T4 Case study - TOPCIMA
Strategic Analysis
BeeZed
Nick Best
Welcome
Welcome to Nick Best’s TOPCIMA strategic analysis
For those of you who don’t know me, I’m one of the
TOPCIMA tutors at Reed Business School, and the
author of the official CIMA learning system, on which I
work together with one of the TOPCIMA examiners.
In this presentation you’ll find my views on the latest
TOPCIMA case study
For details of courses at Reed Business School and to
learn more about the exam and how to approach it
please see
www.topcima.biz
Introduction to the case
Remember that this is my view, not a definitive view of the
company. You should review this in the context of your
own analysis of the company, and make your own
conclusions.
If would like to hear more of my views on this and the
exam do consider attending one of the courses at Reed
Business School, or look out for posts on
www.casestudyaide.com and cimasphere.
Introduction to the case
So – this is our shortest pre-seen in many years. Does that mean we’ve got little
analysis to get our teeth into. Well no. There’s still plenty here, although
there is also a lot of missing information too. No doubt all will be revealed in
the unseen!
It’s the construction industry this time around! This is an industry which has
been hit very hard over recent years by the recession, although BeeZed’s
focus on public sector projects, and the long term nature of many projects
has ensured they have remained profitable.
Recent cuts in government spending throughout Europe may make for a
difficult few years ahead, and they may need to shift their business more
towards the private sector and the growth economies of India and China.
For a very similar real life example take a look at the website (and financial
statements) of Kier where you will find a range of useful industry
information.
Strategic analysis – the rational model
This analysis uses the rational planning model of strategic
analysis, summarised in the following diagram
Governance
& Ethics
Business Environment
PEST
5 Forces
S W
NOW
O T
Internal
analysis
Business Strategy
Generic strategies
Ansoff’s matrix
Method of growth
Product analysis
-Product life cycle
-BCG matrix
FUTURE
Mission &
Objectives
Stakeholder
Mapping
Strategic analysis – the rational model
Governance
& Ethics
The first stage of analysis
is to ensure we fully
understand where the
organisation is heading,
along with its approach
to meeting stakeholder
needs.
FUTURE
Mission &
Objectives
Stakeholder
Mapping
Mission
The mission statement sets the direction and tone of the organisation, and
guides strategic decision making. For the first time in many case studies
we are given the company’s mission statement which is:
To be the preferred supplier for quality construction
projects and to strive to implement a long term relationship
with our customers based on safety, quality and a timely
service
BeeZed have a good record in the three elements of safety, quality and
timely service, and you need to look out for anything in the unseen which
may mean that these critical success factors may be compromised.
Specific threats from the pre-seen might arise from problems with the new
procurement function. The lack of local decision making may threaten
both quality and on-time delivery, whilst using lower cost suppliers could
threaten any of the three factors.
Objectives and performance measurement
The objectives provide a focused target to move towards to direct planning,
motivate staff and enable accurate performance measurement
We are given few specific targets in the case study. The two we are told about
relate to CSR and they are:
Recycle 60% of site waste (actual = 62%)
Falling accident rates
They are likely to have more specific strategic targets we are not told about. If the
unseen suggests they do not, then this is a weakness in the company’s planning
approach.
We are also told very little about how director and staff performance is measured
and rewarded. Again you would assume they do have motivating performance
targets but look out for evidence in the unseen for a weakness in this area.
Governance
•
The case study is based on the Construction Services division of BeeZed,
and as such they do not themselves have to abide by corporate governance
legislation or deal with external shareholders, which is the responsibility of
the holding company.
•
The lack of non-executive directors, an independent Chairman and the like
in this subsidiary is therefore not a surprise.
•
I doubt that governance will be a great issue in this exam for this reason,
although it must always be borne in mind that this division has to:
(a) satisfy the holding company and its shareholders
(b) not take decisions which will be detrimental to the other divisions in the
group.
