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This scenario summarises the development of a company called Rock Bottom through three phases, from its founding in 1965 to 2008 when it ceased trading.<br>Phase 1 (1965–1988)<br>In 1965 customers usually purchased branded electrical goods, largely produced by well-established domestic companies, from general stores that stocked a wide range of household products. However, in that year, a recent university graduate, Rick Hein, established his first shop specialising solely in the sale of electrical goods. In contrast to the general stores, Rick Hein’s shop predominantly sold imported Japanese products which were smaller, more reliable and more sophisticated than the products of domestic competitors. Rick Hein quickly established a chain of shops, staffed by young people who understood the capabilities of the products they were selling. He backed this up with national advertising in the press, an innovation at the time for such a specialist shop. He branded his shops as ‘Rock Bottom’, a name which specifically referred to his cheap prices, but also alluded to the growing importance of<br>rock music and its influence on product sales. In 1969, 80% of sales were of music centres, turntables, amplifiers and speakers, bought by the newly affluent young. Rock Bottom began increasingly to specialise in selling audio equipment.<br>Hein also developed a high public profile. He dressed unconventionally and performed a number of outrageous stunts that publicised his company. He also encouraged the managers of his stores to be equally outrageous. He rewarded their individuality with high salaries, generous bonus schemes and autonomy. Many of the shops were extremely successful, making their managers (and some of their staff) relatively wealthy people.<br>However, by 1980 the profitability of the Rock Bottom shops began to decline significantly. Direct competitors using a similar approach had emerged, including specialist sections in the large general stores that had initially failed to react to the challenge of Rock Bottom. The buying public now expected its electrical products to be cheap and reliable.<br>Hein himself became less flamboyant and toned down his appearance and actions to satisfy the banks who were becoming an increasingly important source of the finance required to expand and support his chain of shops.<br>Phase 2 (1989–2002)<br>In 1988 Hein considered changing the Rock Bottom shops into a franchise, inviting managers to buy their own shops (which at this time were still profitable) and pursuing expansion though opening new shops with franchisees from outside the company. However, instead, he floated the company on the country’s stock exchange. He used some of the capital raised to expand the business. However, he also sold shares to help him throw the ‘party of a lifetime’ and to purchase expensive goods and gifts for his family. Hein became Chairman and Chief Executive Officer (CEO) of the newly quoted company, but over the next thirteen years his relationship with his board and shareholders became increasingly difficult. Gradually new financial controls and reporting systems were put in place. Most of the established managers left as controls became more centralised and formal. The company’s performance was solid but unspectacular. Hein complained that ‘business was not fun any more’. The company was legally required to publish directors’ salaries in its annual report and the generous salary package enjoyed by the Chairman and CEO increasingly became an issue and it dominated the 2002 Annual General Meeting (AGM). Hein was embarrassed by its publication and the discussion it led to in the national media. He felt that it was an infringement of his privacy and<br>civil liberties.<br>Phase 3 (2003–2008)<br>In 2003 Hein found the substantial private equity investment necessary to take Rock Bottom private again. He also used all of his personal fortune to help re-acquire the company from the shareholders. He celebrated ‘freeing Rock Bottom from its shackles’ by throwing a large celebration party. Celebrities were flown in from all over the world to attend. However, most of the new generation of store managers found Hein’s style. to be too loose and unfocused. He became rude and angry about their lack of entrepreneurial spirit. Furthermore, changes in products and how they were purchased meant that fewer people bought conventional audio products from specialist shops. The reliability of these products now meant that they were replaced relatively infrequently. Hein, belatedly, started to consider selling via an Internet site. Turnover and profitability plummeted. In 2007 Hein again considered franchising the company,but he realised that this was unlikely to be successful. In early 2008 the company ceased trading and Hein himself,now increasingly vilified and attacked by the press, filed for personal bankruptcy.<br>Required:<br>(a) Analyse the reasons for Rock Bottom’s success or failure in each of the three phases identified in the<br>scenario. Evaluate how Rick Hein’s leadership style. contributed to the success or failure of each phase.<br>(18 marks)<br>(b) Rick Hein considered franchising the Rock Bottom brand at two points in its history – 1988 and 2007.<br>Explain the key factors that would have made franchising Rock Bottom feasible in 1988, but would have<br>made it ‘unlikely to be successful’ in 2007. (7 marks)
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The following information should be used when answering question 1.<br>1 Introduction<br>The island of Oceania attracts thousands of tourists every year. They come to enjoy the beaches, the climate and to<br>explore the architecture and history of this ancient island. Oceania is also an important trading nation in the region<br>and it enjoys close economic links with neighbouring countries. Oceania has four main airports and until 1997 had<br>two airlines, one based in the west (OceaniaAir) and one based in the east (Transport Oceania) of the island. However,<br>in 1997 these two airlines merged into one airline – Oceania National Airlines (ONA) with the intention of exploiting<br>the booming growth in business and leisure travel to and from Oceania.<br>Market sectors<br>ONA serves two main sectors. The first sector is a network of routes to the major cities of neighbouring countries.<br>ONA management refer to this as the regional sector. The average flight time in this sector is one and a half hours<br>and most flights are timed to allow business people to arrive in time to attend a meeting and then to return to their<br>homes in the evening. Twenty five major cities are served in the regional sector with, on average, three return flights<br>per day. There is also significant leisure travel, with many families visiting relatives in the region. The second sector<br>is what ONA management refer to as the international sector. This is a network of flights to continental capitals. The<br>average flight time in this sector is four hours. These flights attract both business and leisure travellers. The leisure<br>travellers are primarily holiday-makers from the continent. Twenty cities are served in this sector with, on average, one<br>return flight per day to each city.<br>Image, service and employment<br>ONA is the airline of choice for most of the citizens of Oceania. A recent survey suggested that 90% of people preferred<br>to travel ONA for regional flights and 70% preferred to travel with ONA for international flights. 85% of the<br>respondents were proud of their airline and felt that it projected a positive image of Oceania. The company also has<br>an excellent safety record, with no fatal accident recorded since the merging of the airlines in 1997. The customer<br>service of ONA has also been recognised by the airline industry itself. In 2005 it was voted Regional Airline of the<br>Year by the International Passenger Group (IPG) and one year later the IPG awarded the ONA catering department<br>the prestigious Golden Bowl as provider of the best airline food in the world. The courtesy and motivation of its<br>employees (mainly Oceanic residents) is recognised throughout the region. 95% of ONA employees belong to<br>recognised trade unions. ONA is perceived as an excellent employer. It pays above industry average salaries, offers<br>excellent benefits (such as free health care) and has a generous non-contributory pension scheme. In 2004 ONA<br>employed 5400 people, rising to 5600 in 2005 and 5800 in 2006.<br>Fleet<br>Fleet details are given in Table 1. Nineteen of the Boeing 737s were originally in the fleet of OceaniaAir. Boeing 737s<br>are primarily used in the international sector. Twenty-three of the Airbus A320s were originally part of the Transport<br>Oceania fleet. Airbuses are primarily used in the regional sector. ONA also used three Embraer RJ145 jets in the<br>regional sector.