The Examiner's Answers - September 2011

E1 - Enterprise Operations

SECTION A

Answer to Question One

1.1 A
1.2 D
1.3 D
1.4 A
1.5 B
1.6 B
1.7 B
1.8 D
1.9 D
1.10 D

SECTION B

The answers that follow in Sections B and C are fuller and more comprehensive than would
have been expected from a well-prepared candidate. They have been written in this way to
aid teaching, study and revision for tutors and candidates alike.

Answer to Question Two

Requirement (a)
Reck & Long (1988) pictured an organisation's purchasing function as progressing through a
development continuum. Supply would be seen under such thinking as a developed strategic
function whilst purchasing would be seen as more reactive and less developed. On this basis
organisational supply might be seen as more significant than purchasing.

Purchasing
Purchasing deals with the day-to-day buying of goods. Purchasing concentrates on the goods
themselves including whether they conform to the quality demanded, if they are priced
appropriately, and ensuring that they are delivered at the time required to the correct location.

Enterprise Operations 1 September 2011

Supply
Supply concentrates on the strategy of relationships. Supply deals with important
considerations beyond the day-to-day including:
• planning and implementing a supply strategy;
• managing the overall supply process;
• considering suitability, feasibility and acceptability of outsourcing activities;
• investigating whether strategic partnerships could be established, and
• the number of suppliers it should use.

In Reck & Long's terms supply is strategic by nature.

Requirement (b)
Profits made by Multi National Enterprises (MNEs) through activities in these economies are
exported back to head offices abroad. The two main forms of FDI and their benefits to a host
economy are given below:

Acquisitions
The MNE acquires a local company and so gains control of its assets and markets. The
acquired company becomes a division of the new parent organisation. The local economy
only benefits if the company was in danger of imminent collapse and had been 'saved' or was
facing other significant difficulties that were subsequently solved through the buy-out. Under
these circumstances the MNE will be providing continued employment.

Greenfield investment
Under this form of FDI, the MNE creates new facilities in the host country to take advantage
of local conditions. The host country benefits through new employment opportunities and
acquires improved skills and knowhow from the MNE as well as access to the global
economy. The domestic economy should benefit from any infrastructure improvements made
by the MNE, new jobs and income earned by any local suppliers.

Requirement (c)
A direct approach to changeover means that at a predetermined time an old system ceases
completely and a new system starts. The reason for an organisation choosing a direct
approach includes:

Low risk
The system may be already widely used elsewhere in competitor or comparator organisations
(it may be an 'off the shelf' package). Under these conditions, management may have
complete confidence in the system.

Low cost
Management may have weighed the options (such as phased, parallel running or pilot
schemes) and concluded that a direct approach is more cost efficient in terms of time and
resource usage.

Symbolic gesture
Management may wish to communicate to the workforce its commitment to a particular
system and the direct approach represents a symbolic act confirming its faith in it.

Ready opportunity to use direct approach

A specific time for system changeover may have been identified when there is reduced
system usage. A direct changeover at this time would represent an ideal opportunity when
there is a low volume of transactions and limited risk of disruptions.

Existing system too problematic

If the existing system is presenting so many problems that it is not worth continuing with it any
further, then a direct system changeover might be viewed as wholly appropriate whatever
difficulties are encountered as a result.

September 2011 2 Enterprise Operations

Requirement (d)
There are several disadvantages of outsourcing including the following:

Surrender of core competence

The services may represent (or contribute to) a core competence for the organisation. If this is
the case, outsourcing would be inadvisable as the basis of the organisation's competitive
advantage could be threatened unnecessarily.

Lack of understanding
There may be a potential lack of understanding of the ethos of the business by the
contractors of the outsourced service. There may be resistance from staff groups and unions
representing in-house workers whose jobs may be threatened. This may harm industrial
relations and possibly lead to disruption in performance. Under these conditions the initiative
may be counter-productive. Outsourcing and a threat of job losses could undermine the
psychological contract and lead to a lack of motivation within the workforce.

Damage to culture
The move to outsourcing may detract from a positive organisational culture by eroding shared
values and goodwill.

Transaction costs
Additional costs will be incurred associated with determining service specifications and
ultimately monitoring performance (so-called transaction costs).

Finality of decision
Once a service has been contracted out it may be very difficult to take back in-house at a later
date if things do not work out.