Ethics and CSR
•
Ethics is 10 marks in the exam – and hence is a very important area
•
They have a range of CSR initiatives across a number of headings:
– Use of natural resources
– Environmental issues
– Social issues
– Economic growth (includes investing in communities, and employee welfare)
– Heath and safety is also critical, and they aim to comply with an EU
programme to reduce waste
•
Any evidence of poor CSR under any of these heading should appear in your
ethics section. Use the fact that they have these initiatives to justify ‘doing the right
thing’ and investing in a solution
•
Ethics should be good for this company, but admission of collusion on bidding with
impending legal action shows that there have been issues in the past
•
A clear ethical code with disciplinary procedures for not abiding by this might help
to avoid this in the future – there is no evidence of this in the case
Stakeholder mapping
•
Doing a stakeholder map as an appendix in the exam is almost
always something which is useful to do. An appendix and done
well will usually gain 2 marks – possibly more.
•
You must update the map for changes in the unseen, and add all
new stakeholders which are in your top 4 issues
•
Refer to your map in the main body of your text, adding a comment
to say what the position of that stakeholder on the map means in
relation to this specific issue (e.g. a key player should be involved
fully through regular meetings, and incorporating their views into
the final decision)
Stakeholder Analysis
Mendelow’s Matrix
Low Interest
Minimal interest
Employees of subcontractors
Minor suppliers e.g. stationary
Low
Power
High Interest
Keep informed
Small customers
Most Suppliers
Most employees
BZPS (Professional services)
BZBSS (Support services)
Communities affected by projects
High
Power
Keep satisfied
Key Players
Future customers – new projects
Managing director
Commercial directors
Procurement director
Governments
Customers of large projects
Holding company and their major shareholders
Strategic analysis – the rational model
Business Environment
PEST
5 Forces
S W
NOW
O T
Internal
analysis
Product analysis
-Product life cycle
-BCG matrix
Next we need to analyse the current
position of the business
This helps us ensure the strategies we
decide upon are appropriate to the
business’ current position and
issues they face in the industry and
more broadly
This position is summed up in a SWOT
analysis
SWOT
•
On the following page you’ll find my SWOT analysis.
•
Remember that you MUST do a SWOT analysis as Appendix 1 in your
answer.
•
You will score 1 mark in the technical section for this, and up to 3 further
marks in the application section - if done well.
•
You must update this SWOT for unseen issues (underline or bold these in
your exam script), and should aim to include ALL your top 5 issues in your
SWOT.
•
A recent CIMA student script review I read, also made it clear that 2-3 word
points in the SWOT will not score as well as points made in more depth, so
it is worth writing 7-8 words for each point in your SWOT AND aim for
roughly 5 points per heading.
•
I’ve shown my points in priority order as I see it. You don’t need to do this
in the exam, but it can help at this stage as you can replace the less
important points with those from the unseen.
SWOT
Strengths
Weaknesses
1) Recent structural changes – creates uncertainty (a) staff
1) Good reputation for quality, safety and on-time
2)
3)
4)
5)
6)
delivery, CSR – facilitates winning new contracts
Good control – Safety, PM responsibility and
reporting, cost management, Good Costing and
PM systems including Activity Based Costing
Diversified – internationally and over 6 product
areas – reduces risk
Stable financial position + listed – should
facilitate raising finance
Strong order book for 2011
Support from Holding company – loans + part of
wider group
2)
3)
4)
5)
Opportunities
1) International expansion into emerging
2)
3)
4)
5)
economies – China, India, Brazil
Further cost reduction
Energy efficient construction + energy projects
Continue sports construction (e.g. Russia and
Qatar World Cups)
Buy competitors struggling in recession
morale (b) lack of local procurement could impact
quality and on-time delivery
Too much focus on key markets of USA and Europe currently in recession = small fall in sales (1%)
Only 4 orders for 2012 and nothing thereafter – more
longer term contracts would reduce risk
Low margins in community and energy divisions (little
information on reason in pre-seen)
Low margins generally– profit position may be
vulnerable if orders fall further, or if they undertake lots
of fixed priced contracts
Threats
1) Continued recession in major markets
2) Reduced government spending – fewer new public
3)
4)
5)
contracts
Legal case could effect reputation + losses
Competition and stronger buyer power reduces margins
Exchange rate fluctuations
PEST analysis
•
On the following page you’ll find my PEST analysis.
