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The Holiday Company (HC) currently offers travel agency services by giving travel advice and making travel bookings for customers who physically visit the offices located in most major towns in the country. However, it is progressively reducing this part of the business while simultaneously trying to achieve a greater proportion of its revenue online.<br>To help meet this objective, HC is in the process of forming a new business unit to market and sell luxury holidays. The holiday product range marketed by this new business unit will be named Inspirations. It is intended that Inspirations will provide a high quality, bespoke holiday service for discerning clients. HC has decided that this new business unit will have its own mission statement of ‘delivering a high quality service for discerning travellers’. The new managing director of Inspirations has stated that it has an objective of achieving annual revenue of $100m by 2018. This would be approximately 25% of the total forecast revenue for HC that year, but it is expected to represent only about 5% of the total number of holidays sold by HC. The type of holidays offered by Inspirations is already provided by some of HC’s competitors.<br>Dilip Kharel, the new director of marketing of Inspirations, has stated that the internet should be increasingly used as the main source of marketing and selling the holidays, as ‘the days are almost gone when families visit a ‘high street’ travel agency to plan their holiday; it’s all done now from the comfort of the home’. He believes that potential customers of Inspirations will not want to visit high street travel agencies.<br>HC currently makes extensive use of traditional marketing techniques, sending out travel brochures containing all of its holidays to potential customers. However, as Dilip has recognised, ‘the problem is that we don’t even know if our customers bother opening these, or if they put them directly into the dustbin.’ These brochures are often produced months in advance, and may advertise holidays which are no longer available. Customers will not discover this until they visit one of the travel agents. The company currently does make some use of targeted emails, but it has been accused of sending spam mail in the past and mass mailing a weekly email of all current holiday offers to everyone registered on its database.<br>Dilip is keen to embrace the opportunities offered by electronic marketing and believes that Inspirations can benefit greatly by exploiting the principles of intelligence, individualisation, interactivity, integration and independence of location which are central to electronic marketing.<br>Inspirations will offer holidays in a wide variety of locations, including the Caribbean, Africa and Asia, and plan to offer ‘themed’ trips, such as gourmet food holidays and heritage trips. Different countries may have different requirements for visiting tourists, such as visa regulations. Inspirations does not own hotels or aircraft and therefore the majority of holidays offered will be provided by third-party suppliers, such as hotel and airline companies. This means that Inspirations can lack control over some elements such as passenger taxes. Inspirations will have representatives on site in all resorts to meet guests at airports and to address any issues they have with the holiday. However, the hotels and excursions will not be solely or exclusively offered to Inspirations guests. For example, there will be other guests at a hotel who have not booked through Inspirations.<br>Dilip is concerned about this. He feels that the company needs to be able to differentiate itself, either in the overall holiday experience itself or in the marketing of it, so that customers are more likely to book such holidays through Inspirations, rather than through a competitor, or indeed through booking with the hotel directly. He also recognises the importance of adopting an appropriate pricing strategy which meets the needs of the organisation (HC and Inspirations) and customers alike.<br>Required:<br>(a) Evaluate how the principles of intelligence, individualisation, interactivity, integration and independence of location could be exploited when marketing the new range of holidays to be offered by Inspirations. (15 marks)<br>Dilip Kharel recognises the importance of a pricing strategy which supports the overall corporate and business strategies of the organisation.<br>Required:<br>(b) Describe a strategic approach to establishing prices in the context of Inspirations. You should recognise both economic and non-economic factors in your approach. (10 marks)
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Section A – This ONE question is compulsory and MUST be attempted<br>Introduction<br>QTP Co produces timber framed windows for builders’ merchants, property builders and property maintenance companies. It does not sell windows directly to the general public. Members of the general public (and small building companies) can buy QTP windows through the builders’ merchants supplied by QTP. These builders’ merchants supply a wide range of products for property maintenance and improvement. They are usually located in large warehouse premises on the outskirts of towns and cities.<br>There are three primary raw materials (or components) for the windows which QTP makes.<br>– Timber (wood) which it orders from timber suppliers. Worldwide demand for timber is increasing and timber prices are relatively high and supply of some of the specialist timber which QTP requires is often in short supply.<br>– Glass which it orders from specialist glass manufacturers.<br>– Fittings, such as bolts, latches, handles, etc which it sources from a number of small specialist producers.<br>QTP has a number of departments. This scenario considers just five of these departments and each of these departments is exactly aligned with activities of the value chain. They are:<br>– Inbound logistics and procurement<br>– Production<br>– Outbound logistics<br>– Marketing and sales<br>– Service<br>Production takes place on one dedicated production line where one machine (and supporting labour) undertakes all the tasks concerned with converting the components into the finished windows. There are no plans to buy a second machine or open up a second production line. Production takes place from 08.00 to 17.00 (nine hours). Although employees take breaks, these are organised so that the production line is always staffed. It is not possible, because of technical and environmental constraints, to extend the working day or organise a night shift. The company is effectively restricted to a nine-hour working day. Setting up and setting down of the machine has to take place within this nine-hour day.