Subject (SQ): Strategic Case Study

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  • 20 Marks

SCS – L3 – Q14- Strategy, stakeholders and mission

Discuss the implications of Sunrise Bank's new philosophy on staff, customers, and shareholders.

Background
Sunrise Bank (the Bank) is a West African clearing bank. It has 500 retail branches. It categorizes its business as retail and corporate. Each category currently accounts for half of the Bank’s revenue.
The Bank defines retail business as “banking for customers in their own right and small businesses where lending would not exceed GH₵1,000,000 in any one year”.
Corporate business is defined as “…where lending would exceed GH₵1,000,000 in any one year”. Corporate lending includes international lending.
Traditionally, corporate lending has been the most profitable business, yielding 70% of profit before taxation. Corporate lending has been carried out by six regional offices and a department at head office in Lagos. The Lagos office is also responsible for international lending. There are 200 staff employed in corporate lending.
Retail banking has operated in the following way.
The number of retail and small business customers at each branch has ranged from 500 to 5,000, although 2,500 is typical. The bank has employed the following Mission statement for its retail banking:
“Our Mission is to deliver a high-quality service to customers based on our managers’ personal knowledge of customers’ affairs.”
The Bank recognized that retail banking was relatively unprofitable. It was willing to operate a policy of cross-subsidization between corporate and retail as it hoped that some retail customers would become corporate ones. It saw its branch managers as assisting in this process because of their financing expertise and deep knowledge of their customers.
The Bank has operated each branch as a cost center. Managers have been provided with a three-monthly expenditure report which compared committed expenditure to budgeted expenditure. The Bank had not operated an accrual accounting system as regards branch expenditures for these three-monthly reports. However, year-end adjustments reconciled committed, actual and budgeted expenditures. These accounting operations were carried out by management accounting staff based at head office.

Required:
(a) The bank’s current mission statement for its retail services states an intention “to deliver a high-quality service to customers based on our managers’ personal knowledge of customers’ affairs”. The emphasis here is on high quality and personal attention. The new philosophy outlined by the managing director is different in several respects. The emphasis is on profitability, to be achieved through low-cost service. And “the days of the bank manager being a personal friend and adviser are over”. Discuss the implications of this change for staff, customers and shareholders.

(b) Until now, the bank has treated its retail branches as cost centers. Discuss the possible advantages and disadvantages for the bank in changing to a system where super branches operate as investment centers.

(c) (i) List the reports that super branch managers might need in order to carry out their new responsibilities.

(ii) Explain THREE qualitative indicators that should be monitored by super branch managers.

(d) Identify the most important stakeholders who should have been consulted about the proposed changes and explain why their involvement is important.

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  • 20 Marks

SCS – L3 – Q13- Functional strategies

Explain three reasons to maintain a centralised administrative department at Sunrise Enterprises.

 You are the Chief Operations Officer and a member of the board of directors of Sunrise Enterprises, a reputable firm that has operations across multiple regions in West Africa. The board is currently deliberating on a strategy to decentralize the administrative function in order to promote flexibility in administration across all the operational areas of the company. You feel strongly that this move will be detrimental to the prospects of the company and has therefore spoken against it. The Chairman of the board has, therefore, asked you to submit a short memo to argue out your position.

Required:
(a) In a memo to the Chairman of the board, explain THREE reasons why you believe your company should maintain the current centralized administrative department.                                                                                                                                                                      (b) One of the important tasks in the formulation of corporate strategy is stakeholders’ analysis.

Required:
Explain the term stakeholders and identify TWO groupings of stakeholders.

(c) A new entrant into an industry will bring extra capacity and more competition and so could, in turn drive down profits. The strength of the threat posed by new entrants is likely to vary from one industry to another and depends on the strength of the barriers to entry and the likely response of existing competitors to the new entrant.

Required:
Identify and explain FIVE determinants of barriers to entry to new entrants into an industry.

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  • 20 Marks

SCS – L3 – Q12- Ethics and social responsibility

Make a case for CSR to help Petrostar Ltd. formulate an appropriate CSR strategy.