Requirement (e)
A policy of organisational succession planning has a number of disadvantages:
Organisational size
Succession planning is unrealistic for most organisations and only feasible for those large
enough to offer the opportunities for staff movement and extended career ladders.

Operational issues
The positive motivational impact of the policy may not be realised if rewards seem distant and
staff movement is slow or reliant on staff turnover elsewhere in the organisation. Alternatively,
staff vacancies may arise at inconvenient times which do not fit individual career needs.

Negative culture reinforcement

The policy helps reinforce an existing organisational culture which may be unhealthy and
could lead to a lack of exposure to outside thinking and experiences.

'Too' rational
Succession planning is in some ways too rational an approach and centralised in philosophy
and, as such, can be counter-productive in an organisation that wishes to stress responsibility
being taken by employees themselves and emergent approaches.

Insularity
The policy concentrates only on developing the existing workforce and ignores the possibility
of more capable candidates existing outside the organisation.

Career trends
Succession planning is in many ways an outdated concept, given a more contemporary trend
for movement between organisations and individuals taking personal responsibility for their
own career development by building personal portfolios of experience.

Enterprise Operations 3 September 2011

Management demands
The policy may be very expensive to operate. It almost guarantees or implies promotion and
requires the detailed input of specialist managers (both HR and in technical) to be involved to
make it work.

Requirement (f)
The main reasons for a country wishing to restrict free trade include the following:

Protection
There may be a need to protect fledgling industries which would not be able to compete on an
equal footing with foreign competitors. These industries typically have yet to achieve
economies of scale in production and possibly do not yet enjoy the factors of production that
foreign competitors do. (e.g. a well trained labour force , ease of finance etc.)

Prevent 'dumping'
Protection may help avoid a 'dumping' of excess goods at unrealistically low prices by foreign
companies which would impact unfairly on home producers.

Overcoming spoiling tactics of foreign competitors

Protection may help prevent 'loss leader' pricing of goods by foreign competitors in order to
unfairly damage local suppliers and gain market share.

Protect national cultural identity

A government may feel the need to protect its national cultural identity against what it views
as undesirable values and influences. As a result it may restrict free trade. (For example,
certain multinational operations may be discouraged if it is feared that there would be
suppression by (say) undue American values being imposed on a proud indigenous culture
founded on local, historical and religious heritages).

Ethical or moral grounds

A government may feel a need to safeguard home consumers against harmful or distasteful
imports (e.g. objects made of ivory, rare bird egg collections, 'date rape' drugs etc.)

Independence from others

A government may feel a need to breed self sufficiency and less reliance on nations who
could be political adversaries (e.g. in situations where national wars are threatened).

Sanctions to bring about change

A government may restrict trade with another nation on the grounds that either it is an enemy
state or that it engages in practices that the government disapproves of. Sanctions could be
seen as a weapon to exert pressure and bring about change in another country.

September 2011 4 Enterprise Operations

SECTION C

Answer to Question Three

Requirement (a)
The Chief Executive is launching a new initiative called 'sharpening the focus' which is
centred on:
• Improved corporate performance,
• Connecting more closely with customers, and
• Improving marketing practices.

Effective brand management can assist iB4e's 'sharpening the focus' initiative in a number of
ways:

Improved performance
• Improved profitability. Over the past year iB4e has suffered from a difficult
economic climate more keenly than its competitors who enjoy stronger brand
recognition. The new director promises 'revitalisation of the iB4e brand'. Evidence
indicates that effective brand management will translate into improved profit potential
and long term equity growth for the brand.
• Brands can be a key asset for the business. Although intangible, brands can be of
substantial value. Indeed, brands are often the most valuable asset an organisation
owns. All assets require careful management and the brand is no different.
• Strong brands can positively influence share performance. The brand is an
important driver of business value and success.
• Brands can command higher prices. Branded products command a higher price
than unbranded goods (even if the other features are similar). It follows that the
stronger the brand, the better the opportunity to charge higher prices than competitors
and hence gain higher levels of profitability.
• Differentiate itself from its competitors. Brands help communicate the essence of
the company and its products and so help distinguish iB4e from its competitors.
Effective brand management can therefore contribute to competitive advantage.