•
The PEST analysis is always an optional appendix in this
exam, although this is one of the best case studies for a
long time for this model as there are so many relevant
points.
•
Do aim to add one or two additional issues from the unseen
into your PEST if you do one in the exam
•
You MUST cross reference your PEST in your script
however, and many students do not do this well. Aim to do
this 2-3 times in your script
PEST analysis
• Less funding from governments for public projects (PFI) – (e.g. in UK the Building Schools for
Political
Future programme has been cancelled)
• Political instability could threaten projects in those countries (e.g. Tunisia/Egypt)
• Bidding process change – need to adapt
• Legal challenge – fine/reputation
• Land availability – planning permission
• Tax incentives/grants in certain countries could facilitate new projects
• Economy – building industry traditionally does badly during recessions – lack of finance for new
Economic
projects – excess building from boom times
• Less public money due to spending cuts
• Opportunity for expansion into growing economies
• Commodity prices e.g. Steel and copper prices have risen over recent years – hard to control
• Exchange rate fluctuations – on purchases and sales
• Less funding available from banks
• Worldwide Population growth – long term more building needed – grow in areas of largest
Social
Technolo
gical
growth
• Need to adapt to changing social needs e.g. designs
• Energy efficient construction and energy projects likely to increase
• New technology can help keep costs down and improve quality and speed of development
• Varies according to geographical location – need to be flexible
5 Forces Analysis
•
The 5 forces analysis enables the analysis of the industry according to
a range of key factors affecting that industry
•
Each force can be given a strength (e.g. High, Medium, Low). Where
all the forces are high, the profitability of the industry is low, and
divestment may be a good strategy.
•
The lower the forces the more attractive the industry is.
•
Companies may look at the areas where forces are high and develop
strategies which may lower these.
•
The 5 forces analysis for this industry is on the next page
– In this case the average of the forces is medium so the industry
would be deemed averagely profitable, although in difficult
economic times, the buyer power and competitive forces are
higher reducing profitability.
5 forces analysis
Factors increasing Force
• Fewer contracts – more power to customers
Buyer
who are still building
Power
•Bids must be competitive (low margins)
High/Med.
Supplier
Power
Low/Med
Factors lowering force
•Lower where very specific needs and so fewer
bidders
•Commodity prices – there is a market prices
•Able to negotiate lower prices due to lack of
e.g. steel
•Specialist suppliers may have some power
demand in industry
•Most suppliers will be smaller than Bee Zed
and greatly value the business
• International competitors – strong competition
Competi- who have wide expertise
tors
•High barriers to exit – existing competitors
Med/High likely to fight hard for contracts during
recession
New
Entrants
Low
Substitutes
Med
• Small building companies could expand into
the contract market
•Large competitors in established industry
•Unlikely to get new entrants during a
recession
•Customer will prefer large contracts to be with
established companies with a good reputation
• In many industries you can just wait – use
•Need physical buildings and infrastructure and
existing facilities, rent for a period of time,
refurbish or use temporary structures
ultimately there are no alternatives –
particularly where old facilities are of poor
quality.
Strategic analysis – the rational model
Next we need to analyse the strategic options, and make a
conclusion on the way forward for the business
S W
NOW
O T
Business Strategy
Generic strategies
Ansoff’s matrix
Method of growth
FUTURE
Mission &
Objectives
The usual approach to defining a business strategy is to begin
with a definition of the generic strategies, followed by analysing
options in Ansoff’s matrix, looking at how these might be
implemented with the ‘Methods of Growth’ and then deciding upon
a final strategy
Opportunities and Threats
Products/Generic Strategy
Products
Generic Strategies
•Long period of tendering – must
have projects in pipeline (large
BCG/
projects will take 1-2 years in the
Product Life bidding process alone)
•Fixed price contracts – risky –
Cycle
Cost plus contracts not risky
Cost
leadership
•PFI – Long term benefits beyond
Strengths
build (long term revenues) –
although profits are in BZSS
•Range of products in different
countries – spreads risk
•Office buildings 3.9% margin
•Infrastructure = 4.6% margin
Quality
Safety
On-time delivery
Differentiate
•Community – 0.6% margin
•Energy – 0.4% margin
Weaknesses
Not BeeZed – it is unlikely that any
suggestion to move into this market
for BeeZed will be seen favourably
in the exam
Crucial to the company – ensure
each of these three elements is
maintained through your
recommendations.
