CIMA E2 BPP Study Notes

Project and Relationship
Management
Operational Level Paper E2
Course Notes
FOR EXAMS IN 2015
978-1-4727-8539-8
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Contents
Page
Welcome to E2 .................................................................................................................................. 4
Exam Technique Overview ............................................................................................................... 9
Introduction to strategy and contemporary perspectives
1a Introduction to strategy....................................................................................................... 11
1b Contemporary perspectives in strategy development ........................................................ 29
General environment
2 General environment ............................................................................................................ 41
Competitive environment
3 Competitive environment...................................................................................................... 51
Key concepts in management and leadership
4a Key concepts in management ............................................................................................ 63
4b Key concepts in leadership................................................................................................. 75
Culture
5 Culture .................................................................................................................................. 87
Conflict, negotiation and communication
6 Conflict, negotiation and communication.............................................................................. 99
Control and the finance function
7 Control and the finance function......................................................................................... 119
Change management
8 Change management ......................................................................................................... 131
Introduction to project management
9 Introduction to project management................................................................................... 143
The project team
10 The project team............................................................................................................... 159
Answers to lecture examples ........................................................................................................ 179
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WELCOME TO E2
Welcome to E2 Project and Relationship Management

Our aim is to help you confidently prepare for success in your exam in an effective and efficient
way; allowing you to personalise your learning experience, step by step, whilst being supported by
BPP’s team of experts.
These course notes are one of the components of your programme, and are one of the tools you
have at your disposal as a student of BPP. They focus primarily on ensuring you acquire the
technical knowledge and understanding required to pass your exam. They have been written by
our subject matter experts and tutors, are will be delivered to you by our expert tutor team, be it in
centre or online.
These course notes play two important roles in your programme:
1. Knowledge – the course notes will help you to learn and understand the key knowledge
topics to allow you to progress up the Achievement Ladder
2. Support – you can revisit specific elements in your course notes in the light of feedback you
receive as you attempt each step on the Achievement Ladder.
Remember, the Achievement Ladder is the unique tool to allow you to see your own progression
towards being fully prepared for the real exam.
Description of the paper

E2 emphasises a holistic, integrated approach to managing organisations, from external and
internal perspectives. It builds on the understanding of organisational structuring gained from E1
and is centred on the concept of strategy and how organisation strategy can be implemented
through people, projects, processes and relationships. It provides the basis for developing further
insights into how to formulate and implement organisational strategy, which is covered in E3.
Syllabus Areas and their weighting
Summary of syllabus
Weight Syllabus topic
30% A. Introduction to strategic management and
assessing the global environment
20% B. The human aspects of the organisation
20% C. Managing relationships
30% D. Managing change through projects
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WELCOME TO E2
The Objective Test exam

Pass Mark 70%
Format Computer Based Assessment
Duration 90 minutes
Number of Questions 60
Weighting As per Syllabus Areas
All component learning outcomes will be covered
Question Types Multiple Choice
Multiple Response
Drag and Drop
Gap Fill
Hotspot
Drop Down List
Booking availability On demand
Results Immediate
How To Pass Your OT exam

In simple terms, the best way to pass your exam is to work your way up the Achievement Ladder
at a good steady pace, acting on all feedback as you go. This will ensure you cover all the
technical syllabus in a balanced way, and will get you familiar with the different real-exam question
types and how to approach them.
A great way of furthering your understanding is to continually try to put the topics, concepts and
ideas in the syllabus into context. As you move through your course, think about how your learning
relates to your working life, or to reports in the business news. Read management accounting
journals and articles and see how they tie in with your studies. Passing CIMA exams is all about
applying what you know to real business situations, so the more you can think along these lines
the better.
A key first step you should take is to construct a Study Plan, based around the dates you will
attempt each step of the Achievement Ladder. You should look to transfer these dates to your
online calendar in the near future.
5
WELCOME TO E2
Syllabus Learning Outcomes