<br>Performance<br>Since 2004 ONA has begun to experience significant competition from ‘no frills’ low-cost budget airlines, particularly<br>in the international sector. Established continental operators now each offer, on average, three low fares flights to<br>Oceania every day. ‘No frills’ low-cost budget airlines are also having some impact on the regional sector. A number<br>of very small airlines (some with only one aircraft) have been established in some regional capitals and a few of these<br>are offering low-cost flights to Oceania. A recent survey for ONA showed that its average international fare was double<br>that of its low-cost competitors. Some of the key operational statistics for 2006 are summarised in Table 2.<br>ONA have made a number of operational changes in the last few years. Their website, for example, now allows<br>passengers to book over the internet and to either have their tickets posted to them or to pick them up at the airport<br>prior to travelling. Special promotional fares are also available for customers who book on-line. However, the website<br>does not currently allow passengers to check-in on-line, a facility provided by some competitors. Furthermore, as<br>Table 2 shows, a large percentage of sales are still commission sales made through travel agents. Direct sales are<br>those sales made over the telephone or at the airport itself. Most leisure travellers pay standard or economy fares and<br>travel in the standard class section of the plane. Although many business travellers also travel in standard class, some<br>of them choose to travel business class for which they pay a price premium.<br>In the last three years, the financial performance of ONA has not matched its operational success. The main financial<br>indicators have been extracted and are presented in Table 3. In a period (2004–2006) when world-wide passenger<br>air travel revenue increased by 12% (and revenue from air travel to Oceania by 15%) and cargo revenue by 10%,<br>ONA only recorded a 4·6% increase in passenger revenue.<br>Future Strategy<br>The management team at ONA are keen to develop a strategy to address the airline’s financial and operational<br>weaknesses. One suggestion has been to re-position ONA itself as a ‘no frills’ low-cost budget airline. However, this<br>has been angrily dismissed by the CEO as likely to lead ‘to an unnecessary and bloody revolution that could cause<br>the death of the airline itself ’.<br>Required:<br>(a) Using the information provided in the scenario, evaluate the strengths and weaknesses of ONA and their<br>impact on its performance. Please note that opportunities and threats are NOT required in your evaluation.<br>(20 marks)
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1 Introduction and industry background<br>The current European market for Datum Paper Products (DPP) in 2005 is not encouraging. The company designs and<br>manufactures textile fabrics for use in the paper industry. Its main customers are large European and American paper<br>making companies and while the UK market is fairly stable, over 80% of DPP’s products are sold abroad. Its<br>customers use highly expensive capital equipment, with a new paper mill costing ￡300 million or more. The paper<br>makers supply paper to global newspaper and book publishers who themselves are under pressure to consolidate as<br>a result of the growing competition from alternative information providers, such as TV and the Internet. The industry,<br>therefore, carries many of the signs of a mature industry, the paper manufacturers have considerable overcapacity and<br>are supplying customers who themselves are facing intense competition. Paper makers are looking to reduce the<br>number of suppliers and for these suppliers to meet all their needs. The net result is heavy pressure on suppliers such<br>as DPP to discount prices and improve international service levels, although there is little potential to increase sales<br>volumes to achieve further economies of scale. DPP’s response to this more competitive environment has been to<br>attempt to secure higher volumes through increasing their market share and to search for cost reductions in spite of<br>the need to improve customer service levels.<br>DPP is one of a number of operating companies in the paper and ancillary products division of Park Group Industries<br>plc, a diversified company with other divisions in industrial materials, automotive products and speciality chemicals.<br>The paper and ancillary products division itself is split into the North American Region and the European Region.<br>There are some 30 companies in the division with plants in 13 countries. Within the paper and ancillary products<br>division there is recognition that in order to survive let alone make a profit some industry restructuring is necessary.<br>Currently, DPP has some four UK plants manufacturing different parts of their product range. Any consolidation,<br>including acquisition, is best done on a regional basis and Europe seems a logical place to start.<br>Strategic options – acquisition or a greenfield site？<br>Ken Drummond is Managing Director of DPP, and has spent a lifetime in the paper industry but has had little<br>experience in acquiring other companies. The pressures faced by the European industry mean that there are, in reality,<br>two strategic options to achieve the necessary restructuring. Firstly, there are opportunities to buy existing companies<br>available in most European countries. The identification of suitable target companies, the carrying out of due diligence<br>procedures before negotiating a deal and integration of the acquired company typically takes a year to complete. The<br>second option is to move to one of the countries that have entered the European Union in 2004 where operating costs<br>are significantly lower. There are significant government and European Union incentives for firms that move to a new<br>or greenfield site in one of the many economically depressed areas. The greenfield option would take up to three years<br>to get a plant set up and operating.<br>The acquisition option<br>Ken is able to draw on the expertise of corporate headquarters that has had some experience with growth by both<br>organic expansion and by acquisition. The initial search for possible acquisition candidates has revealed a French<br>family owned and managed firm, ‘Papier Presse’, based in the southwest of France, some 800 kilometres from DPP’s<br>main plant in the UK. Papier Presse has three manufacturing plants in France, each heavily unionised and controlled<br>by the owner Philippe Truffaud. Papier Presse’s markets are exclusively with European paper makers and it has no<br>significant international business outside of the EU. The technology used is more dated than DPP’s and manning<br>levels are significantly higher. Papier Presse’s product range has some significant overlap with DPP’s but there are also<br>some distinctive products. Philippe’s son, Francois, is Sales and Marketing Director and his son-in-law, Henri, is<br>Operations Manager. Philippe himself is the third generation of Truffauds to run the firm. Ken recognises the<br>considerable differences between DPP and its potential French partner – language being only the most obvious one.<br>The sales, service and distribution systems of the two firms are totally distinct but their customers include the same<br>European paper makers. Reconciling the two information systems would be difficult, with customers looking for much<br>higher service levels. Historically, DPP, with its own research and development function, has a better record of product<br>improvement and innovation. However, Papier Presse is better regarded by its customers for its flexibility in meeting<br>their changing demands. In terms of strategic planning DPP contributes to the strategic plans drawn up at divisional<br>level, while the family dominance at Papier Presse means that planning is much more opportunistic and largely<br>focused on the year ahead. Each company has to operate within a climate of heightened environmental concern over<br>toxic by-products of the manufacturing process. There are other similarities in that both companies have felt that<br>product superiority is the route to success but whereas DPP’s is through product innovation; Papier Presse’s is through<br>customer service. Clearly integrating the two companies will present some interesting challenges and the family<br>ownership of Papier Presse means that a significant premium may have to be paid over the current book value of the<br>company.<br>The greenfield option<br>Ken, however, also recognises that the apparent benefits of moving onto a new greenfield site in one of the countries<br>recently admitted into the European Union will itself bring difficulties. One obvious difficulty is the lack of a modern<br>support infrastructure in terms of suppliers, distributors and logistical support. There is also a strong tradition of<br>government intervention in company growth and development. Although there are government agencies looking to<br>attract new companies to set up in these countries, there are considerable bureaucratic and time consuming<br>procedures to overcome. Above all there is continuing government financial support for small inefficient, formerly<br>state-owned, companies making the products for the national paper makers, who themselves are small and inefficientcompared to the customers being supplied by DPP and Papier Presse.<br>Required:<br>(a) Using the data provided and models where appropriate, assess the strategic fit between Datum Paper<br>Products and Papier Presse, indicating areas where positive or negative synergies are likely to exist.<br>(20 marks)