You have recently been appointed head of corporate affairs of PetroStar Ltd., a reputable company that operates in the upstream sector of the petroleum industry in West Africa. In a recent management meeting, a disagreement arose among executives regarding the nature of the company’s philosophy and strategy towards social responsibility. In order to resolve the disagreement, you have been asked by the company’s board of directors to submit a position paper that will enable it to formulate an appropriate corporate social responsibility strategy for the company.

Required:
(a) In a brief report to the board, make a clear case for Corporate Social Responsibility (CSR) to help your company’s board formulate an appropriate CSR strategy.

 (b) Explain TWO strategies your company could adopt for managing its social responsibility.

You recently qualified as a professional accountant and received promotion in your company. One of your key responsibilities is to prepare management accounts to facilitate management decision making. You require important sales information from the sales department to incorporate into the final figures. Unfortunately, due to staff sickness and other inefficiencies, the sales report for the month has been delayed. Thus, you will not receive the information until few hours before the accounts are due for presentation to the Chief Finance Officer.

In a related situation, while on lunch break, you overheard the marketing manager asking another employee in the finance department to advise her on some investment decisions she has to make. She has recently inherited a considerable sum of money and would like your colleague to calculate her inheritance tax as well as capital gains tax liabilities.

Required:
(c) Identify the fundamental ethical principle(s) that could be in breach and justify why they may constitute a breach.

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  • 10 Marks

SCS – L3 – Q11 – Strategy Implementation

Discuss the importance of effective communication and strategic leadership in successful strategy implementation.

(a) During strategy implementation, important management issues need to be reviewed for their appropriateness for the new strategy. Many organizations fail to achieve their strategic objectives not because they do not develop the right strategies but because many issues are not resolved during the implementation. They may not have the right organizational structure, a fitting culture, an efficient leadership while communication may be poor.

Required:

Discuss the importance of each of the following in successful strategy implementation:

(i) Effective communication

(ii) Strategic leadership                                                                                                                                                                                                                                                                                                                                                                                                                                                 (b)

You have been consulted by the CEO of Vision Designs, a designing and publishing company, to clarify some strategic management terminologies to aid him to finish a proposal for consideration by the company’s board of directors.

Required:

Using relevant examples, explain the following types of modular organization structures.

(i) Outsourcing

(ii) Offshoring

(iii) Shared servicing

(c) Explain TWO limitations that are associated with offshoring.

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  • 20 Marks

SCS – L3 – Q10 – Strategy Implementation

Discuss suitability, acceptability, and feasibility as criteria for evaluating corporate strategic options.

(a) Strategy evaluation is a key aspect of the strategic management process. It allows management to assess the efficiency and effectiveness of the chosen strategies before their implementation.

Required:

Discuss the following criteria for evaluating corporate strategic options.

(i) Suitability

(ii) Acceptability

(iii) Feasibility                                                                                                                                                                                                                                                                                                                                                                                                                                                                    (b)

Management perception about the global environment is an important factor in shaping its orientation or philosophy in developing a general strategic profile in the international arena.

Required:

Identify and explain FOUR management orientations in the management of international business.

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  • 20 Marks

SCS – L3 – Q9- Strategy implementation

Describe four perspectives of the Balanced Scorecard for Printworks Ltd.

Case Study: PrintWorks Incorporated
You are the Management Accountant of PrintWorks Incorporated, a local printing and publishing house located in the regional capital of Kumasi. Your CEO has asked you to brief him further on the balanced scorecard approach.

Required:
(a)(i) In a memo to the CEO, describe FOUR perspectives of a balanced scorecard.

(a)(ii) In a memo to the CEO, explain THREE problems usually associated with the use of this approach for strategic management.

(b) Identify and explain THREE of these inherent characteristics and how they facilitate Management by Objectives (MBO).

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  • 40 Marks

SCS – L3 – Q8 – Competitive forces

Assess the competitive forces affecting Transway Ltd in the haulage industry.

Case Study: Transway Limited
Background
Mr. Kofi Mensah is the Managing Director of Transway Ltd, a small haulage contracting company, which he founded 15 years ago. Originally, Mr. Mensah was a heavy goods vehicle driver himself, working for other contractors, but he had the intent of establishing his own business. Having received his pension, he acquired an articulator truck and began to work from home. Over time the business expanded and now Transway Ltd operates a fleet of 15 heavy goods vehicles. Five of the current fleet of trucks were acquired in the last financial year, replacing older units which were becoming too expensive to maintain. The Company now employs 20 full-time and a varying number of part-time driver mates. The part-time staff work as and when required.