Lead Outcome Component Outcome Chapter
A Introduction to strategic management and assessing the global environment
1 Discuss developments in (a) discuss the concept of strategy and 1a Introduction to
strategic management the rational/formal approach to Strategy
strategy development
(b) compare and contrast alternative 1a Introduction to
approaches to strategy development Strategy
1b Contemporary
Perspectives in
Strategy
Development
(c) explain the approaches to achieving 3 Competitive
sustainable competitive advantage Environment
2 Analyse the relationship (a) distinguish between different aspects 1b Contemporary
between different aspects of the global environment, including Perspectives in
of the global business the competitive environment Strategy
environment Development
2 General
Environment
(b) discuss the approaches to competitor 3 Competitive
analysis including the collection and Environment
interpretation of trend data
B The human aspects of the organisation
1 Discuss the concepts (a) discuss the concepts of leadership 4a Key Concepts
associated with managing and management in
through people Management
4b Key Concepts
in Leadership
(b) discuss HRM approaches for 6 Conflict,
managing and controlling individual’s Negotiation
performance and
Communicat-
ion
2 Discuss the hard and soft (a) discuss behavioural aspects of 4a Key Concepts
aspects of people and management control in
organisational Management
performance 7 Control & the
Finance
Function
(b) explain the importance of 5 Culture
organisational culture
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WELCOME TO E2
Lead Outcome Component Outcome Chapter

C Managing relationships
1 Discuss the effectiveness (a) evaluate the issues associated with 10 The Project
of organisational building, leading and managing Team
relationships effective teams
(b) discuss the effectiveness of handling, 7 Control & the
relationships between the finance Finance
function and other parts of the Function
organisation and the supply chain
(c) discuss the effectiveness of handling 7 Control & the
relationships between the finance Finance
function and external experts and Function
stakeholders
2 Discuss management tools (a) discuss the roles of communication, 6 Conflict,
and techniques in negotiation, influence and persuasion Negotiation
managing organisational in the management process and
relationships Communicat-
ion
(b) discuss approaches to managing 6 Conflict,
conflict Negotiation
and
Communicat-
ion
D Managing change through projects
1 Advise on important (a) discuss the concept of organisational 8 Change
elements in the change change Management
process (b) recommend techniques to manage 8 Change
resistance to change Management
2 Discuss the concepts (a) discuss the characteristics of the 9 Introduction to
involved in managing different phases of a project Project
projects Management
(b) apply tools and techniques for project 9 Introduction to
managers Project
Management
(c) discuss management and leadership 10 The Project
issues associated with projects, Team
including the roles of key players in
projects
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WELCOME TO E2
2015 Syllabus Changes

For resit students who first studied the paper under the 2010 syllabus only…
There have been some specific changes to the technical content of this paper’s syllabus, and you
should be fully aware of these to help you prepare for your resit under the 2015 Syllabus.
Here’s a summary of the ‘ins and outs’ for this paper:
Main Topics that have come in… Main Topics that have gone out…
Change Management See Chapter 8
LoNGPEST See Chapter 2
Big Data See Chapter 3
As well as ensuring you take these main changes into account during your preparations for your
resit, you should also be aware that the new assessment structure in 2015 means that you will be
examined in a different way even for topics that have ‘rolled over’ from the 2010 Syllabus.
We would therefore strongly recommend attempting all the Steps in your Achievement Ladder, and
act on the feedback provided, to ensure you are fully exam ready for your resit.
You will find more detail and guidance online.
The Case Study Exam

Your Integrated Case Study exam for this Level will draw on the technical content of each paper’s
syllabus. To pass, you will need to APPLY this knowledge in the context of the preseen case
study, demonstrating CIMA’s four core competencies and your ability to integrate your knowledge
across the three pillars in a single exam.
It is therefore a very good idea to keep your technical knowledge fresh after passing your OT exam
for this paper, and to start to think more about how the technical theories, techniques and concepts
apply to ‘real life’, as this is effectively what you will be assessed on in your Case Study exam.
The specifically written ICS Bridging Questions that you will find online will help you with this and
we would recommending looking at these after your OT exam, and as your attention starts to shift
towards preparing for your Case Study.
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WELCOME TO E2
Exam Technique Overview