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1 Introduction<br>Universal Roofing Systems is a family owned and managed business specialising in the design, assembly and<br>installation of low maintenance PVC roofing products for domestic housing. These products include PVC fascia boards<br>and rainwater drainage systems. Set up in 1995 by two brothers, Matthew and Simon Black, the firm has grown year<br>on year, achieving almost ￡1 million sales by the year 2001. Universal’s products, or rather services, are primarily<br>for private house owners, though a significant amount of sales are coming from commercial house owners, mainly<br>local government authorities and housing associations, providing cheaper housing for rent. Universal have recently<br>received central government recognition and an award for their contribution to providing employment in deprived inner<br>city areas. In 2002 and 2003, they were the fastest growing inner city firm in their region.<br>Origins and competitive environment<br>Matthew and Simon’s decision to go into business owed a considerable amount to the experience and skills they had<br>gained working in their father’s local cabinet and carpentry business. At their father’s insistence, both were skilled<br>cabinet-makers and shared his commitment to quality workmanship and installation. Their decision to start a business<br>using PVC materials as opposed to wood came as an unwelcome shock to their father. However, the opportunity to<br>install PVC roofing boards on the house of a commercial contact provided the stimulus for them to go into business<br>on their own account.<br>In the UK there are some 25 million houses, of which 17 million are privately owned and 8 million rented. New<br>housing is now usually built with PVC doors and windows installed, so it is the replacement market of rotten wooden<br>doors and windows in existing houses that the manufacturers and installers of PVC windows and doors focus on. PVC<br>offers some significant advantages to the owner/occupier – it is virtually maintenance free and improves the<br>appearance of the house. Consequently, there is a high demand for PVC replacement doors and windows, estimated<br>at ￡1·5 billion in the year 2000. This has attracted some large-scale manufacturers and installers. They compete<br>aggressively for market share and use equally aggressive direct sales and promotion techniques to attract house<br>owners to their product.<br>Although the market for PVC windows and doors is reasonably mature, there has been no significant movement of<br>large companies into the installation of roofing products. Their complex design and location at the top of a house mean<br>that these products are much more complex and difficult to install. Economies of scale are harder to achieve and, as<br>a consequence, the installation of PVC roofing systems is largely in the hands of small businesses able to charge high<br>prices and frequently giving a poor quality service to the house owner. In a market with potential sales of ￡750 million<br>a year, no firm accounts for more than 3%. It was against this fragmented, but significant market that Universal<br>wanted to offer something distinctively different.<br>Operational processes<br>Matthew and Simon looked at the whole process of delivering a quality service in replacement PVC roofing systems.<br>The experience of the PVC door and window installers showed the long-term rates of growth possible through actively<br>promoting and selling the service. Supplies of PVC board and fittings were reasonably easy to obtain from the small<br>number of large UK companies extruding PVC boards in large volumes. However, the unequal bargaining power<br>meant that these suppliers dominated and were difficult to involve in any product development. Sales were generated<br>by door-to-door canvassing, followed by a visit from a company sales representative who tried to complete the sale.<br>Advertising in the press, radio and TV now supported this sales activity. In the early days the opportunity was taken<br>to sell the service at Saturday markets and, being so small, Universal could often pleasantly surprise the house owner<br>by offering virtually immediate installation. Matthew and Simon promoted, sold and installed the systems. One of their<br>key early decisions was to use a new Mercedes van with Universal’s name and logo prominently displayed, to carry<br>the bulky PVC materials to their customers’ houses. In one move they differentiated themselves from their low cost/low<br>quality competitors and got the company’s name recognised.<br>The skills and experience of the brothers meant that they were able to critically examine the installation process being<br>used by their small competitors to deliver a poor standard of service. Their eventual design incorporated innovative<br>roofing design and parts from Europe and a unique installation stand or frame. that provided the installer with quick,<br>easy and safe access to the roofs of the houses being worked on. This greatly improved the productivity of Universal’s<br>installation team over competitors using traditional methods. The brothers recognised that without the ability to offer<br>a service that could be packaged, given standard prices and procedures and made as ‘installer friendly’ as possible<br>they too would be limited to small scale operation and poor service. Being able to replicate a process time after time<br>was the key to delivering an improved service and preventing each job being seen as a ‘one-off’. In Matthew’s words,<br>‘Whenever the customer can have a predictable experience and you can say that this is what we are going to do, this<br>is the way we are going to do it and this is how much it will cost, the product/service usually goes problem free’.<br>Ultimately, the installers of the roofing systems determined quality. The brothers quickly built up a team of installers,<br>all of whom worked as sub-contractors and were not directly employed by the company. This gave the company the<br>flexibility to vary the number of teams according to the level of customer demand. Installation took place throughout<br>the year, though it could be affected by winter weather. The two man teams were given comprehensive training in<br>installation and customer care. Payment was by results and responsibility for correcting any installation faults rested<br>with the team doing the particular installation.<br>Sales and marketing<br>Marketing and promotion were recognised as key to getting the company’s name known and its reputation for a quality<br>installation service established. Comprehensive sales support materials were created for use by the canvassers and<br>sales representatives. Sales representative were able to offer significant discounts to house owners willing to make an<br>immediate decision to buy a Universal roofing system. In addition Universal received a significant income stream from<br>a finance house for roofing systems, sold on extended payment terms.<br>Universal offered a unique 10-year guarantee on its installations and proudly announced that over 30% of new<br>customers were directly recommended from existing satisfied customers. The growth of the company had led to<br>showrooms being set up in six large towns in the region and the business plans for 2005 and 2006 will see a further<br>nine showrooms opening in the region, each of which costs ￡30K. Brand awareness was reinforced by the continued<br>use of up-to-date Mercedes vans with the company’s logo and contact details prominently shown.<br>Company structure and performance<br>By 2005, the organisational structure of the company was in place, based on functional responsibilities. Matthew was<br>now Managing Director, Simon was Operations Director with responsibility for the installation teams, and Matthew’s<br>wife, Fiona, was Company Secretary and responsible for the administration and scheduling side of the business. Two<br>key appointments had facilitated Universal’s rapid growth. In 2002, Mick Hendry was appointed as Sales and<br>Marketing Director. Mick had 20 years of experience with direct sales in a large installer of PVC windows and doors.<br>Through his efforts, Universal achieved a step change in sales growth, with sales increasing from ￡1 million in 2001<br>to ￡3·3 million in 2002. However, the increased costs involved meant the company made a loss of some ￡250,000.