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Professional Level – Essentials Module
The Association of Chartered Certified Accountants
Business Analysis
Wednesday 15 December 2010
Time allowed Reading and planning: 15 minutes Writing: 3 hours
This paper is divided into two sections:
Section A – This ONE question is compulsory and MUST be attempted
Section B – TWO questions ONLY to be attempted
Do NOT open this paper until instructed by the supervisor.
During reading and planning time only the question paper may be annotated. You must NOT write in your answer booklet until instructed by the supervisor.
This question paper must not be removed from the examination hall.
Paper P
This is a blank page. The question paper begins on page 3.
All fi gures in $m ShoalFish 2007 2008 2009 Turnover of market sector 200·00 198·50 190· Turnover of ShoalFish 24·00 23·50 21· Gross profi t 1·20 1·10 1·
ShoalPro 2007 2008 2009 Turnover of market sector 40·00 40·10 40· Turnover of ShoalPro 16·00 16·20 16· Gross profi t 1·60 1·65 1·
ShoalFarm 2007 2008 2009 Turnover of market sector 10·00 11·00 12· Turnover of ShoalFarm 1·00 1·10 1· Gross profi t 0·14 0·14 0·
Figure 1: Financial data on individual companies 2007–
Captain Haddock The Captain Haddock chain of restaurants was founded in 1992 by John Dory. It currently operates one hundred and thirty restaurants in the country serving high quality fi sh meals. Much of Captain Haddock’s success has been built on the quality of its food and service. Captain Haddock has a tradition of recruiting staff directly from schools and universities and providing them with excellent training in the Captain Haddock academy. The academy ensures that employees are aware of the ‘Captain Haddock way’ and is dedicated to the continuation of the quality service and practices developed by John Dory when he launched the fi rst restaurant. All management posts are fi lled by recruiting from within the company, and all members of the Captain Haddock board originally joined the company as trainees. In 1999 the Prime Minister of the country identifi ed Captain Haddock academy as an example of high quality in-service training. In 2000, Captain Haddock became one of the thirty best regarded brands in the country.
In the past few years, the fi nancial performance of Captain Haddock has declined signifi cantly (see Figure 2) and the company has had diffi culty in meeting its bank covenants. This decline is partly due to economic recession in the country and partly due to a disastrous diversifi cation into commercial real estate and currency dealing. The chairman and managing director of the company both resigned nine months ago as a result of concern over the breaking of banking covenants and shareholder criticism of the diversifi cation policy. Some of the real estate bought during this period is still owned by the company. In the last nine months the company has been run by an interim management team, whilst looking for prospective buyers. At restaurant level, employee performance still remains relatively good and the public still highly rate the brand. However, at a recent meeting one of the employee representatives called for a management that can ‘effectively lead employees who are increasingly demoralised by the decline of the company’.
Shoal plc is currently fi nalising their takeover of the Captain Haddock business. The company is being bought for a notional $1 on the understanding that $15 million is invested into the company to meet short-term cash fl ow problems and to improve liquidity. Shoal plc’s assessment is that there is nothing fundamentally wrong with the company and that the current fi nancial situation is caused by the failed diversifi cation policy and the cost of fi nancing this. The gross profi t margin in the sector averages 10%.
Captain Haddock currently buys its fi sh and fi sh products from wholesalers. It is the intention of Shoal plc to look at sourcing most of the dishes and ingredients from its own companies; specifi cally ShoalFish, ShoalPro and ShoalFarm. Once the takeover is complete (and this should be within the next month), Shoal plc intends to implement signifi cant strategic change at Captain Haddock so that it can return to profitability as soon as possible. Shoal plc has implemented strategic change at a number of its acquisitions. The company explicitly recognises that there is no ‘one right way’ to manage change. It believes that the success of any planned change programme depends on an understanding of the context in which the change is taking place.
Captain Haddock (all fi gures in $m) 2007 2008 2009 Turnover 115·00 114·50 114· Gross profi t (loss) 0·20 (5·10) (6·20)
Figure 2: Financial information for Captain Haddock 2007–
5 [P.T.O.