<br>Outbound logistics has a small fleet of vehicles which are used to deliver finished windows to the customer. Effective scheduling of this fleet is currently a problem and vehicle maintenance is becoming more expensive as the vehicles get older.<br>Standard and bespoke windows<br>The company offers both standard windows and bespoke windows.<br>Standard windows are made to a specification decided by QTP and they are produced to inventory. These windows are advertised in the company’s catalogue and on its website. Customer orders for these windows are supplied from inventory and next day delivery is promised. The production of these windows is based on sales forecasts made by the marketing and sales department. These forecasts are used by the inbound logistics and procurement department to place orders for the raw materials for the windows. Because relatively large orders for components are placed in advance, QTP usually obtains significant discounts on published component prices.<br>Bespoke windows are produced to a specification required by the customer, usually resulting from consultation and negotiation between the marketing and sales department and the customer. They are made to exactly fit the customer’s needs, in terms of timber type and quality, glass specification, window size and types of fitting. The marketing and sales department provides the customer with a proposed delivery date. A copy of the order, and the proposed delivery date, is also given to the production department, so that they can schedule the making of the windows and to inbound logistics and procurement so that they can order specific components for the windows.<br>At present, there is often a conflict between the production of standard and bespoke windows. It is essential that QTP achieves the promised delivery date for bespoke orders. To achieve this, it is often necessary for scheduled runs of standard windows to be postponed so that bespoke windows can be produced. This leads to less efficient use of the machine and labour (due to set up and set down time) and also to components for standard windows being held in inventory for longer than planned. Furthermore, component prices for bespoke orders are usually higher, reflecting smaller volumes and the need to fulfil tight deadlines. Bespoke window production and delivery to customers usually takes place as quickly as possible, to ensure that promised deadlines are met and inventory storage of finished windows minimised.<br>In the past, it was possible for bespoke orders to use common components bought in for standard windows. However, this led to continual disruption of the production of standard windows and now components for standard and bespoke orders are kept quite separate and are stored in different areas of the warehouse.<br>In general, the marketing and sales department prefers to make bespoke sales, rather than sales of the standard windows. They believe that bespoke windows provide exactly what the customer wants and this distinguishes QTP from its competitors who are more focused on selling standard windows. Unlike these competitors, the marketing and sales department at QTP contains staff who are experienced in window design and applications and customers value this. There is evidence that some important customers purchase their standard windows from QTP even though they could buy similar windows cheaper elsewhere, because they value QTP’s flexibility in supplying them with bespoke windows. The marketing and sales director claims that, ‘we have sales people who really understand windows and what customers want and need. We are not trying to sell them windows off-the-shelf, just because we have them in inventory.’<br>Furthermore marketing and sales staff claim that bespoke windows deliver higher revenue and higher profit to QTP than standard windows. However, this is challenged by the production manager who would prefer production to be focused on standard windows. Sales staff are currently rewarded on the basis of average revenue per window. At present, approximately 30% of QTP’s sales volume is for bespoke windows, but this share is increasing annually.<br>Table One shows selected data for the production of standard and bespoke windows.<br>Table One: Selected QTP data: standard window and bespoke window production<br>Note (1) Transport costs concern distribution costs of finished goods to customers. Costs of inbound components are borne by the supplier.<br>Note (2) Time taken to set up the machine for a single production run of windows to one specification.<br>Note (3) Time taken to set down the machine (resetting parameters, cleaning, etc) from a single production run of windows to one specification.<br>Note (4) Time of a single production run of windows to one specification.<br>Important: The machine is restricted to a nine-hour working day. Set up time and set down time must be within this nine-hour working day.<br>Management concerns<br>Senior management at QTP is exploring the possibility of moving the company to solely standard window production OR solely bespoke window production. They are also investigating issues in the five departments which are aligned to the activities of the value chain. They previously employed a business analyst who provided them with an analysis of the service department at QTP, documented in Appendix 1. Management has engaged you as her successor and they now require similar analyses for the remaining four departments.<br>Appendix 1: Analysis of service department in the value chain<br>Required:<br>QTP management would like you to prepare a briefing paper which:<br>(a) Analyses the current issues in the remaining four departments under consideration (inbound logistics and procurement, production, outbound logistics, marketing and sales), with appropriate reference to each department’s role in the value chain. Appendix 1 Figure One is representative of the approach required. (20 marks)<br>(b) Evaluates the financial case for EITHER producing and selling standard windows only OR producing and selling bespoke windows only. The evaluation should include both options and could include any comments you have on the limitation of the data given in Table One. However, you should assume that the data given in this table accurately reflects the current situation. (12 marks)<br>(c) Analyses how the company could restructure elements of each of the remaining four departments (and hence the value chain) in the future for EITHER a switch to only standard windows production OR a switch to only bespoke windows production. Appendix 1 Figure Two is representative of the approach required and it clearly shows that you should include BOTH options in your analysis. (14 marks)<br>Professional marks will be awarded in question 1 for the structure, tone, coherence and clarity of your briefing paper. (4 marks)