<br>2003 saw sales increase to ￡5·4 million and a profit generated. 2004 saw further sales increase to ￡6·8 million and<br>a net profit of about ￡400K. Matthew recognised the increasing pressure on his own time and an inability to control<br>the financial side of the business. 2003 saw Harry Potts appointed as Finance Director and put in much needed<br>financial and management information systems.<br>Future growth and development<br>By 2005 Universal had seen 10 years of significant growth and was facing some interesting decisions as to how that<br>growth was to be sustained. Firstly, there was the opportunity to move from a largely regional operation into being a<br>national company. Indeed, the company’s vision statement expressed the desire to become ‘the most respected roofing<br>company in Britain’, based on a ‘no surprises’ philosophy that house owners all around the country could trust.<br>Economic factors encouraging growth looked fairly promising with a growing economy, stable interest rates and house<br>owners finding it fairly easy to raise additional funding necessary to pay for home improvements. Secondly, there was<br>a real opportunity to develop their share of the commercial housing market. The government had committed itself to<br>a significant improvement in the standard of housing provided to people renting from local authorities and housing<br>associations. Despite the appointment of a Commercial Manager to concentrate on sales into this specialist market,<br>Universal had real difficulty in committing sufficient resources into exploiting this opportunity. In 2002 commercial<br>sales represented over 11% of total sales, but currently commercial sales were around 5% of the total sales. Such<br>were the overall growth predictions, however, that to maintain this share of sales would need commercial sales to<br>more than double over the 2005–7 period. Without the necessary commitment of resources, particularly people, this<br>target was unlikely to be realised. Universal’s products also need to be improved and this largely depended on its<br>ability to get into partnerships with its large PVC suppliers. There were some encouraging signs in this direction, but<br>Universal’s reliance on PVC opened it to future challenges from installers using more environmentally friendly<br>materials.<br>Above all, however, the rate of projected growth would place considerable pressures on the senior management team’s<br>ability to manage the process. The move towards becoming a national installer was already prompting thoughts about<br>creating a regional level of management. Finally, such had been the firm’s growth record that its inability to meet thebudgeted sales targets in the first quarter of 2005 was causing real concern for Matthew and Simon.
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1 Introduction<br>Bonar Paint is a medium-sized paint manufacturer set up by two brothers, Jim and Bill Bonar. Turnover has been<br>static for some years and both brothers are now wanting to retire from the business. The brothers have created a loyal<br>workforce and feel that this loyalty will be strengthened if they sell the business to the three senior managers: Roy<br>Crawford, production manager; Tony Edmunds, sales and marketing manager and Vernon Smith, chief accountant.<br>The three managers recognise that this is a major opportunity for them to change the direction and growth of the<br>company, but one that will involve the raising of significant loan and equity finance to buy the business. Equally<br>significant are the equity stakes of ￡100,000 from each of them, which the banks will require to show the senior<br>managers’ personal commitment.<br>Company product range and processes<br>Bonar Paint makes high quality specialist paints for a range of industrial customers. Its major customers include car<br>manufacturers, steel makers and the oil companies investing heavily in offshore oil rigs. Bonar Paint also supplies<br>many smaller industrial customers. Raw materials are sourced from large chemical companies. Jim Bonar has the<br>necessary chemical expertise and Bill has the complementary sales skills to meet the specialised paint needs of their<br>demanding customers. Bonar Paint has a good reputation for product innovation and its product range of over 200<br>paints include paints able to tolerate harsh and demanding conditions. The small research and development team,<br>headed by Jim, has an excellent track record of meeting the technical demands and timescales for developing new<br>high performance paints. New paints are normally developed in response to customer demand and, consequently,<br>there is no formal process for new product development. Replacing Jim’s technical skills and leadership will<br>undoubtedly create problems for the senior management buyout team. Jim and Bill have taken all the key strategic<br>decisions to date with little reference to the senior management team.<br>Bonar Paint’s product innovation success has come at a price. Its product range is far too extensive to sustain with<br>the majority of the paints produced infrequently and in small batches. As a consequence customers often experience<br>long lead times when ordering a particular paint. This results in higher than necessary stock levels, much of which<br>is unlikely to be bought. Paints are supplied directly to each and every customer. Unfortunately, its management<br>information systems fail to show the profitability or otherwise of individual paints and the future demand for the paint.<br>There is little communication between sales and the research and development part of the business. Roy Crawford<br>has consistently argued for the benefits of reducing the product range and increasing the size of the batches produced.<br>Such a policy would give him more control over production, and lower costs. Higher volumes would also justify<br>investment in new production technology, which would bring labour savings with fewer and less skilled workers<br>needed to operate the new machinery. There has been little recent investment in new plant or machinery. Simplifying<br>the product range would also improve quality and reduce expensive warranty claims when paints fail to perform. in a<br>hostile environment. Such claims require extensive investigation to determine where the responsibility lies.<br>Competitive environment<br>Tony Edmunds, as sales and marketing manager, is very resistant to any attempt to reduce the product range. Such<br>a move, he feels, would upset customers and lead to their defection to competitors. The UK paint industry is very<br>fragmented – at the top end of the industry are large international paint manufacturers with significant brands and<br>supplying both industrial and domestic paint customers. They produce in high volumes and offer a comprehensive<br>but limited range of paints. At the bottom end of the industry are many small and medium-sized paint makers. Many<br>have chosen to produce own label paints of the large Do-It-Yourself (DIY) retailers. Specialist paint makers, such as<br>Bonar Paint, are finding it increasingly difficult to survive with neither the sales volumes nor brands to compete with<br>their larger competitors. The industry as a whole is seen as mature and lacking in innovation. There is increased<br>environmental concern about the toxic by-products of lead-based paints and the development of less toxic water-based<br>paints is only slowly emerging. Even more worrying is the increased usage of plastics and other materials, which do<br>not require painting. The DIY market is dominated by the same large international paint makers and the market for<br>industrial paint is vulnerable to the usage of alternative materials and entry into the UK market by large European<br>paint makers.<br>Future strategy<br>Each of the prospective buyout managers has a different view of how Bonar Paints should develop after the buyout<br>takes place. Roy Crawford sees his proposed reduction of the product range and increased investment in new<br>production technology as a means of reducing costs, improving margins and focusing on getting a larger share of their<br>3 [P.T.O.<br>current large industrial paint customers’ needs. Product innovation should only come when there is a clear and<br>profitable need for a new paint. He argues for a critical review of their smaller customers, believing them to be<br>unprofitable.<br>Tony Edmunds, however, sees an extension of the customer base as a necessary step in securing the future of the<br>firm. The product range should be extended to meet the needs of the professional painters and decorators looking for<br>high performance paints for use in both domestic and industrial applications. Tony also feels they should begin to<br>make their paints available to the general public. He has seen the success of factory shops in other industries,<br>whereby manufacturers sell unwanted and outdated stock to customers at heavily discounted prices at an outlet on<br>the firm’s premises. Such as shop would be relatively simple and inexpensive to set up and bring Bonar Paint’s<br>products to a wider public. It would require either the production, or buying in, of a range of the most popular paint<br>colours used in home decoration.<br>Finally, Vernon Smith is anxious that the internal control systems be improved to establish which paints are, or are<br>not, making money. Investment in new paint ranges or technology should be resisted until the buyout has been<br>successfully completed. In the longer term he feels that Bonar Paint is vulnerable because of its small size and that<br>increasing size through merger and acquisition of similar sized firms is a sensible strategy. Vernon is also anxious that<br>a fair valuation is made of the business and that the sales forecasts for 2007 and 2008, made by Bill Bonar, are<br>Required:<br>The senior management team has asked for your advice in evaluating the current position of Bonar Paint and its<br>attractiveness for a management buyout.<br>(a) Using models where appropriate, provide the senior management team at Bonar Paint with an assessment<br>of its strategic position and its attractiveness, or otherwise, for a management buyout. (20 marks)