Wide product range, across many
markets so little focus, but this does
spread risk.
Focus
Ansoff’s Matrix and methods of growth
•
Ansoff’s matrix enables the generation of strategic options.
•
Those you’ll find in my analysis over the page are just ‘options’, not
my recommendations.
•
You might like to add your own options
(1) Based on your own ideas to take the business forward
(2) Based on those in practise exams you undertake
•
The final stage is then to decide on the methods which the
organisation can use to take the options (as generated in Ansoff’s
matrix) – again these are just possibilities at this stage
Ansoff’s Matrix – Strategic
options
Existing Market
• Value chain review – remove nonvalue adding activities – cost
reduction
• Focus on profit generating divisions
Existing
• Improve bidding process
Product
• New technologies – increase
efficiencies
• Continue focus on quality, on-time
delivery, safety – retaining customers
• Hotels
• Residential Housing
• Demolition
New
Product
New Market
• Expand into new overseas markets
– South America, Africa
• Fabrication of building materials
• Electrical/plumbing services
• Build to rent
• Need to take care not to replicate
services of other divisions
(consultancy & maintenance)
Methods of Growth
Internal Development
Acquisition
•Cost reduction
•New products
•New markets
•Competitors
•Small companies
•Suppliers
•Companies which are in new markets e.g. Indian
construction company
•New markets (e.g. China – build connections in new
Joint Venture
cultures/political environments)
•Very large projects (e.g. new city, new rail link)
•Low profitable products – e.g. energy
Divest
and community (Do
not just assume that low margins means these should be
divested.)
•Could do this to then reinvestment in other segments
Defining a business strategy
•
On the following page you will find my recommended
strategy for the company.
•
Remember that this is my view and is not a definitive answer
•
Also remember that in the exam, you are NOT expected to
define a way forward like this – you MUST deal with the
unseen issues and only those issues
•
However, dealing with those issues in light of a strong logical
approach to how the business should be taken forward can
help you make a strong argument in your recommendations.
Nick’s Strategies going forward
•
Consolidate strengths – quality, on-time delivery, safety
– Continue good controls
– Monitor problems and deal with them as they arise
– Do not cut costs in areas which compromise these factors
•
Continued focus on cost management
– Keep costs down through new central procurement
– Monitor impact of loss of local procurement to ensure no detrimental impact
– Should facilitate lower pricing of contracts to win orders
•
Ensure good continued order books
– Review of bidding process – re legal change and to ensure it is effective in the future
– Continue to bid for major projects, pricing competitively, but profitably
– Aim for more long term projects for greater long term security
•
Wider expansion into growth markets – to balance the portfolio and take advantage of growth
areas
– Aim to bid for more contracts in these areas
– Look for possible acquisition targets
•
Shift towards private sector
– Aim to build ongoing relationships with large private sector customers due to reduction in
public sector projects
Reed Business School
So that’s what I would do. I’m sure you’ll have your own views.
Just remember not to hold onto these too tightly in the exam
– you must primarily deal with the unseen issues!
Remember to use www.topcima.biz for more specific guidance
towards the exam, and if you don’t pass this time, perhaps
consider attending the a course at Reed Business School for
the next sitting.
I also work with individual’s one-to-one, usually where people
have failed in the past and need more personal guidance to
help them get through. Although I’m now fully booked for
this year, should you not be successful this time and feel
this would be useful for the next sitting, please do get in
touch at nickbest@live.co.uk.