1 Knowing the best way to approach each Question Type
Passing your CBA is all about demonstrating your understanding of the technical syllabus content.
You will find this easier to do if you are comfortable with the different types of Objective Test
Questions that you will encounter in the CBA, especially if you have a practised approach to each
one.
OTQ Type Example

Multiple Choice “Choose one correct answer from the following options: A B C D”
Multiple Response “Which THREE of the following are true in this situation?”
Drag and Drop “Drag and drop these steps of the process into the correct order”
Gap Fill / Numeric Entry “Give your answer to the nearest $million”
Hotspot “Click on the area of the graph that represents profit”
Drop Down List “The strategy adopted by the company is best described as … ”
You will find yourself continuously practising these styles of questions throughout your Objective
Test programme. This way you will check and reinforce your technical knowledge at the same
time as becoming more and more comfortable with your approach to each style of question.
2 Making all the decisions you can before your CBA

You’re not likely to have a great deal of ‘spare time’ during the CBA itself so you must make sure
you don’t waste a single minute. One way to do this is to make any decisions that you can before
your CBA, so all your exam time is purely focused on answering questions…
How long should I spend on each question?
With 60 questions to answer in 90 minutes, on average you have a minute and a half per question.
You can also use this to build handy benchmarks – eg after the first 30 minutes, you should ideally
have answered 20 questions, and with 30 mins to go you should have 20 questions remaining, etc.
What’s the mix of question types likely to be in the CBA?
This is especially important for papers with calculation questions, as these usually take quite a bit
longer than purely narrative questions, so this will allow you to flex your time sensibly in the exam.
Which order should I do the exam questions in?
Another thing you can do in advance of your real CBA is to decide which exam approach works
best for you. There’s no single right way of working through a long exam – its all down to personal
preferences, but what is important is that you make your decision in advance and then stick to it!
There are at least three different ways of doing this:
1 Work through the exam from the first question to the last, attempting every single question
as you go and flagging any you want to return to at the end.
2 Work through quickly once, answering all the questions that seem ‘easy’ to you, then go
back to the beginning and work through all the trickier ones.
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WELCOME TO E2
3 If there are a mix of calculations and narrative questions in your CBA, you could work
through and do all of the narrative questions first as these are often easier and certainly
quicker, but you must set yourself a target time to complete them to ensure you don’t over-
run as you will need longer per question to complete all the calculation questions.
The key here is to try out different approaches during your studies, so that you can identify and
settle on the one that works best for you.
3 Maximising your marks in your CBA

Time does funny things in an exam!
Scientific studies have shown that humans have great difficulty in judging how much time has
passed if they are concentrating fully on a challenging task (which your CBA should be!).
You can try this for yourself. Have a go at say five questions for your paper, and notice what time
you start at. As soon as you finish the last question try to estimate how long it took you and then
compare to your watch/clock/phone.
The majority of us tend to underestimate how quickly time passes and this can cost you dearly in a
full exam if you don’t take steps to keep track of time.
So, the key thing here is to set yourself sensible milestones, and then get into the habit of regularly
checking how you are doing against them: -
 You need to develop an internal warning system – “I’ve now spent more than 3 minutes on
this one calculation – this is too long and I need to move on!” (less for a narrative question!)
 Keep your milestones in mind (eg 20 questions done after 30 mins). If you are a distance
from where you should be then adjust your pace accordingly. This usually means speeding
up but can mean slowing down a bit if needs be, as you may be rushing when you don’t
need to and increasing the risk of making silly mistakes.
A full exam will be a mix of questions you find harder and those you find easier, and in the real
CBA the order is randomised, so you could get a string of difficult questions right at the beginning
of your exam. Do not be put off by this – they should be balanced up later by a series of questions
you find easier.
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Introduction to strategy
Introduction
 Introduction to strategic management and assessing the global
Syllabus Area A environment
 30%
Lead learning outcome  Discuss developments in strategic management
 Discuss the concept of strategy and the rational/formal approach to
Syllabus component strategy development
 Compare and contrast alternative approaches to strategy development
Context
This syllabus component will require that you have a good understanding of the fundamental techniques for strategic
planning for an organisation.
You will need an in-depth understanding of the rational planning model and its alternatives, and when is appropriate to
use them.
This chapter addresses the following indicative syllabus content: Section
Defining strategy and strategic management; Core areas of strategic management 1
Levels of strategy within organisations 1
Stages in the rational approach to strategy developments 2-9
Intended, emergent, logical incrementalism and political approaches 10-11
Resource-based view – resources and competencies, internal value and dynamic 12-13
capabilities
Other chapters in Syllabus Area A