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1 Introduction<br>Tony Masters, chairman and chief executive of the Shirtmaster Group, is worried. He has recently responded to his<br>senior management team’s concerns over the future of the Group by reluctantly agreeing to appoint an external<br>management consultant. The consultant’s brief is to fully analyse the performance of the privately owned company,<br>identify key strategic and operational problems and recommend a future strategy for the company. Tony is concerned<br>that the consultant’s report will seriously question his role in the company and the growth strategy he is proposing.<br>Group origins and structure<br>Tony’s father, Howard Masters, set up Shirtmaster in the 1950s. Howard was a skilled tailor and saw the potential<br>for designing and manufacturing a distinctive range of men’s shirts and ties marketed under the ‘Shirtmaster’ brand.<br>Howard set up a shirt manufacturing company with good access to the employee skills needed to design and make<br>shirts. Howard had recognised the opportunity to make distinctive shirts incorporating innovative design features<br>including the latest man-made fibres. In the 1960s London was a global fashion centre exploiting the UK’s leading<br>position in popular music. Men became much more fashion conscious, and were willing to pay premium prices for<br>clothes with style. and flair. Shirtmaster by the 1960s had built up a UK network of more than 2,000 small<br>independent clothing retailers. These retailers sold the full range of men’s wear including made-to-measure suits,<br>shirts and matching ties, shoes and other clothing accessories. Extensive and expensive TV and cinema advertising<br>supported the Shirtmaster brand.<br>The Shirtmaster Group is made up of two divisions – the Shirtmaster division which concentrates on the retail shirt<br>business and the Corporate Clothing division which supplies workwear to large industrial and commercial customers.<br>Corporate Clothing has similar origins to Shirtmaster, also being a family owned and managed business and is located<br>in the same town as Shirtmaster. It was set up to supply hardwearing jeans and workwear to the many factory workers<br>in the region. The decline of UK manufacturing and allied industries led to profitability problems and in 1990 the<br>Shirtmaster Group acquired it. Tony took over executive responsibility for the Group in 1996 and continues to act as<br>managing director for the Shirtmaster Division.<br>Shirtmaster division – operations and market environment<br>By 2006 the UK market for men’s shirts was very different to that of the 1960s and 1970s when Shirtmaster had<br>become one of the best known premium brands. In a mature market most of Shirtmaster’s competitors have<br>outsourced the making of their shirts to low cost manufacturers in Europe and the Far East. Shirtmaster is virtually<br>alone in maintaining a UK manufacturing base. Once a year Tony and the buyer for the division go to Asia and the<br>Far East, visiting cloth manufacturers and buying for stock. This stock, stored in the division’s warehouse, gives the<br>ability to create a wide range of shirt designs but creates real problems with excessive stock holdings and outdated<br>stock. Shirtmaster prides itself on its ability to respond to the demands of its small retail customers and the long-term<br>relationships built up with these retailers. Typically, these retailers order in small quantities and want quick delivery.<br>Shirtmaster has to introduce new shirt designs throughout the year, contrasting with the spring and autumn ranges<br>launched by its competitors. This creates real pressure on the small design team available.<br>The retail side of the shirt business has undergone even more fundamental change. Though the market for branded<br>shirts continues to exist, such shirts are increasingly sold through large departmental stores. There is increasing<br>competition between the shirt makers for the limited shelf space available in the departmental stores. Shopping<br>centres and malls are increasingly dominated by nationwide chains of specialist clothing retailers. They sell to the<br>premium segment of the market and are regarded as the trendsetters for the industry. These chains can develop<br>quickly, often using franchising to achieve rapid growth, and are increasingly international in scope. All of them require<br>their suppliers to make their clothes under the chain’s own label brand. Some have moved successfully into selling<br>via catalogues and the Internet. Finally, the UK supermarket chains have discovered the profitability of selling nonfood<br>goods. The shirts they sell are aimed at value for money rather than style, sourced wherever they can be made<br>most cheaply and sold under the supermarket’s own label. Small independent clothing retailers are declining both in<br>number and market share.<br>The Shirtmaster division, with its continued over-reliance for its sales on these small independent retailers, is<br>threatened by each of the retail driven changes, having neither the sales volume to compete on price nor the style. to<br>compete on fashion.<br>The Shirtmaster division’s international strategy<br>Tony’s answer to these changes is to make the Shirtmaster brand an international one. His initial strategy is to sell to<br>European clothing retailers and once established, move the brand into the fast growing consumer markets in Asia and<br>the Far East. He recognises that the division’s current UK focus means that working with a European partner is a<br>necessity. He has given the sales and marketing manager the job of finding major retailers, distributors or<br>manufacturers with whom they can make a strategic alliance and so help get the Shirtmaster range onto the shelves<br>of European clothing retailers.<br>Corporate Clothing division – operations and market environment<br>Corporate Clothing has in recent years implemented a major turnaround in its business as the market for corporate<br>clothing began to grow significantly. Corporate Clothing designs, manufactures and distributes a comprehensive range<br>of workwear for its corporate customers, sourcing much of its range from low cost foreign suppliers. It supplies the<br>corporate clothing requirements of large customers in the private and public sectors. Major contracts have been gained<br>with banks, airlines, airports and the police, fire and ambulance services.<br>The Corporate Clothing division supplies the whole range of workwear required and in the sizes needed for each<br>individual employee. Its designers work closely with the buyers in its large customers and the division’s sales benefit<br>from the regular introduction of new styles of uniforms and workwear. Corporate employers are increasingly aware of<br>the external image they need to project and the clothes their employees wear are the key to this image. Corporate<br>Clothing has invested heavily in manufacturing and IT systems to ensure that it meets the needs of its demanding<br>customers. It is particularly proud of its computer-aided design and manufacturing (CAD/CAM) systems, which can<br>be linked to its customers and allows designs to be updated and manufacturing alterations to be introduced with its<br>customers’ approval. Much of its success can be attributed to the ability to offer a customer service package in which<br>garments are stored by Corporate Clothing and distributed directly to the individual employee in personalised<br>workwear sets as and when required. The UK market for corporate workwear was worth ￡500 million in 2005.