning the remuneration and reward package.