Connecting with customers

• Brands as an emotional conduit. Brands that take their time to listen to their target
segment and incorporate their ideas into their products will be more successful.
Brands can be invaluable where marketing communications may be otherwise lost
amongst the noise of competing messages. Brands can connect with consumers in a
deep way. Successful brands develop special relationships with customers by
conveying intangible qualities that evoke strong emotional responses. The features of
a brand might include a logo, a general image, look, feel, even smell which may seem
to be of minor significance on their own but in combination should be much greater
than the sum of the constituent parts.
• Good brand management can breed brand loyalty. Effective brand management
can lead to brand loyalty which simplifies choice for the consumer. The value of
brands exists in the minds of those who use them. Brands are the reason consumers
choose one product over another. Products that have a positive strong brand image
enjoy a significant source of competitive advantage.

Improve marketing practices

• Provide a focus for customer relationship management. Customer relationships
should involve a restatement and reinforcement of a brand whilst addressing
customer requirements directly.
• Base for other marketing practices. People use brands to both make statements
about themselves and reduce the risk of poor product choice. A revitalisation of the

Enterprise Operations 5 September 2011

 iB4e brand should assist wider marketing practices (e.g. advertising) by establishing a
bond of trust that can be built upon.
• Brands are at the heart of the marketing mix. The basic 'marketing mix' of product,
place, promotion and price explains the set of marketing decisions that must be
balanced to achieve maximum impact on a target market segment. Branding and
brands go to the heart of the marketing mix. Important features of a product include
brand name in addition to quality, durability, design etc. Place includes distribution
channels and coverage and obviously products with recognisable brands are more
likely to be stocked by retailers. A focus on promoting the brand in general will lead to
sales of products associated with that brand. Price levels are important and products
with the strongest brands can command the highest prices.

Requirement (b)
Advantages
There are several clear advantages to iB4e developing a 'total reward package' (TRP):
• Retention and motivation. In return for maintaining the package, the organisation
will receive greater staff continuity and engagement. If properly developed, a TRP
approach will help iB4e retain and motivate high quality staff. The TRP approach can
strengthen and maintain staff retention and employee motivation.
• Attract talented staff. A major issue for iB4e appears to be difficulty in recruiting
staff. This suggests that although genuine benefits exist, prospective employees do
not know about them. It is important that iB4e continues to attract talented staff and
so must compete with its competitors in the labour market and must maximise its
attractiveness. It seems that presently iB4e is failing to make the most of the overall
reward package available (e.g. pensions, training and development, flexible working).
To improve its recruitment, this needs addressing.
• Non-pay motivators. A 'total reward package' approach is consistent with
contemporary enlightened management thinking. Pay is often a primary focus of HR
policy but successive motivation theories indicate that a concentration on financial
rewards alone is an inadequate motivator of staff.
• Confirmation of organisational/individual match. A TRP approach offers staff an
opportunity to consider what they value most from their employer and then compare it
with the investment iB4e is making on their behalf.
• Project a positive image. The initiative would have the advantage of making positive
statements to stakeholders about iB4e and could reinforce its vision and culture. In
terms of what iB4e values, the initiative represents an investment in the company's
most important resource; its people.

Disadvantages
There are also several potential disadvantages to iB4e developing a TRP:
• Other poor recruitment processes. The difficulty in recruiting new staff may be
caused by some other factor such as use of inappropriate advertising media, poor
advertising copy, response deadlines too tight etc.
• Additional costs. If the benefits involve additional costs. The Director believes that
additional bonuses for good performance could be given and this will add to
organisational overheads. There will also be a cost associated with monitoring,
managing, communicating and keeping the scheme under review.
• Projects wrong image. Rather than enhance iB4e's image, the package might lead
the organisation to be viewed as a 'soft touch' with a negative impact on share price.
The package itself may create an artificial comfort zone for existing staff leading to
complacency and organisational stagnation.
• Suspicion of motives. Staff may view the package with suspicion, feeling that
management's intentions are not honourable and that it may be a ploy to keep pay
rates down.
• Workers only want improved pay. Staff motivation theories are not unified and it
may be possible that some staff are only interested in improved pay. (For instance,
'Taylorism' suggests workers are motivated by maximising their earnings. Similarly,

September 2011 6 Enterprise Operations

 Theory X workers according to McGregor motivation theory are motivated by 'carrots
and sticks' namely economic rewards and punishments.)
• Costly failure if design flaws. If the TRP approach is not properly developed or
contains design flaws, it will not achieve the potential benefits and could represent an
additional cost to the company.

Requirement (c)
iB4e's new Director of Branding has been asked by the Chief Executive to review a number of
issues that are felt to be significant including internal marketing.