Required:
(a) In the context of Shoal plc’s corporate-level strategy, assess the contribution and performance of ShoalFish, ShoalPro and ShoalFarm. Your assessment should include an analysis of the position of each company in the Shoal plc portfolio. (15 marks)
(b) Shoal plc explicitly recognises that there is no ‘one right way’ to manage change. It believes that the success of any planned change programme will depend on a clear understanding of the context within which change will take place.
(i) Identify and analyse, using an appropriate model, the contextual factors that will influence how strategic change should be managed at Captain Haddock. (13 marks) Professional marks will be awarded in part (b)(i) for the identification and justification of an appropriate model. (2 marks) (ii) Once the acquisition is complete, Shoal plc wish to quickly turnaround Captain Haddock and return it to profi tability.
Identify and analyse the main elements of strategic change required to achieve this goal. (8 marks) Professional marks will be awarded in part (b)(ii) for the cogency of the analysis and for the overall relevance of the answer to the case study scenario. (2 marks)
(c) Portfolio managers, synergy managers and parental developers are three corporate rationales for adding value.
Explain each of these separate rationales for adding value and their relevance to understanding the overall corporate rationale of Shoal plc. (10 marks)
(50 marks)
7 [P.T.O.
3 Introduction Frigate Limited is based in the country of Egdon. It imports electrical components from other countries and distributes them throughout the domestic market. The company was formed twenty years ago by Ron Frew, who now owns 80% of the shares. A further 10% of the company is owned by his wife and 5% each by his two daughters. Although he has never been in the navy, Ron is obsessed by ships, sailing and naval history. He is known to everyone as ‘The Commander’ and this is how he expects his employees to address him. He increasingly spends time on his own boat, an expensive motor cruiser, which is moored in the local harbour twenty minutes drive away. When he is not on holiday, Ron is always at work at 8.00 am in the morning to make sure that employees arrive on time and he is also there at 5.30 pm to ensure that they do not leave early. However, he spends large parts of the working day on his boat, although he can be contacted by mobile telephone. Employees who arrive late for work have to immediately explain the circumstances to Ron. If he feels that the explanation is unacceptable then he makes an appropriate deduction from their wages. Wages, like all costs in the company, are closely monitored by Ron. Employees, customers and suppliers Frigate currently has 25 employees primarily undertaking sales, warehousing, accounts and administration. Although employees are nominally allocated to one role, they are required to work anywhere in the company as required by Ron. They are also expected to help Ron in personal tasks, such as booking holidays for his family, fi lling in his personal tax returns and organising social events. Egdon has laws concerning minimum wages and holidays. All employees at Frigate Ltd are only given the minimum holiday allocation. They have to use this allocation not only for holidays but also for events such as visiting the doctor, attending funerals and dealing with domestic problems and emergencies. Ron is particularly infl exible about holidays and work hours. He has even turned down requests for unpaid leave. In contrast, Ron is often away from work for long periods, sailing in various parts of the world. Ron is increasingly critical of suppliers (‘trying to sell me inferior quality goods for higher prices’), customers (‘moaning about prices and paying later and later’) and society in general (‘a period working in the navy would do everyone good’). He has also been in dispute with the tax authority who he accused of squandering his ‘hard-earned’ money. An investigation by the tax authority led to him being fi ned for not disclosing the fact that signifi cant family expenditure (such as a holiday for his daughters overseas) had been declared as company expenditure. Company accountant It was this action by the tax authority that prompted Ron to appoint Ann Li as company accountant. Ann had previously worked as an accountant in a number of public sector organisations, culminating in a role as a compliance offi cer in the tax authority itself. Ron felt that ‘recruiting someone like Ann should help keep the tax authorities happy. After all, she is one of them’. Ann was used to working in organisations which had formal organisational hierarchies, specialised roles and formal controls and systems. She tried to install such formal arrangements within Frigate. As she said to Ron ‘we cannot have everyone working as if they were just your personal assistants. We need structure, standardised processes and accountability’. Ron resisted her plans, at fi rst through delaying tactics and then through explicit opposition, tearing up her proposed organisational chart and budget in front of other employees. ‘I regret the day I ever made that appointment’, he said. After six months he terminated her contract. Ann returned to the tax authority as a tax inspector.