Chapter 1a Chapter 1b Chapter 2
Introduction to Contemporary General Environment
strategy perspectives in
Chapter 3
Competitive
Environment
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1a: INTRODUCTION TO STRATEGY
Overview
The rational planning

model
What is Strategy?
The rational Top-down Positioning view vs Criticisms of the

planning model strategy process resource-based rational planning
view model
Mission and Emergent

objectives strategy
Environmental
analysis
Logical
incrementalism
Position audit
Strategic option, Strategy & small

choice, businesses
implementation
and review
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model
What is Strategy?
Top-down Positioning view

strategy process vs resource-
based view
13
1 What is a strategy?
1.1 A strategy is “a course of action, including the specification of resources required, to achieve
a specific objective.” (CIMA) It is concerned with:
 the purpose and long-term direction of an organisation
 the scope of an organisation’s activities
 meeting challenges arising from the external environment
 using internal resources effectively
 delivering value to people who depend on the organisation
1.2 Strategic management is the strategic decision making which is characterised by the
consideration of:
 the scope of business activities
 matching a business’s activities to its capabilities
 allocation of resources
 the operational decisions which follow
 the values and expectations of senior management
 the long-term direction that the business takes
 change in the business
1.3 Strategy can play a number of roles within an organisation. Henry Mintzberg suggested five
such roles, known at the 5 Ps of strategy.
(a) Plan. Strategy can provide direction for an organisation.
(b) Pattern. Strategy, whether intended or not, will be evident as a consistent pattern of
behaviour over the long term.
(c) Ploy. Strategy can be used as a tactic to deter or confuse competition.
(d) Position. An organisation's strategy can provide an indication as to where that
organisation places itself within a particular market or environment.
(e) Perspective. Strategy indicates more than just a chosen position, it represents the
unique way in which an organisation perceives the environment in which it operates
and how it interprets the information from it.
1.4 Strategies exist at all levels of the organisation and can be considered as covering three
areas as follows:
Levels
Corporate strategy the overall purpose and scope of the organisation
Business strategy how a strategic business unit approaches a particular market
Functional strategy long-term management policies of functional areas
Areas
Financial strategy capital structure, dividend policy, investor relations
Investment strategy use of capital to provide strategically valuable resources
Competitive strategy how the business outperforms its rivals
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Lecture example 1 Exam Standard
A consultant has told the board of ABC Ltd that the strategic planning process should result in a
strategy at all levels of an organisation. He has shared a document setting out how overall
objectives are to be achieved, by specifying what is expected from specific functions, stores and
departments.
What type of strategy has he created?
A Corporate Strategy
B Business Strategy
C Functional Strategy
D Competitive Strategy
Solution
2 The rational planning model

2.1 In order to plan a strategy effectively, many organisations follow a formal process, of which
the rational planning model is the most widely used. With the rational planning model:
 Strategy is seen as the achievement of objectives
 A formal, documented process is followed
 The process is led by senior management
 The process incorporates corporate / business / functional strategies
Position Review
Audit and
Control
Mission Corporate Strategic Strategy Strategic

and appraisal option evaluation & implementation
Objectives generation choice
Environment
analysis
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2.2 Each stage within the rational planning model is considered in detail from section 4 onward.
3 Top-down strategy process