When an organisation like iB4e wants to implement a new strategy or corporate programme,
it needs to align employees' attitudes and behaviours to correspond with the overall vision
underpinning the initiative. If successful, this should lead to enhanced service levels which, in
turn, will strengthen customer loyalty.

Internal marketing influences behaviour allowing organisations such as iB4e to communicate

the actions and attitudes that lead to improved corporate performance. Internal marketing is
particularly important to iB4e as some of its employees have been empowered to take on
customer relationships. With more of iB4e's workers assuming responsibility for interacting
directly with customers, it is important that the right corporate messages are conveyed.

Internal marketing is the process of engaging with employees through training and motivating
them so as to support the organisation's external corporate activities. Motivating staff to
change their behaviours and considering ways to achieve organisational goals is very
important. In the case of iB4e, a new emphasis has been placed on connecting more closely
with customers and improving marketing practices through more effective brand
management. Employees need to know this, understand what the iB4e brand means and buy
into it. Effectively iB4e is using the same persuasive methods of communication that it
employs to market products and services externally, so synchronizing internal and external
brands.

There is a need to recognize and reward employees who achieve against these marketing
goals and the new total reward package that is being pioneered may help in this respect. It
has been suggested that bonuses for good performance could be given that involve an
employee choosing from a range of benefits to a maximum value from a 'menu' offered by the
company.

If carefully designed and delivered, internal marketing should ensure everyone within iB4e not
only understands why the organisation exists but also its key outputs and metrics. Most
importantly, there should then be an understanding of how every individual within the
company can effectively contribute towards corporate goals.

Enterprise Operations 7 September 2011

Answer to Question Four
Requirement (a)
The proposed People and Payroll system could offer a number of benefits to LD2 including:

Improved system quality

LD2 wants to simplify and improve the quality of its operations, including presumably data and
information. The People and Payroll software should offer a simplified system that would
overcome some of the existing deficiencies which are leading to poor quality operations.

Systems integration.
At the moment there is incompatibility of software and complex reconciliation processes being
performed within LD2. The solution will provide a single common integrated technology for
both centralised HR and payroll processing. It is wasteful to operate separate systems and
common data can be used for both applications. The unification of the systems will make
reconciliation of separate data sources unnecessary.

Ability to reduce costs and increase efficiency

Current systems are both outdated and various. As such, the integrated solution offered by
the People and Payroll system will simplify and rationalise operations. The maintenance costs
of the several systems that LD2 operates presently are likely to be costly. There is now
potential for economies of scale. These savings could be applied to the costs associated with
new hardware, software, staff training etc.

Improved accuracy
A single system will help eliminate errors and inaccuracies arising from the existing
duplication of data sources. Currently, there are payroll errors due to faulty data entry and
calculation.

Better management control

The information from accessible diaries, overtime patterns and holiday and sickness levels
will enable managers to exercise tighter control over staff activities and possibly reduce costs
as a result.

Improved management reporting

A feature of LD2's operation at the moment includes management reports being late. The new
system should speed up and improve managerial information for decision making.

Improved communication
Within the People and Payroll system, there is a facility to allow managers to have immediate
access to information on diaries and holidays etc. This will improve communication by making
the arranging of meetings and work scheduling easier.

Speed of entry and processing

This advanced technology will involve a direct entry facility and which should reduce entry
and processing times. This may help overcome the current problem of late management
reports.

Relative competitive advantage

Instead of being a source of strategic weakness, LD2's systems, including the People and
Payroll system, could become a relative strength. LD2's technology currently lags behind that
of its competitors and the commitment to replace it with the most advanced available may
provide LD2 with some competitive advantage over its rivals.

Improved security features

Presently, payroll and invoicing errors are arising due to human error and, worryingly, this
implies that a potential for fraudulent activity also exists. As current systems are outdated they
may not be as secure as they could be, meaning that there is also risk of improper use of
sensitive information and data loss. These problems have doubtlessly contributed to the poor

September 2011 8 Enterprise Operations

quality and operational errors that LD2 is currently experiencing. Modern systems tend to
have inbuilt designed security features which should overcome these concerns.

Requirement (b)
LD2 wants to consolidate its business by simplifying and improving the quality of its
operations by implementing a group wide quality programme. The group has a number of
distinct alternative approaches to quality that it may wish to consider.

