Universities in Teeland have three stated objectives:
1. To improve the overall standard of education of citizens in Teeland.
2. To engage in high quality academic research.
3. To provide well-qualified university graduates to meet the needs of the graduate jobs market in Teeland.
Each university is funded by a fixed sum of money from the Teeland government according to the number of students studying there. In addition, universities receive extra funds from the government and also from other organisations, such as large businesses and charities. These funds are used to support academic research.
Following the onset of an economic recession, the Teeland government has stated its intention to reduce spending on publicly funded services such as the universities. One senior politician, following his recent visit to neighbouring Veeland, was controversially quoted as saying:
‘The universities in Veeland offer much better value for money for the citizens there compared to our universities here in Teeland. There are 25 students for each member of academic staff in Veeland, whereas in Teeland, the average number is 16, and yet, the standard of education of citizens is much higher in Veeland. The Veeland government sets targets for many aspects of the services delivered by all the universities in Veeland. Furthermore, league tables of the performance of individual universities are published on the internet, and university leaders are given bonuses if their university falls within the top quarter of the league table. In Veeland, the system of performance measurement of the universities is considered so important that there is a special government department of 150 staff just to measure it.’
He went on to add, ‘I want to see a similar system of league tables, targets and bonuses for university leaders being introduced here in Teeland. To appear near the top of the league tables, I think we should expect each university to increase the number of graduates entering graduate jobs by at least 5% each year. I would also like to see other steps taken to increase value for money, such as reducing the number of academic staff in each university and reducing the salary of newly recruited academic staff.’
You have been asked to advise the Teeland government on the measurement of value for money of the universities and the proposed introduction of league tables for comparing their performance. Appendix A contains details and existing performance data relating to four of the best known universities in Teeland.
Northcity University is famous for its high teaching standards and outstanding academic research in all subjects. As such, it attracts the most able students from all parts of the world to study there.
Southcity University is a large university in the capital city of Teeland and offers courses in a wide range of subjects, though most of the funding it receives for academic research is for science and technology in which it is particularly successful.
Eastcity University is a small university specialising in the teaching of arts and humanities subjects such as history and geography.
Westcity University currently offers less strict entry standards to students to attract students from more diverse backgrounds, who may not normally have the opportunity of a university education.
Appendix A
Existing university performance data
Key to performance data
1 – Entry requirements represent students’ average attainment in examinations prior to entering university. The entry requirement of the highest ranking university is scored as 100, with the score of all other universities being in proportion to that score.
2 – The number of graduates each year who go on to further study or who begin jobs normally undertaken by university graduates. In Teeland, students attend university for an average of 3·2 years.
3 – The TSOR (Teeland students overall satisfaction rating) survey is undertaken by the Teeland government to assess students’ overall satisfaction with the standard of teaching, the social and support aspects of university life and their optimism for their own future job prospects.
4 – The education department of the Teeland government has produced a provisional league table ranking the overall performance of each of the 45 universities in Teeland, with 1 being the highest ranking university. This has been compiled using a number of performance measures, weighted according to what the government believes are the most important of these measures.
Required:
(a) Advise the Teeland government how it could assess the value for money of the universities in Teeland, using the performance data in Appendix A. (12 marks)
(b) Assess the potential benefits of league tables for improving the performance of universities in Teeland and discuss the problems of implementing the proposal to introduce league tables. (13 marks)
Section A – This ONE question is compulsory and MUST be attempted
Flack Supermarkets (Flack) is a multi-national listed business operating in several developing countries. The business is divided into two divisions: Metro, which runs smaller stores in the densely populated centres of cities and Hyper, which runs the large supermarkets situated on the edges of cities. Flack sells food, clothing and some other household goods.
Competition between supermarkets is intense in all of Flack’s markets and so there is a constant need to review and improve their management and operations. The board has asked for a review of their performance report to see if it is fit for the purpose of achieving the company’s mission of being:
‘…the first choice for customers by providing the right balance of quality and service at a competitive price. We will achieve this through acting in the long-term interests of our stakeholders: earning customer loyalty, utilising all our resources and serving our shareholders’ interests.’
This report is used at Flack’s board level for their annual review. The divisional boards have their own reports. Also, there has been criticism of the board of Flack in the financial press that they are ‘short-termist’ and so the board wants your evaluation of the performance report to include comments on this. A copy of the most recent report is provided as an example at Appendix 1.
The board is considering introducing two new performance measures to address the objective of ‘utilising all our resources’. These are revenue and operating profit per square metre. The CEO also wants an evaluation of these two measures explaining how they might address this aspect of the mission, what those ratios currently are and how they could be used to manage business performance. There is information in Appendix 1 to assist in this work.
There have been disagreements between Flack’s divisional management about capital allocation. The divisions have had capital made available to them. Both sets of divisional managers always seem to want more capital in order to open more stores but historically have been reluctant to invest in refurbishing existing stores. The board is unsure of capital spending priorities given that the press comments about Flack included criticism of the ‘run-down’ look of a number of their stores. The board wants your comments on the effectiveness of the current divisional performance measure of divisional operating profit and the possibility of replacing this with residual income in the light of these problems.
As the company is opening many new stores, the board also wants an assessment of the use of expected return on capital employed (ROCE) as a tool for deciding on new store openings, illustrating this using the data in Appendix 2 on one new store proposal. The focus of comments should be on the use of an expected value not on the use of return on capital employed, as this is widely used and understood in the retail industry.
Finally, the CEO has proposed to the board that a new information system be introduced. She wishes to spend $100m on creating a loyalty card programme with a data warehouse collecting information from customers’ cards regarding their purchases. Her plan is to use this information to target advertising, product range choices and price offers more efficiently than at present.
Required:
Write a report to the board of Flack to:
(i) Evaluate the performance report of Flack, using the example provided in Appendix 1, as requested by the board. (14 marks)
(ii) Evaluate the introduction of the two measures of revenue and operating profit per square metre, as requested by the CEO. (8 marks)
(iii) Assess the proposal to change the divisional performance measure. Note: No calculations of the current values are required. (8 marks)
(iv) Calculate the expected return on capital employed for the new store and assess the use of this tool for decision-making at Flack. (8 marks)
(v) Explain how the proposed new information system can help to improve business performance at Flack. (8 marks)
Professional marks will be awarded for the format, style. and structure of the discussion of your answer. (4 marks)