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Section B – TWO questions ONLY to be attempted<br>For 11 years, Marco was a senior salesman at AQT, a company specialising in IT certification courses. During that time, AQT became the most successful and dominant training provider in the market.<br>Marco has now left AQT and established his own training company, iTTrain, aimed at the same IT certification market as his former employers. He wishes to offer premium quality courses in a high quality environment with high quality teaching. He has selected a number of self-employed lecturers and he has agreed a daily lecturing fee of $450 per day with them. He has also selected the prestigious CityCentre training centre as his course venue. It has a number of training rooms which hold up to nine delegates. Each training room costs $250 per day to hire. There is also a $10 per day per delegate charge for lunch and other refreshments. Although not a lecturer, Marco is an IT expert and he has already produced the relevant documentation for the courses iTTrain will run. He sees this as a sunk cost and is not concerned about recovering it. However, printing costs mean that there is also a $20 cost for the course manual which is given to every course delegate.<br>Marco has scheduled 40 courses next year, as he is limited by the availability of lecturers. Each course will have a maximum of nine delegates (determined by the room size) and a minimum of three delegates. Each course is three days long.<br>iTTrain has been set up with $70,000 of Marco’s own money. He currently estimates that fixed annual costs will be $65,000 (which includes his own salary) and he would like the company to return a modest profit in its first year of operation as it establishes itself in the market.<br>Marco is currently considering the price he wishes to charge for his courses. AQT charges $900 per delegate for a three-day course, but he knows that it discounts this by up to 10% and a similar discount is also offered to training brokers or intermediaries who advertise AQT courses on their own websites. Some of these intermediaries have already been in touch with Marco to ask if he would be prepared to offer them similar discounts in return for iTTrain courses being advertised on their websites. There are also a number of cheaper training providers who offer the same courses for as little as $550 per delegate. However, these tend to focus on self-financing candidates for whom price is an issue. These courses are often given in poor quality training premises by poorly motivated lecturers. Marco is not really interested in this market. He wants to target the corporate business market, where quality is as important as price and the course fee is paid by the delegate’s employer. He is currently considering a price of $750 per delegate.<br>During his employment at AQT, Marco collected statistics about courses and delegates. Figure 1 shows the data he collected showing the attendance pattern over 1,000 courses.<br>Figure 1: Analysis of attendance at 1,000 AQT courses<br>Required:<br>(a) Suggest a pricing strategy for iTTrain, including an evaluation of the initial price of $750 per delegate suggested by Marco. Your strategy should include both financial and non-financial considerations. (16 marks)<br>(b) Physical evidence, people and process are three important elements of the marketing mix for services.<br>Analyse the contribution each of these three elements could make to the success of iTTrain’s entry into the IT certification market. (9 marks)
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Introduction<br>The following is an interview with Mick Kazinski, a senior marketing executive with Bridge Co, a Deeland-based construction company. It concerns their purchase of Custcare, a Customer Relationship Management (CRM) software package written by the Custcare Corporation, a software company based in Solland, a country some 4,000 km away from Deeland. The interview was originally published in the Management Experiences magazine.<br>Interviewer: Thanks for talking to us today Mick. Can you tell us how Bridge Co came to choose the Custcare software package？<br>Mick: Well, we didn’t choose it really. Teri Porter had just joined the company as sales and marketing director. She had recently implemented the Custcare package at her previous company and she was very enthusiastic about it. When she found out that we did not have a CRM package at Bridge Co, she suggested that we should also buy the Custcare package as she felt that our requirements were very similar to those of her previous company. We told her that any purchase would have to go through our capex (capital expenditure) system as the package cost over $20,000. Here at Bridge Co, all capex applications have to be accompanied by a formal business case and an Invitation to Tender (ITT) has to be sent out to at least three potential suppliers. However, Teri is a very clever lady. She managed to do a deal with Custcare and they agreed to supply the package at a cost of $19,995, just under the capex threshold. Teri had to cut a few things out. For example, we declined the training courses (Teri said the package was an easy one to use and she would show us how to use it) and also we opted for the lowest level of support, something we later came to regret. Overall, we were happy. We knew that Custcare was a popular and successful CRM package.<br>Interviewer: So, did you have a demonstration of the software before you bought it？<br>Mick: Oh yes, and everyone was very impressed. It seemed to do all the things we would ever want it to do and, in fact, it gave us some ideas about possibilities that we would never have thought of. Also, by then, it was clear that our internal IT department could not provide us with a bespoke solution. Teri had spoken to them informally and she was told that they could not even look at our requirements for 18 months. In contrast, we could be up and running with the Custcare package within three months. Also, IT quoted an internal transfer cost of $18,000 for just defining our requirements. This was almost as much as we were paying for the whole software solution!<br>Interviewer: When did things begin to go wrong？<br>Mick: Well, the implementation was not straightforward. We needed to migrate some data from our current established systems and we had no-one who could do it. We tried to recruit some local technical experts, but Custcare pointed out that we had signed their standard contract which only permitted Custcare consultants to work on such tasks. We had not realised this, as nobody had read the contract carefully. In the end, we had to give in and it cost us $10,000 in fees to migrate the data from some of our internal systems to the new package. Teri managed to get the money out of the operational budget, but we weren’t happy.