Quality control
Quality control is an approach involving:
• establishing quality standards for a service or product,
• designing a process to deliver the service or product to the required quality,
• measuring the quality of the service or product,
• comparing actual quality with planned quality
• taking remedial action where quality does not meet standard,
• reviewing the standard originally set and making adjustment if necessary.

A quality control mechanism would be used mainly in technical production processes. It would
involve identifying an aspect of the production process that is critical to the quality of
production, then establishing warning limits and tolerances. Close monitoring (possibly using
advanced technology) followed by immediate action to remedy any breach of the tolerance
would be needed. The quality control system can be organisation-wide and could include the
design process, quality assurance of suppliers of raw materials, production, warehousing,
distribution, or after-sales service, etc.

Quality assurance system

Quality assurance (QA) systems are in certain ways superior to quality control systems in that
they attempt to create rather than control quality. The system will need to account for all
operations and the way in which they are planned, managed and carried out, including:
• production design,
• materials of a consistently appropriate standard,
• a reliable and consistent supply of materials,
• reliable plant and machinery, and
• staff training in order to reduce the potential for human error.

The main forms of QA systems are given below:

International accreditation of standards

The key feature of the ISO 9000:2000 series quality award is the underlying assurance that
customer satisfaction and fulfilment of customer requirements are achieved. To qualify for
accreditation LD2 must define a quality standard and the process needed to achieve it and
this is regularly verified by external inspectors. Registration under the standard requires the
submission and approval of documentation (e.g. a quality manual, procedure manual, work
instructions, etc.). The main benefits include being recognised as having a certified standard
of quality which hopefully will lead to customer confidence and increased competitiveness,
sales and profitability. In addition, accreditation could prove an excellent marketing tool for
LD2.

Total quality management

Total Quality Management (TQM) is a comprehensive organisational philosophy that
encourages and fosters continuous improvement. The fundamental features of TQM are
prevention of errors before they occur and the importance of total quality in the design of
products and systems. TQM focuses on quality from a customer perspective using a
systematic, integrated, organisation-wide approach. There are several approaches to
developing a TQM philosophy often embracing a number of quality techniques such as quality
circles, Kaizen, etc.

Enterprise Operations 9 September 2011

Common TQM features include:
• The involvement of everyone in satisfying the needs of external customers and
internal customers (users of departmental services within LD2).
• Open, honest communication throughout the organisation.
• Training and education to equip the workforce with the necessary skills to realise their
own potential.
• Teamwork and collaboration.
• Involvement of customers and suppliers as an integral part of the improvement.

Self assessment quality model

The European Quality Foundation model is one of the best known of several self-assessment
models for business improvement. This provides a structured methodology for organisations
such as LD2 to measure their own performance in areas that are critical to businesses. The
model allows areas for improvement to be identified through self-assessment. It is a non-
prescriptive framework based on nine criteria grouped into what the organisation achieves
(results) and how results are achieved (enablers). Results include customer results, people
results, society results and key performance results. Enablers involve leadership, strategy,
people, partnerships, resources and processes.

Requirement (c)
The likely features of the proposed corporate website will include:
• Many of LD2's competitors are experimenting with online trading which is a main
feature of many contemporary commercial websites. As LD2's website should be
comparable with the best in the kitchen accessory, supply and fitting industry it should
include this facility.
• Accessibility by all browsers and IT platforms in order that the largest market
audience is able to access the site.
• Credit and debit card security and privacy safeguards for customers as they would
be able to purchase kitchen accessories online and supply potentially sensitive
information when requests for kitchen supply and fitting are placed.
• In terms of features, the website needs to be comprehensive yet user friendly,
formative and easy to navigate. A site specific search facility might be a worthwhile
feature.
• The site should be customer friendly. It could have links to other information
sources such as details of LD2's showrooms, a listing of stockists of LD2 kitchen
products, etc. Most likely staff would need to visit potential customers to advise on
kitchen fitting and an email link for answering queries and diary for arranging visits
would be features that the user would find helpful.
• The website would need to be visually appealing, so aesthetic and technical
considerations should help guide issues of screen layout, colour, graphics, etc.
• A feature should be a potential to update quickly and easily. Ongoing maintenance of
the site is important to accommodate customer feedback, price alterations or
additions to, or deletions from the product range. The ease with which this can be
carried out will be important.
• Feedback from customers is important and a facility for customer reaction will be
needed. Possibilities include a facility to post customer reviews, an email link or the
completion of an online customer satisfaction questionnaire.

September 2011 10 Enterprise Operations