<br>Evidence suggests that the demand for corporate workwear is likely to continue to grow.<br>The Corporate Clothing division also has ambitions to enter the markets for corporate clothing in Europe and<br>recognises that might be most easily done through using a suitable strategic partner. There is friendly rivalry between<br>the two divisions but each operates largely independently of the other. Over the past 10 years the fortunes of the two<br>divisions have been completely reversed. Corporate Clothing now is a modest profit maker for the group – Shirtmaster<br>is consistently losing money.<br>Shirtmaster Group – future strategy<br>Tony is determined to re-establish Shirtmaster as a leading shirt brand in the UK and successfully launch the brand<br>in Europe. He sees a strategic alliance with a European partner as the key to achieving this ambition. Though he<br>welcomes the success of the Corporate Clothing division and recognises its potential in Europe, he remains<br>emotionally and strategically committed to restoring the fortunes of the Shirtmaster division. Unfortunately, his<br>autocratic style. of leadership tends to undermine the position of the senior management team at Shirtmaster. He<br>continues to play an active role in both the operational and strategic sides of the business and is both well known<br>and regarded by workers in the Shirtmaster division’s factory.<br>The initial feedback meeting with the management consultant has confirmed the concern that he is not delegating<br>sufficiently. The consultant commented that Tony’s influence could be felt throughout the Shirtmaster division.<br>Managers either try to anticipate the decisions they think he would make or, alternatively, not take the decisions until<br>he has given his approval. The end result is a division not able to meet the challenges of an increasingly competitive<br>retail marketplace, and losing both money and market share.<br>Required:<br>(a) Assess the strategic position and performance of the Shirtmaster Group and its divisions over the<br>2003–2005 period. Your analysis should make use of models where appropriate. (20 marks)
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The following information should be used when answering question one.<br>1 Origins and ownership<br>Churchill Ice Cream is a medium-sized family owned company, making and selling a range of premium ice cream<br>products. Its origins were in the middle years of the twentieth century, when John Churchill saw an opportunity to<br>supply a growing consumer demand for luxury products. John has been followed into the business by his two sons<br>and the Churchill family has dominated the ownership and management of the company. In 2001 there was<br>recognition of the need to bring in outside management expertise and John reluctantly accepted the need to relinquish<br>his position as chairman and chief executive of the company. Richard Smith, formerly a senior executive with one of<br>the major supermarket chains, was appointed as chief executive. Within one year of Richard’s appointment he had<br>recruited Churchill’s first sales and marketing director. Richard was consciously looking to reduce the dominance by<br>the Churchill family and make the company a more marketing orientated business able to meet the increased<br>competitive challenges of the 21st century.<br>Churchill’s distinctive strategy<br>Churchill Ice Cream is in many ways an unusual company, choosing to both manufacture its premium ice cream and<br>sell its products through its own stores. Specialist ice cream stores or parlours had started in the US and soon spread<br>to the UK. Customers can both buy and eat ice cream in the store. John Churchill saw the growing demand for such<br>specialist ice cream stores and created a unique store format, which quickly established the Churchill brand. Most of<br>these stores are owned by the company, but there are also some smaller franchised outlets. By 2005 it had 40 ice<br>cream stores owned by the company and a further 18 owned by franchise holders. Franchise stores typically are in<br>less attractive locations than their company-owned equivalents. All stores are located in and around the London area.<br>The logic for manufacturing its own ice cream is a strongly held belief that through sourcing its ingredients from local<br>farmers and suppliers it gains a significant competitive advantage. Making its own ice cream also has enabled it to<br>retain control over the unique recipes used in its premium ice cream product range. John Churchill summed up the<br>policy saying ‘We are no more expensive than the market leader but we are much better. We use real chocolate and<br>it’s real dairy ice cream. Half our expenditure goes on our ingredients and packaging. It’s by far our highest cost.’ Dairy<br>ice cream, as opposed to cheaper ice cream, uses milk, butter and cream instead of vegetable oils to blend with sugar<br>and flavourings. These ingredients are blended to produce a wide range of products. Churchill has also developed a<br>product range with no artificial additives hoping to differentiate itself from the competition.<br>Product innovation is a key capability in the ice cream market and 40% of industry sales are made from products less<br>than three years old. Churchill’s products are made at a new purpose built factory and supplied quickly and directly<br>to its own ice cream stores and other retail outlets. Unfortunately, detailed and timely information about product and<br>store performance has suffered through a delay in introducing a management information system. Consequently its<br>stores often faced product shortages during the peak summer months.<br>In 2003 Churchill became the sponsor and sole supplier to a number of high profile summer sporting events held in<br>London. Churchill also supplies eight million tubs of ice cream each year to London based cinemas and theatres. As<br>a consequence, Churchill is now an established regional brand with 90% customer recognition in the London area.<br>It also has major ambitions to become a national and eventually an international brand though facing significant<br>competition from two global chains of US owned premium ice cream stores. Their high profile moves into the UK<br>market was backed with expensive advertising and succeeded in expanding the demand for all premium ice creams.<br>The UK retail ice cream market<br>Ice cream is bought in two main ways: either from retail outlets such as supermarkets for later consumption at home<br>or on impulse for immediate consumption from a range of outlets, including ice cream stores such as Churchill’s.<br>Impulse sales are much more dependent on the weather and in 2003 sales of take home ice cream and impulse ice<br>cream were roughly equal. Total sales of ice cream in the UK reached ￡1·3 billion in 2003. Premium ice cream in<br>2005 accounted for 19% of the UK’s take home market, up from 15% in 2002.<br>Churchill itself does not use advertising. In John Churchill’s words, ‘There is no point in advertising your product if<br>consumers are unable to buy the product.’ Churchill has yet to achieve significant sales into the take home market.<br>Two major barriers exist. Firstly, global manufacturers with significant global brands dominate the industry. Secondly,<br>four major UK supermarket chains dominate the take home market. These supermarket chains account for over 80%<br>of food spending in the UK and have the power to demand that suppliers manufacture their products under the<br>supermarket’s own label brand. Supermarkets currently account for 41% of the sales of ice cream in the UK.<br>However, it is proving difficult to get the Churchill product range into the ice cream cabinets of the supermarket chains.<br>In John Churchill’s opinion ‘If you want to buy a tub of premium ice cream and you go to a supermarket you have a<br>choice of two American brands or its own label. I think there should be a British brand in there. Our prices are<br>competitive, at least ￡1 cheaper than our rivals and our aim is to get Churchill ice cream into every major<br>supermarket.’ Some limited success has been achieved with two of the smaller supermarket chains with premium ice<br>cream supplied under their own label brands. However, margins are very slim on these sales.<br>Churchill’s international strategy<br>Churchill, in seeking to increase its sales, has had no success in moving into foreign markets. In the 1990s it tried<br>both setting up its own ice cream stores abroad and acquiring specialist ice cream makers with their own ice cream<br>outlets. Its attempted entry into the US market was by using the established Churchill ice cream store format. Two<br>stores were opened in New York, but the hopes that the emphasis on classic English quality and style. and the slogan<br>‘tradition with taste’, would prove successful did not materialise and the stores were closed with significant losses –<br>each store took upwards of ￡100K to fit out.