Mr. Mensah acquired two plots of land six years ago and built a house on it, which he and his family occupy. In addition, he built a garage with facilities for minor servicing and repairs on the same site. Living on site has enabled him to offer a 24-hour service to clients. Consequently, movement of the trucks in and out of the site occurs at all times of day and night. There have been objections raised by the residents in the neighborhood to disturbance and the local Radio Stations has at various times reflected this criticism.

In addition to the haulage business, the company also obtained a license and established a driving school. This had proved to be a successful diversification as there is a regular stream of customers. This training takes place mostly in Transway Ltd.’s own garage facilities. It became clear to Mr. Mensah that the land on which the garage facility is built was inadequate for the needs of his growing business.

Acquisition of land
One year ago, Mr. Mensah entered into negotiations to lease some land which would be more than satisfactory for the company’s operations. The land is situated on an industrial estate five kilometers from the existing facility. In addition, there is room to build a workshop facility which would be adequate for the needs of the fleet. Following agreement of a lease arrangement, which was concluded just before the completion of the last financial year, Transway Ltd occupied the land on which there were no buildings erected, or utilities supplied. Since taking possession of the land, a large security fence has been erected and a small portable cabin placed on site. Water and electricity services have been supplied, and negotiations are taking place for the installation of a large diesel tank adequate to service other vehicles besides those of Transway Ltd.

Accounting
Mr. Mensah recruited Mrs. Ama Nkrumah, a part-time accountant, four years ago. Prior to Mrs. Nkrumah’s arrival, Transway Ltd applied a policy of paying all invoices immediately on receiving them. As debtors were frequently taking over and above the credit period (30 days) allowed, Transway Ltd suffered a cash flow shortage, which resulted in a large bank overdraft.

Mrs. Nkrumah introduced some basic financial accounting procedures into the company. In addition to exercising some control on Transway Ltd expenditure, Mrs. Nkrumah has reduced the debtors’ collection period to about half its former level. Creditors are now paid when the invoices fall due rather than immediately upon their receipt. Such control had been lacking prior to her arrival at the company.

The company faces strong competition for haulage contract work. Typically, haulage contractors operate on a low-margin basis and smaller companies often sub-contract from large-scale haulers. Transway Ltd carries haulage for a variety of customers as well as undertaking some subcontracting. Much of the haulage work the company carries out is seasonal.

One of its top clients, Prime Ltd, recently appointed a new transport manager. The new Manager of Prime Ltd. has begun to employ other haulers besides Transway Ltd. Over the last two months, the haulage work Transway Ltd has received from Prime Ltd has reduced by about a third.

In order to address the competition, Transway Ltd recently diversified into the sale of hydraulic oil. Sales have been running at a steady rate of 50 gallons each month for some time, but the company is dissatisfied with this level of sales and from next month (June), the company intends to advertise actively. This is expected to increase sales by 10 gallons per month from June to October inclusive after which it will remain steady at 100 gallons per month.

Each gallon costs GH¢1,500 and sells for GH¢2,000. All purchases are on one month’s credit and sales on two month’s credit. The company feels that, to give a good service to customers, it must have sufficient inventory at the end of each month to meet the whole of the following month’s sales.

Additional non-current assets (a delivery van to help cope with the increased sales) will be bought and paid for in July 2016 at a cost of GH¢15,000. Corporate tax of GH¢25,000 is due for payment on 1st August 2016. The balance of cash at 31st May 2016 is planned to be GH¢30,000.

Operating costs will rise to cash payments totaling GH¢10,000 each month. The advertising will cost GH¢20,000 in June and GH¢10,000 for each month from July to September inclusive, payable one month in arrears.

The accountant has not yet had a cash budget prepared for the rest of the year, but she feels that the sales expansion plans are likely to lead to cash flow problems. Suggestions have been made that, if her fears are justified, it might be possible to overcome the problem by increasing the creditor payment period to two months and buying inventory as it is used (i.e. zero inventory at month ends).