Required: The cultural web allows the business analyst to explore ‘the way things are done around here’. (a) Analyse Frigate Ltd using the cultural web or any other appropriate framework for understanding organisational culture. (15 marks)
(b) Using appropriate organisation configuration stereotypes identified by Henry Mintzberg, explain how an understanding of organisation configuration could have helped predict the failure of Ann Li’s proposed formalisation of structure, controls and processes at Frigate Ltd. (10 marks)
(25 marks)
4 Introduction The Institute of Administrative Accountants (IAA) has a professional scheme of examinations leading to certifi cation. The scheme consists of six examinations (three foundation and three advanced) all of which are currently assessed using conventional paper-based, written examinations. The majority of the candidates are at the foundation level and they currently account for 70% of the IAA’s venue and invigilation costs. There are two examination sittings per year and these sittings are held in 320 centres all over the world. Each centre is administered by a paid invigilation team who give out the examination paper, monitor the conduct of the examination and take in completed scripts at the end. Invigilators are also responsible for validating the identity of candidates who must bring along appropriate identifi cation documents. At over half of the centres there are usually less than ten candidates taking the foundation level examination and no candidates at all at the advanced level. However, the IAA strives to be a world-wide examination body and so continues to run examinations at these centres, even though they make a fi nancial loss at these centres by doing so. Recent increases in invigilation costs have made the situation even worse. However, the principles of equality and access are important to the IAA and the IAA would like to increase the availability of their examinations, not reduce it. Furthermore, the IAA is under increased fi nancial pressure. The twice-yearly examination schedule creates peaks and troughs in cash fl ow which the Institute fi nds increasingly hard to manage. The Institute uses its $5m loan and overdraft facility for at least four months every year and incurred bank charges of $350,000 in the last fi nancial year. Examinations All examinations are set in English by contracted examiners who are paid for each examination they write. All examinations are three-hour, closed-book examinations marked by contracted markers at $10 per script. Invigilators send completed scripts directly to markers by courier. Once scripts have been marked they are sent (again by courier) to a centralised IAA checking team who check the arithmetic accuracy of the marking. Any marking errors are resolved by the examiner. Once all marks have been verifi ed, the examination results are released. This usually takes place 16 weeks after the examination date and candidates are critical of this long delay. The arithmetic checking of scripts and the production of examination results places signifi cant demands on IAA full-time administrative staff, with many being asked to work unpaid overtime. The IAA also employs a signifi cant number of temporary staff during the results processing period. E-assessment The new head of education at the IAA has suggested e-assessment initiatives at both the foundation and advanced levels. He has suggested that all foundation level examinations should be assessed by multiple-choice examinations delivered over the Internet. They can be sat anytime , anyday , anywhere. ‘Candidates can sit these examinations at home or at college. Anywhere where there is a personal computer and a reliable broadband connection.’ Advanced-level examinations will continue to be held twice-yearly at designated examination centres. However, candidates will be provided with personal computers which they will use to type in their answers. These answers will then be electronically sent to markers who will use online marking software to mark these answers on the screen. The software also has arithmetic checking facilities that mean that marks are automatically totalled for each question. ‘100% arithmetic accuracy of marking is guaranteed.’ He has also suggested that there is no need to make a formal business case for the adoption of the new technology. ‘Its justifi cation is so self-evident that defi ning a business case, managing benefi ts and undertaking benefi ts realisation would just be a pointless exercise. It would slow us down at a time when we need to speed up.’
Required: (a) Evaluate the perceived benefits and costs of adopting e-assessment at the IAA. (15 marks)
(b) Explain why establishing a business case, managing benefits and undertaking benefits realisation are essential requirements despite the claimed ‘self-evident’ justification of adopting e-assessment at the IAA. (10 marks)
(25 marks)
End of Question Paper