<br>We then tried to share data between the Custcare software and our existing order processing system. We thought this would be easy, but apparently the file formats are incompatible. Thus we have to enter customer information into two systems and we are unable to exploit the customer order analysis facility of the Custcare CRM.<br>Finally, although we were happy with the functionality and reliability of the Custcare software, it works very slowly. This is really very disappointing. Some reports and queries have to be aborted because the software appears to have hung. The software worked very quickly in the demonstration, but it is painfully slow now that it is installed on our IT platform.<br>Interviewer: What is the current situation？<br>Mick: Well, we are all a bit deflated and disappointed in the package. The software seems reasonable enough, but its poor performance and our inability to interface it to the order processing system have reduced users’ confidence in the system. Because users have not been adequately trained, we have had to phone Custcare’s support desk more than we should. However, as I said before, we took the cheapest option. This is for a help line to be available from 8.00 hrs to 17.00 hrs Solland time. As you know, Solland is in a completely different time zone and so we have had to stay behind at work and contact them in the late evening. Again, nobody had closely read the terms of the contract. We have taken legal advice, but we have also found that, for dispute resolution, the contract uses the commercial contract laws of Solland. Nobody in Bridge Co knows what these are! Our solicitor said that we should have asked for this specification to be changed when the contract was drawn up. I just wish we had chosen a product produced by a company here in Deeland. It would have made it much easier to resolve issues and disputes.<br>Interviewer: What does Teri think？<br>Mick: Not a lot! She has left us to rejoin her old company in a more senior position. The board did ask her to justify her purchase of the Custcare CRM package, but I don’t think she ever did. I am not sure that she could!<br>Required:<br>(a) Suggest a process for evaluating, selecting and implementing a software package solution and explain how this process would have prevented the problems experienced at Bridge Co in the Custcare CRM application. (15 marks)<br>(b) The CEO of Bridge Co now questions whether buying a software package was the wrong approach to meeting the CRM requirements at Bridge Co. He wonders whether they should have commissioned a bespoke software system instead.<br>Explain, with reference to the CRM project at Bridge Co, the advantages of adopting a software package approach to fulfilling business system requirements compared with a bespoke software solution. (10 marks)
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The Institute of Independent Analysts (IIA), an examining body, is considering replacing its conventional assessment process with computer-based assessment which produces instant results to the candidate. A business case has been developed for the computer-based assessment project. Figure 1, extracted from the business case, shows the financial appraisal of the project. It uses a discount rate of 8%. The NPV of the project is $10,925.<br>Figure 1: Financial cost/benefit of the computer-based assessment project<br>An explanation of the costs and benefits is given below.<br>Initial software – refers to the cost of buying the computer-based assessment software package from the vendor. The software actually costs $375,000, but a further $25,000 has been added to reflect bespoke changes which the IIA requires. These changes are not yet agreed, or defined in detail. Indeed, there have been some problems in actually specifying these requirements and understanding how they will affect the administrative processes of the IIA.<br>Software maintenance – This will be priced at 10% of the final cost of the delivered software. This is currently estimated at $400,000; hence a cost of $40,000 per annum.<br>Question bank – refers to the cost of developing a question bank for the project. This is a set of questions which the software package stores and selects from when producing an examination for an individual candidate. Questions will be set by external consultants at $50 for each question they successfully deliver to the question bank. It is expected that further questions will need to be added (and current ones amended) in subsequent years.<br>Security – refers to security provided at computer-based assessment centres. This price has already been agreed with an established security firm who have guaranteed it for the duration of the project.<br>Disruption – refers to an expected temporary decline in IIA examinations staff productivity and staff morale during the implementation of the computer-based assessment solution.<br>Marker fees – manual marking is undertaken in the current conventional assessment process. There will no longer be any requirement for markers to undertake this manual marking. All examinations will be automatically marked.<br>Admin saving – concerns reduction in examinations staff at IIA headquarters. The actual savings will partly depend on the detailed requirements currently being discussed with the software package provider. It is still unclear how this will affect the administrative process.<br>Extra income – the IIA expects candidates to be attracted by the convenience of computer-based assessment. Other competing institutions do not offer this service. The extra income is the IIA’s best guess at the amount of income which will result from this new assessment initiative.<br>The IIA is also putting in place a benefits management process for all projects. The IIA director is concerned that project managers are just moving on to other projects and not taking responsibility for the benefits initially established in the business case.<br>Required:<br>(a) Critically evaluate the financial case (cost/benefit) of the computer-based assessment project. (15 marks)<br>(b) Benefit owners, benefits maps and benefits realisation are important concepts in benefits management process.<br>Explain each of these concepts and their potential application to the computer-based assessment project. (10 marks)