<br>Acquisition of two established ice cream makers, one in Germany and one in Italy also proved failures. Access to their<br>retail outlets and to complementary product ranges did not overcome differences in taste and customer buying<br>behaviour. Despite attempts to change some of the German and Italian outlets to the Churchill store format the resultswere less than impressive and the two companies were eventually sold at a combined loss of ￡5 million.<br>Summary<br>Overall, Churchill has a distinctive strategy linking the manufacturing of premium ice cream with its distribution<br>through the company’s own ice cream stores. This has secured them a regional reputation for a quality product. It<br>has had little success to date in penetrating the major supermarket chains with the Churchill brand and in moving its<br>distinctive ice cream store format into foreign markets. Finally, to complicate both the manufacturing and retail sides<br>of the Churchill business, seasonality is a real issue. Ice cream is still heavily dominated by sales in the summer<br>months. In fact the peak demand in summer is typically five times the demand in the middle of winter. Equally serious<br>is the impact of a cold summer on impulse ice cream sales. This has a number of consequences, which affect the<br>costs of the product and capacity usage at both manufacturing and retail levels.<br>Despite this, Richard Smith has set three clear strategic goals to be achieved over the next five years. Firstly, to become<br>the leading premium ice cream brand in the UK, secondly, to increase sales to ￡25 million and finally, to penetrate<br>the supermarket sector with the Churchill product range.<br>Required:<br>Richard Smith has set three clear strategic goals for Churchill’s growth and development over the next five years.<br>(a) Using models where appropriate, assess the advantages and disadvantages of the current strategy being<br>pursued by Churchill Ice Cream and its impact on performance up to 2005. (20 marks)
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company (MM) has decided that this is insufficient and has put a small team together to re-design the site. MM feels<br>that the site looks ‘amateur and old-fashioned and does not project the right image’. The board of the company has<br>given the go-ahead for the MM ‘to re-design the website’. The following notes summarise the outcomes of the<br>meetings on the website re-design. The team consists of the marketing manager (MM), a product range manager (RP),<br>a marketing image consultant (IC) and a technical developer (TD).<br>Meeting 1: 9 July attended by MM, RP, IC and TD<br>The need for a re-designed website to increase sales volume through the website and to ‘improve our market visibility’<br>was explained by MM. IC was asked to produce a draft design.<br>Meeting 2: 16 August attended by MM, RP, IC and TD<br>IC presented a draft design. MM and RP were happy with its image but not its functionality, suggesting that it was<br>too similar to the current site. ‘We expected it to do much more’ was their view.<br>Meeting 3: 4 September attended by MM, RP and IC<br>IC produced a re-drafted design. This overall design was agreed and the go-ahead was given for TD to produce a<br>prototype of the design to show to the board.<br>Meeting 4: 11 September attended by RP, IC and TD<br>TD explained that elements of the drafted re-design were not technically feasible to implement in the programming<br>language being used. Changes to the design were agreed at the meeting to overcome these issues and signed off by<br>RP.<br>Meeting 5: 13 October attended by MM, RP, IC and TD<br>The prototype re-design was demonstrated by TD. MM was unhappy with the re-design as it was ‘moving too far away<br>from the original objective and lacked functionality that should be there’. TD agreed to write a technical report to<br>explain why the original design (agreed on 4 September) could not be adhered to.<br>Meeting 6: 9 November attended by MM, IC and TD<br>It was agreed to return to the 4 September design with slight alterations to make it technically feasible. TD expressed<br>concerns that the suggested design would not work properly with all web browsers.<br>At the board meeting of 9 December the board expressed concern about the time taken to produce the re-design and<br>the finance director highlighted the rising costs (currently $25,000) of the project. They asked MM to produce a<br>formal cost-benefit of the re-design. The board were also concerned that the scope of the project, which they had felt<br>to be about re-design, had somehow been interpreted as including development and implementation.<br>On 22 December MM produced the following cost-benefit analysis of the project and confirmed that the word ‘redesignhad been interpreted as including the development and implementation of the website<br>On 4 January the board gave the go ahead for the development and implementation of the website with a further<br>budget of $25,000 and a delivery date of 1 March. TD expressed concern that he did not have enough developers<br>to deliver the re-designed website on time.<br>Meeting 7: 24 February attended by MM, RP, IC and TD<br>A partial prototype system was demonstrated by TD. RP felt that the functionality of the re-design was too limited and<br>that the software was not robust enough. It had crashed twice during the demonstration. He suggested that the<br>company delay the introduction of the re-designed website until it was complete and robust. MM declared this to be<br>impossible.<br>Conclusion<br>The re-designed website was launched on 1 March. MM declared the re-design a success that ‘had come in on time<br>and under budget’. On 2 and 3 March, numerous complaints were received from customers. The website was<br>unreliable and did not work with a particular popular web browser. On 4 March an emergency board meeting decided<br>to withdraw the site and reinstate the old one. On 5 March, MM resigned.<br>Required:<br>Most project management methods have an initiation or definition stage which includes the production of a document<br>that serves as an agreement between the sponsors and deliverers of the project. This may be called a project initiation<br>document or a project charter. Defining the business case is also an important part of the initiation or definition stage<br>of the project.<br>(a) Explain how a business case and a project initiation document would have helped prevent some of the<br>problems that emerged during the conduct of the website re-design project. (15 marks)
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The country of Westoria has a well-respected public health service funded primarily through general taxation. The Westoria Public Health Authority (WPHA) is responsible for delivering this health service through a network of hospitals in Westoria.<br>WPHA is under increasing pressure to demonstrate to taxpayers that it is using public finances wisely and so it wishes to accurately monitor and control health service expenditure. However, it is proving difficult to confidently track the budgeted and actual finances of individual hospitals, as each is operating its own form. of budgeting and cash management. Consequently, WPHA has decided to introduce a single computer-based system which will allow all hospitals to enter and manage financial information in a standard way. This system will be part of an authority-wide enterprise resource planning system (ERPS) which will allow WPHA to monitor and control the finances of the entire authority. Currently, the input and consolidation of WPHA information is a time-consuming process, importing data from individual hospitals into a series of spreadsheets to provide total figures for the authority as a whole.<br>At a recent WPHA board meeting, the head of the authority suggested that the scope of the ERPS should be widened to incorporate other elements of operational and management information. She pointed out that some previous commercial off-the-shelf (COTS) software solutions which the authority selected and implemented had not worked well. She gave two specific examples:<br>– The payroll system does not support payment increments for non-standard working, such as overtime rates. To allow this, payroll staff currently have to change the employee’s standard hourly rate for the time period in question and then change it back again. This is time-consuming and payment errors have been made when payroll staff have forgotten to change the rate back again.<br>– The human resource management system does not support the temporary transfer of staff between hospital departments. To compensate for this, human resource staff have to action a permanent move for a short time period and then action a reverse move at the end of that period.<br>She therefore felt that the introduction of the ERPS would be an opportunity to address outstanding problems and to improve and standardise the systems in use.