Required:
(a) Assess the nature of competitive forces of Transway Ltd.

(b) Present a SWOT Analysis for Transway Ltd.

(c) Advise Mr. Mensah on the strategic management accounting information which should be provided to assist future decision making and cost control.

(d) Prepare a cash budget for Transway Ltd for the six months ending 30th November 2016, showing the planned cash position at the end of each month; on the basis of the original planned credit and inventory holding periods.

(e) Redraft your cash budget to reflect the suggested alterations to these planned periods.

(f) Suggest what other aspects Transway Ltd should consider solving the expected cash flow problem, should the suggested solution be unachievable.

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  • 50 Marks

SCS – L3 – Q7- Internal analysis

Present a corporate appraisal for the Africa division of GreenPath Company Ltd.

Case Study: GreenPath Company Ltd
Background
GreenPath Company Ltd (GP) was established over 20 years ago to manufacture and sell naturally-based cosmetics and skin products. The first shop was opened in Great Albion. Since then, GP has successfully expanded and now trades in over 40 countries world-wide through more than 1,000 retail outlets, 75% of which are located outside Great Albion. The company has a major sales and production operation in Zamunda, based in Zamura, which serves the growing African market for GP’s products. The ecologically-friendly aims of GP have not changed since it was first established. The company campaigns against animal testing in the cosmetics industry and for human rights all over the world. It seeks to establish trade relations with overseas countries, and to integrate itself into the local communities in which it trades so that it can be more aware of the specific needs of its customers. GP prides itself on its achievements in educating staff and customers through providing information on its products and methods of manufacture.

Corporate activities
GP is intent on preserving the environment in its global operations by promoting the efficient use of energy, keeping waste to a minimum and using only renewable resources whenever possible. These basic principles have been challenged by some observers who suggest that, in the current aggressive corporate climate, GP will need to abandon its environmentally-friendly aims in order to compete. The company’s Chairman is determined that this shall not be the case and is proud of the fact that GP was one of the first companies globally to publish environmental audit reports.

GP sources high-quality raw materials directly from producers from world and carries out extensive product research and development in Great Albion and South Meridian. The results of successful research are converted into innovative products which are manufactured by GP’s Africa division production facilities in Zamura. The products are then transferred to a throughout the African continent. In addition, GP is active in health to throughout the world and, some years ago, initiated and the development.

Required: 
(a) Present a corporate appraisal for the Africa division of GreenPath Company Ltd.

(b) Comment on the two options evaluated. Your answer should

  • include an assessment of the best and worst outcomes from the quality improvement option;
  • express any reservations you might have about the results; and
  • take into consideration the likely potential reaction of competitors if GP implements either strategy.

    (c) Recommend what information the management accountant should provide to the directors of GreenPath Company Ltd to assist them in assessing the company’s progress towards the achievement of its strategic environmental aims.

    (d) By reference to potential future market opportunities and threats, recommend a strategy which GreenPath Company Ltd may adopt in order to pursue its strategic environmental aims.

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  • 20 Marks

SCS – L3 – Q4 Strategy, stakeholders and mission

Outline five common elements included in most mission statements.

(a) A mission statement describes an organization’s basic purpose and what it is trying to achieve. It can play an important role in the strategic planning process. There is no standardized format for mission statements. However, there are common elements included in most mission statements. Outline any FIVE (5) of these elements.

(b) Strategy evaluation is as important as strategy formulation. One of the tools used for evaluation is a resource audit. Explain FIVE (5) resources that might be examined in a resource audit.

(c) Reporting on corporate governance is one way of ensuring transparency. Based on recent corporate governance concerns, explain FIVE (5) issues that should be contained in corporate governance reports.

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  • 20 Marks

SCS – L3 – Q3- Corporate Governance

Explain the composition and functions of an Audit Committee in corporate governance.

a) The role of Audit Committee in corporate governance cannot be overemphasized.

(i) What should be the composition of an Audit Committee, and who might be invited by the committee to attend their meetings?

(ii) Explain FOUR (4) functions of an Audit Committee.

(b) Corporate governance is now a very popular and important area in strategic management. However, corporate governance is poor in a number of organizations.

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