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World Engines (WE) is one of the largest producers of aircraft and ship engines in the world. It has assets in excess of $600bn. It is currently considering improvements to its marine engine production facilities. These improvements include the introduction of specialist hardware and software engine testing technology. Two companies have been shortlisted for supplying this technology.<br>Amethyst is a well-established company whose product provides sophisticated testing facilities and costs $7m. The software that supports the product is written in a conventional programming language. The solution is widely used, but it is relatively inflexible and it has an out-of-date user interface. Amethyst has been trading profitably for 20 years and currently has an annual turnover of $960m.<br>Topaz is a relatively new company (formed three years ago) whose product is more expensive ($8m) but it offers significant advantages in high volume performance and stress testing. It has a modular software design that allows it to be easily maintained and upgraded. It is written in a relatively new powerful programming language and it also has an attractive and contemporary user interface. Topaz currently has a turnover of $24m per year. Some WE executives are concerned about purchasing from such a young, relatively small company, although externally commissioned credit reports show that Topaz is a profitable, liquid and lightly geared company.<br>On a recent evaluation visit to Amethyst, WE’s complete evaluation team of five people, including the financial specialist, were killed when their aircraft crashed on its approach to landing. It was a small, 12 seat commuter aircraft that was flying the WE team on a short 100 km flight from the international airport to a small rural airport close to Amethyst’s base. It later emerged that small commuter airlines and aircraft were subject to less stringent safety procedures than larger aircraft used by established airlines.<br>Later that year, one of the divisional directors of WE was given responsibility for picking up and running the testing technology evaluation project. He has found the following table (Figure 1) produced by the financial specialist in the evaluation team who was killed in the air crash. The divisional director recalls that these returns were based on ‘tangible benefits resulting from the two options. The returns reflect the characteristics of the two products. Topaz produces better returns if demand for testing is high, but is less effective in low demand circumstances. This is a reflection of the fact that the two solutions differ slightly in terms of their functional scope and power’.<br>The divisional director also recalls a workshop convened to consider future market demand.<br>‘Demand in the marine industry is currently affected by global economic uncertainty and it is increasingly difficult to predict demand. I remember that we were also asked to estimate demand for our marine products for the next six years. We eventually came up with the following figures, although it was relatively hard to get everyone to agree and debate at the workshop became a little heated’.<br>– High demand for six years: probability p = 0·4<br>– Low demand for six years: probability p = 0·4<br>– High demand for three years, followed by low demand for three years: probability p = 0·2<br>These figures are confirmed by a document also recovered from the air crash site. ‘As I recall’, said the divisional director, ‘the financial specialist intended to develop a decision tree to help us evaluate the Amethyst and Topaz alternatives. However, there is no evidence that he ever constructed it, which is a pity because we could have taken the procurement decision on the basis of that decision tree’.<br>Required:<br>(a) Develop a decision tree from the information given in the scenario and discuss its implications and shortcomings. Ignore the time value of money in your analysis. (9 marks)<br>(b) The divisional director suggests that the procurement decision could have been taken on the evidence of the decision tree. Discuss what other factors (not considered by the decision tree analysis) should also be taken into consideration when deciding which option to select. (6 marks)<br>(c) WE executives are concerned about the risk of Topaz, as a relatively new company, going out of business. They have also expressed concern about the loss of the evaluation team in a fatal accident and they believe that this should lead to a review of the risks associated with employee travel.<br>Discuss how EACH of the above risks (supplier business failure and employee travel) might be avoided or mitigated. (10 marks)
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Emile Gonzalez is an industrial chemist who worked for the government of Pablos for more than 20 years. In his spare time, he continually experimented with formulating a product that could remove graffiti from all surfaces. Graffiti is a particular problem in Pablos and all previous removal methods were expensive, dangerous to apply and did not work on all surfaces. After many years of experimentation, Emile formulated a product that addressed all these issues. His product can be applied safely without protective clothing, it removes graffiti from all surfaces and it can be produced economically in small, as well as large, volumes.<br>Three years ago, Emile left his government job to focus on refining the product and bringing it to market. He formed a limited liability company, Graffoff, with initial share capital funded by his savings, his family’s savings and a legacy from a wealthy relative. He is the sole shareholder in the company, which is based in a factory in central Pablos. The company has filed two years of results (see Figure 1 for extracted information from year (2), and it is expected to return similar net profit figures in its third trading year. Emile takes a significant dividend out of the company each year and he wishes that to continue. He also wishes to remain the sole owner of the company.<br>Four years ago, Emile was granted a patent for the formula on which his product is based and a further patent on the process used to produce the product. In Pablos, patents are protected for ten years and so Emile has six further years before his formula becomes available to his competitors. Consequently, he wants to rapidly expand the company and plans to lease premises to create 30 new graffiti removal depots in Pablos, each of which will supply graffiti removing services in its local region. He needs $500,000 to finance this organic growth of his company.<br>Emile does have mixed feelings about his proposed expansion plan. Despite the apparent success of his company, he prefers working in the laboratory to managing people. ‘I am just not a people person’, he has commented. He is aware that he lacks business experience and, despite the technical excellence of the product, he has failed to build a highly visible brand. He also has particular problems in the accounts receivables department, where he has failed to address the problems of over-worked and demotivated employees. Emile dislikes conflict with customers and so he often offers them extended payment terms to the dismay of the accounts receivables section, who feel that their debt collecting effectiveness is being constantly undermined by his concessions. In contrast, Graffoff pays bills very promptly, due to a zealous administrator in accounts payable who likes to reduce creditors. Emile is sanguine about this. ‘I guess we have the money, so I suppose we should pay them.’