<br>The board agreed the ERPS should, as a minimum, also include payroll and human resource management modules within the overall product. However, given budget limitations, the board decided that a commercial off-the-shelf ERPS solution should be selected and implemented. They all agreed that this would be a cheaper solution than a bespoke system and would be well suited to their needs, as it should fulfil the standard requirements they envisaged. Furthermore, it had always been the policy of WPHA not to employ internal IT system developers. Currently, the IT support team consists of one operational member of staff at each hospital and a central team of ten staff who assist in addressing major IT problems encountered at any of the hospitals. The IT support team has also produced ways to bypass issues with previously implemented COTS package solutions.<br>This lack of internal IT resource, and the recognition that previous COTS implementations had been less successful than predicted, has prompted WPHA to seek the advice of an external software systems consultant.<br>The consultant has suggested that the evaluation and implementation of the ERPS package should follow a four-stage process:<br>– Evaluate whether a COTS solution is an appropriate approach<br>– Define the requirements for the new software<br>– Evaluate competing packages<br>– Implement the selected package<br>However, the head of the authority believes that the external consultant is being over-cautious in his advice and approach and that the first two stages are not needed. In her words: ‘We know that a COTS solution is the right approach for us as we have little alternative, so why spend time doing the first step？ We also know that we’ve been pretty poor at defining what we want in the past; so why not recognise our deficiencies and go straight to stage three and look at competing packages to see which products provide the best features？’<br>The HR director, who has experienced the problems of the human resource and payroll systems at first hand, disagrees. He feels that the consultant’s four-stage process is insufficient. He believes that, ‘it is important that we consider all four elements of the POPIT (four view) model, which provides four key areas to be considered when a process is to change. These four key areas are people, organisation, processes and information technology. Only the last of these will be considered in the consultant’s four-stage process. If we ignore the remaining three areas we are in danger of another failed software project, which is likely to further upset taxpayers and, perhaps, threaten the future of the authority itself.’<br>Required:<br>(a) The external consultant suggested a four-stage process for the evaluation and implementation of the proposed commercial off-the-shelf ERPS package.<br>Discuss the four-stage process for the evaluation and implementation of a software package, and the significance of each stage in the context of the previous and proposed COTS solutions at WPHA. (16 marks)<br>(b) The HR director has suggested that all elements of the POPIT model should be considered.<br>Explain, in the context of WPHA, the need for considering the people, the organisation and the processes involved when carrying out a business change project. (9 marks)
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Section B – TWO questions ONLY to be attempted<br>Shop Reviewers Online (SRO) was founded in 2010 by Amy Needham. She felt that many customers buying from online stores were misled by advertising and that too often, purchased products turned out to be unreliable, faulty or failed to meet the customers’ expectations. Amy believed that the online retail industry was increasingly acting unethically, caring only for profits at the expense of the needs and expectations of customers.<br>Consequently, she set up SRO to ‘provide an unbiased review of online stores to ensure the customer has all available information’. The company offers reviews of current online stores and provides direct links for customers to shop at the stores featured on its site. The reviews include price comparisons, provided by SRO, as well as general reviews provided by registered users of the site. The company has two main revenue streams. The first is advertising revenue from online stores who place advertisements on the SRO site. The second revenue stream is commission from sales by online stores to customers who have clicked on the sponsored links provided on the SRO website. This commission is only paid by stores who have entered into such a commission arrangement with SRO.<br>SRO relies upon its website being available online 24 hours a day, 7 days a week. For this reason it has backup servers running concurrently with the main servers on which data is processed and stored. The servers are directly linked so that any update to the main servers automatically occurs on the backup. The servers are all housed in the same computer centre in the company head office. The computer centre has enhanced its security by implementing a fingerprint recognition system for controlling access to the site. However, as the majority of staff at headquarters are IT personnel, and often temporary staff are hired to cover absentees, the fingerprint recognition system is not comprehensive and, to save time, is often bypassed. Similarly, to save time needed to set up new permanent staff with passwords to access the company’s systems, a general ‘administrator’ user has been created, with the password ‘password’. Many temporary staff access the system in this way.<br>SRO has an intelligent software application which constantly searches the internet for product price changes, uploading these into the reviews of the online store in question. Sometimes, however, there have been problems. Usually this is when the application has not recognised an outdated page and has replaced the correct latest price with an old price found on the outdated page. Furthermore, this intelligent software application needs permanent continual access to the internet, and SRO has identified a problem with its firewall which has prevented the software application from sometimes updating the internal systems. For this reason, it has removed the firewall protection to help ensure that the correct up-to-date prices of all online stores are shown on the website.<br>SRO rarely generates other elements of reviews (such as product experience), leaving this to registered users of the site. However, it will, occasionally, submit its own review to help boost a store which pays a higher commission rate than its competitors. SRO is always honest in its reviews, but the more reviews a store has, the higher up the search list it appears, when a customer searches for a specific product.<br>Registered users can submit as many reviews as they wish. Unregistered users may also submit reviews, which will be published under the name ‘anonymous’, but these reviewers will be unable to comment on the reviews of others. SRO checks reviews for appropriate content, but does not contact the store to verify the accuracy of the review.<br>SRO is about to undertake an audit of the adequacy of its general and application IT controls. In addition, SRO is currently undertaking an internal ethical governance audit, which has identified two main areas of concern:<br>(1) Commercial conflicts of interest<br>As mentioned earlier, SRO’s business objective is to ‘provide an unbiased review of online stores to ensure the customer has all available information’. However, the audit has revealed that both SRO’s revenue streams may cause an ethical dilemma with regards to this objective.<br>(2) Company offices<br>SRO has little need for traditional offices, as it does not have a direct customer-facing role. It mainly requires IT technicians to support its automated services. The company has carried out research which suggests that the IT skills it requires could be sourced at a much lower rate overseas. It is considering relocation to one such country. This country has low rates of corporation tax and cheaper labour costs. However, the country itself is poorly regulated and does not have legislation concerning the quality of information systems or the security of data contained within them, particularly relating to personal data. The culture of the country is such that accepting unauthorised payments for services is also not unusual. Whilst SRO does not condone this in its code of conduct, it is aware that such issues exist in the country under consideration.<br>Required:<br>(a) Evaluate the adequacy of the general and application controls in place within SRO, with respect to its information technology and information systems. Suggest any improvements you consider to be necessary. (15 marks)<br>(b) Assess the corporate governance and ethical dilemmas identified by SRO in its possible relocation to the foreign country and discuss the implications of these on organisational mission, purpose and strategy. (10 marks)
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