<br>In Pablos, all goods are supplied to customers on 30 days credit. However, in the services sector that Graffoff is trading in, the average settlement period for payables (creditors) is 40 days. One supplier commented that ‘Graffoff is unique in its punctuality of payment.’<br>Emile is currently reviewing how to finance his proposed organic growth. He is unwilling to take on any further external debt and consequently he has also recently considered franchising as an alternative to organic growth. In his proposed arrangement, franchisees would have responsibility for leasing or buying premises to a specification defined in the franchise agreement. The franchise would have exclusive rights to the Graffoff product in a defined geographical region.<br>The Equipment Emporium has 57 superstores throughout the country selling tools and machines such as air compressors, generators and ventilation systems. It is a well-recognised brand with a strong marketing presence. It focuses on selling specialist products in bright, well-lit superstores. It has approached Graffoff to ask whether it can sell the Graffoff product through its superstores. Emile has rejected this suggestion because he feels that his product requires proper training if it is to be used efficiently and safely. He sees Graffoff as offering a complete service (graffiti removal), not just a product (graffiti removal equipment) and so selling through The Equipment Emporium would be inappropriate.<br>Figure 1: Extracted financial data for Graffoff’s second year of trading, reported at 31 December 2011<br>Required:<br>(a) Evaluate the franchising option being considered by Graffoff, highlighting the advantages and disadvantages of this approach from Emile’s perspective. (10 marks)<br>(b) Johnson, Scholes and Whittington have identified franchising as a form. of strategic alliance. Evaluate how other forms of strategic alliance might be appropriate approaches to strategy development at Graffoff. (7 marks)<br>(c) A consultant has suggested that Graffoff should be able to completely fund its proposed organic expansion (at a cost of $500,000) through internally generated sources of finance.<br>Evaluate this claim. (8 marks)
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Section B – TWO questions ONLY to be attempted<br>Moor Farm is a large estate in the rural district of Cornaille. The estate covers a large area of forest, upland and farmland. It also includes two villages, and although many of the properties in these villages have been sold off to private homeowners, the estate still owns properties which it rents out. The estate also has a large mansion house set inside a landscape garden designed in the 19th century by James Kent. The garden, although now overgrown and neglected, is the only surviving example of his work in the district. The estate was left as a gift to a charitable trust ten years ago. The trust is based at the estate. A condition of the gift to the trust was that the upland and forest should be freely accessible to visitors.<br>The estate has a manager, four full-time staff and 45 volunteers. These volunteers undertake most of the work on the estate, including the continuing excavation of Kent’s original garden design. They are happy, well-motivated and fully support the current manager who is due to retire in the very near future. Three of the volunteers have become acknowledged experts on land management, through their work on the estate. Government grants for initiatives such as tree planting, protected pasture land and rural employment have been received by the estate in the past. However, a recent change in government means that this funding is unlikely to continue. This will also affect funding for the maintenance of the mansion. It was built almost 80 years ago when the climate of the area was much colder and drier. Recent warm wet winters have caused the fabric of the building to decay and increased the cost of maintaining it.<br>The estate has appointed a new manager who is due to take over the estate when the current manager retires. She is working alongside the current manager so that she understands her responsibilities and how the estate works. As a one-off project, she has commissioned a stakeholder survey which has requested information on the visitor experience to help with a planned re-design of the estate’s website. The website is generally thought to be well structured and presented, but it receives fewer visitors than might reasonably be expected. It provides mainly static information about the estate and forthcoming events but currently users cannot interact with the site in anyway.<br>Here are some extracts from the survey:<br>‘I live in one of the villages and I am angry about visitors crowding around the village attractions – the tearooms, the craft shops, the souvenir stalls. We feel that we are prisoners in our own village and the traffic is terrible.’ Homeowner, from a village on the estate<br>‘We had a good day, but the weather was awful. If we had known it was going to rain all day, then we probably would have postponed the visit until a fine day. It spoilt a family day out.’ Visitor with small family<br>‘We were very disappointed, on arrival, to find that the family fun day was fully booked.’ Visitor who had travelled 100 kms with two small children to visit a special event<br>We all love it here, but we didn’t know you had a website!! We almost had to type in the complete website address before we found it! I am sure more people would come if they could only find the website!’ Visitor aged mid-20s<br>‘As usual, we had a great time here and took great photos. It would have been nice to be able to share our pleasure with other people. We would recommend it to anyone who loves the outdoors.’ Visitor – family with teenage children<br>‘We met the volunteers who were excavating the buildings in the landscape garden. They were so helpful and knowledgeable. They turned something that looked like a series of small walls into something so much more tangible.’ Visitor – elderly couple<br>‘I was disappointed that I was not allowed into the farmland with my dog. As a human being, I have the right to roam. It is a basic human right.’ Visitor – elderly female dog-walker<br>‘We are regular visitors and we really want to know what is going on! There are many of us who would like to really be involved with the estate and help it thrive. We need more than just occasional questionnaires.’ Visitor – hiking group<br>‘We came out for a nice walk and ended up dodging cyclists. Next time we will go somewhere where they are not welcome.’ Visitor – hiking group<br>‘As a farmer, I am appalled with the reckless attitude of some dog walkers. Last week, I lost two sheep, ravaged by dogs that should not have been off their leads.’ Farmer – estate tenant<br>‘I’m a volunteer and I love it here. We are a happy, social group of people. I hope the new manager is not going to change things.’ Volunteer<br>Required:<br>(a) Evaluate the strategic position of the estate with specific reference to the expectations of stakeholders, to the external environmental factors beyond the control of the estate and to the strategic capabilities of the estate itself. (15 marks)<br>(b) Discuss how the website could be further developed to address some of the issues highlighted in the survey. (10 marks)
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Section B – TWO questions ONLY to be attempted<br>Introduction<br>Flexipipe is a successful company supplying flexible pipes to a wide range of industries. Its success is based on a very innovative production process which allows the company to produce relatively small batches of flexible pipes at very competitive prices. This has given Flexipipe a significant competitive edge over most of its competitors whose batch set-up costs are higher and whose lead times are longer. Flexipipe’s innovative process is partly automated and partly reliant on experienced managers and supervisors on the factory floor. These managers efficiently schedule jobs from different customers to achieve economies of scale and throughput times that profitably deliver high quality products and service to Flexipipe’s customers.<br>A year ago, the Chief Executive Officer (CEO) at Flexipipe decided that he wanted to extend the automated part of the production process by purchasing a software package that promised even further benefits, including the automation of some of the decision-making tasks currently undertaken by the factory managers and supervisors. He had seen this package at a software exhibition and was so impressed that he placed an order immediately. He stated that the package was ‘ahead of its time, and I have seen nothing else like it on the market’.<br>This was the first time that the company had bought a software package for something that was not to be used in a standard application, such as payroll or accounts. Most other software applications in the company, such as the automated part of the current production process, have been developed in-house by a small programming team. The CEO felt that there was, on this occasion, insufficient time and money to develop a bespoke in-house solution. He accepted that there was no formal process for software package procurement ‘but perhaps we can put one in place as this project progresses’.<br>This relaxed approach to procurement is not unusual at Flexipipe, where many of the purchasing decisions are taken unilaterally by senior managers. There is a small procurement section with two full-time administrators, but they only become involved once purchasing decisions have been made. It is felt that they are not technically proficient enough to get involved earlier in the purchasing lifecycle and, in any case, they are already very busy with purchase order administration and accounts payable. This approach to procurement has caused problems in the past. For example, the company had problems when a key supplier of raw materials unexpectedly went out of business. This caused short-term production problems, although the CEO has now found an acceptable alternative supplier.<br>The automation project<br>On returning to the company from the exhibition, the CEO commissioned a business analyst to investigate the current production process system so that the transition from the current system to the new software package solution could be properly planned. The business analyst found that some of the decisions made in the current production process were difficult to define and it was often hard for managers to explain how they had taken effective action. They tended to use their experience, memory and judgement and were still innovating in their control of the process. One commented that ‘what we do today, we might not do tomorrow; requirements are constantly evolving’.<br>When the software package was delivered there were immediate difficulties in technically migrating some of the data from the current automated part of the production process software to the software package solution. However, after some difficulties, it was possible to hold trials with experienced users. The CEO was confident that these users did not need training and would be ‘able to learn the software as they went along’. However, in reality, they found the software very difficult to use and they reported that certain key functions were missing. One of the supervisors commented that ‘the monitoring process variance facility is missing completely. Yet we had this in the old automated system’. Despite these reservations, the software package solution was implemented, but results were disappointing. Overall, it was impossible to replicate the success of the old production process and early results showed that costs had increased and lead times had become longer.<br>After struggling with the system for a few months, support from the software supplier began to become erratic. Eventually, the supplier notified Flexipipe that it had gone into administration and that it was withdrawing support for its product. Fortunately, Flexipipe were able to revert to the original production process software, but the ill-fated package selection exercise had cost it over $3m in costs and lost profits. The CEO commissioned a post-project review which showed that the supplier, prior to the purchase of the software package, had been very highly geared and had very poor liquidity. Also, contrary to the statement of the CEO, the post-project review team reported that there were at least three other packages currently available in the market that could have potentially fulfilled the requirements of the company. The CEO now accepts that using a software package to automate the production process was an inappropriate approach and that a bespoke in-house solution should have been commissioned.<br>Required:<br>(a) Critically evaluate the decision made by the CEO to use a software package approach to automating the production process at Flexipipe, and explain why this approach was unlikely to succeed. (12 marks)<br>(b) The CEO recommends that the company now adopts a formal process for procuring, evaluating and implementing software packages which they can use in the future when a software package approach appears to be more appropriate.<br>Analyse how a formal process for software package procurement, evaluation and implementation would have addressed the problems experienced at Flexipipe in the production process project. (13 marks)
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Introduction<br>The country of Mahem is in a long and deep economic recession with unemployment at its highest since the country became an independent nation. In an attempt to stimulate the economy the government has launched a Private/Public investment policy where the government invests in capital projects with the aim of stimulating the involvement of private sector firms. The building of a new community centre in the industrial city of Tillo is an example of such an initiative. Community centres are central to the culture of Mahem. They are designed as places where people can meet socially, local organisations can hold conferences and meetings and farmers can sell their produce to the local community. The centres are seen as contributing to a vibrant community life. The community centre in Tillo is in a sprawling old building rented (at $12,000 per month) from a local landowner. The current community centre is also relatively energy inefficient.<br>In 2010 a business case was put forward to build a new centre on local authority owned land on the outskirts of Tillo. The costs and benefits of the business case are shown in Figure 1. As required by the Private/Public investment policy the project showed payback during year four of the investment.<br>Figure 1: Costs and benefits of the business case for the community centre at Tillo<br>New buildings built under the Private/Public investment policy must attain energy level targets and this is the basis for the estimation, above, of the energy savings. It is expected that the new centre will attract more customers who will pay for the centre’s use as well as increasing the use of facilities such as the cafeteria, shop and business centre. These benefits are estimated, above, under increased income. Finally, it is felt that staff will be happier in the new building and their motivation and morale will increase. The centre currently employs 20 staff, 16 of whom have been with the centre for more than five years. All employees were transferred from the old to the new centre. These benefits are shown as better staff morale in Figure 1.<br>Construction of the centre 2010–2011<br>In October 2010 the centre was commissioned with a planned delivery date of June 2011 at a cost of $600,000 (as per Figure 1). Building the centre went relatively smoothly. Progress was monitored and issues resolved in monthly meetings between the company constructing the centre and representatives of the local authority. These meetings focused on the building of the centre, monitoring progress and resolving issues. Most of these issues were relatively minor because requirements were well specified in standard architectural drawings originally agreed between the project sponsor and the company constructing the centre. Unfortunately, the original project sponsor (an employee of the local authority) who had been heavily involved in the initial design, suffered ill health and died in April 2011. The new project sponsor (again an employee of the local authority) was less enthusiastic about the project and began to raise a number of objections. Her first concern was that the construction company had used sub-contracted labour and had sourced less than 80% of timber used in the building from sustainable resources. She pointed out the contractual terms of supply for the Private/Public policy investment initiatives mandated that sub-contracting was not allowed without the local authority’s permission and that at least 80% of the timber used must come from sustainable forests. The company said that this had not been brought to their attention at the start of the project. However, they would try to comply with these requirements for the rest of the contract. The new sponsor also refused to sign off acceptance of the centre because of the poor quality of the internal paintwork. The construction company explained that this was the intended finish quality of the centre and had been agreed with the previous sponsor. They produced a letter to verify this. However, the letter was not counter-signed by the sponsor and so its validity was questioned. In the end, the construction company agreed to improve the internal painting at their own cost. The new sponsor felt that she had delivered ‘value for money’ by challenging the construction company. Despite this problem with the internal painting, the centre was finished in May 2011 at a cost of $600,000. The centre also included disability access built at the initiative of the construction company. It had found it difficult to find local authority staff willing and able to discuss disability access and so it was therefore left alone to interpret relevant legal requirements. Fortunately, their interpretation was correct and the new centre was deemed, by an independent assessor, to meet accessibility requirements.<br>Unfortunately, the new centre was not as successful as had been predicted, with income in the first year well below expectations. The project sponsor began to be increasingly critical of the builders of the centre and questioned the whole value of the project. She was openly sceptical of the project to her fellow local authority employees. She suggested that the project to build a cost-effective centre had failed and called for an inquiry into the performance of the project manager of the construction company who was responsible for building the centre. ‘We need him to explain to us why the centre is not delivering the benefits we expected’, she explained.<br>Required:<br>(a) The local authority has commissioned the independent Project Audit Agency (PAA) to look into how the project had been commissioned and managed. The PAA believes that a formal ‘terms of reference’ or ‘project initiation document’ would have resolved or clarified some of the problems and issues encountered in the project. It also feels that there are important lessons to be learnt by both the local authority and the construction company.<br>Analyse how a formal ‘terms of reference’ (project initiation document) would have helped address problems encountered in the project to construct the community centre and lead to improved project management in future projects. (13 marks)<br>(b) The PAA also believes that the four sets of benefits identified in the original business case (rental savings, energy savings, increased income and better staff morale) should have been justified more explicitly.<br>Draft an analysis for the PAA that formally categorises and critically evaluates each of the four sets of proposed benefits defined in the original business case. (12 marks)
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