3.1 When it comes to setting a strategy, most large organisations adopt a top-down process,
where senior management maintain close control. This means:
 Establishing a designated team responsible for strategy development.
 Formalising the collection of information, both internal and external.
 Senior managers deciding on the strategy collectively.
 Formal communication and implementation of the strategy.
 Regularly reviewing the strategy at a senior level.
Lecture example 2 Discussion
Required
Explain the advantages and disadvantages of the top-down approach to strategy.
Solution
4 Mission & objectives

4.1 A mission is a broad statement of the purposes of an organisation that has been prepared
in line with the values and expectations of its stakeholders. It is often communicated in the
form of a mission statement.
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4.2 According to Hooley et al (1992), a mission statement should:

(a) Provide a basis for consistent decision-making.
(b) Assist in translating direction into objectives suitable for assessment and control.
(c) Provide a consistent purpose between different interest groups (stakeholders).
(d) Establish organisational goals and ethics.
(e) Improve understanding and support from key groups outside the organisation.
The bus service provider Stagecoach Group has the following mission statement:
“Stagecoach Group is committed to being a market-leading public transport business with long-
term growth prospects based on high-quality services and investment in innovation. Our vision is to
create sustained shareholder value and share our success with our people, our customers and our
communities.”
Required
Discuss whether this is an effective mission statement.
Solution
4.3 A mission is expected to last for several years and therefore needs to be relatively open-
ended. The mission therefore needs to be converted into a series of strategic objectives
that set targets for the business to achieve. Such objectives need to be:
Specific Is it clear and unambiguous?
Measurable Can it be objectively measured?
Achievable Do those involve believe it is realistic?
Relevant Will it help the organisation meet its mission?
Time-bound Has a deadline for achievement been agreed?
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4.4 An objective that meets these characteristics will perform the following functions:
Planning A framework that identifies the targets to be reached
Responsibility Place clear expectations on managers
Integration Ensure coordination of effort across the organisation
Motivation Inspires managers to meet targets
Evaluation Acts as a criteria for performance evaluation
4.5 Like controls (see Chapter 7), objectives are needed at strategic, tactical and operational
levels.
5 Environmental analysis
5.1 In order to develop an effective strategy, there needs to be an awareness of the
opportunities and threats contained in the external environment. This can be done using
PESTEL and Porter’s Five Forces. Both these models will be discussed in more detail in
Chapter 2.
6 Position audit
6.1 The position audit involves an internal analysis of the organisation’s strengths and
weaknesses. Johnson, Scholes & Whittington (2008) identify four areas to consider:
Threshold resources resources needed to meet the customer’s minimum requirements
Threshold competences activities and processes needed to meet the customer’s minimum
requirements
Unique resources resources that underpin competitive advantage and are difficult for
competitors to replicate
Core competences activities and processes that underpin competitive advantage and
are difficult for competitors to replicate
6.2 The organisation’s internal position can also be analysed using Porter’s Value Chain (also
assumed knowledge from E1). The components of each activity below can be analysed to
determine the extent to which they “add value to the customer”:
Firm infrastructure
Support Human resource management

activities
Technology development M
A
Procurement R
G
Inbound Operations Outbound Marketing Service
I
logistics logistics and sales
Primary N
activities
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ABC Ltd provides financial planning services for small businesses. Their management accountant
has been tasked with a review of the company’s activities in providing its services to customers. In
terms of Porter’s Value Chain, which are the primary activities they should consider?
A Inbound logistics
B Procurement
C Firm infrastructure
D Marketing & sales
E Service
Solution
7 Corporate appraisal
7.1 The internal position audit and external environmental analysis combine to form a corporate
appraisal or SWOT analysis:
Internal
Strengths the skills or competences that give an organisation an advantage over its
competitors.
Weaknesses internal failures that hinder the organisation from meeting its aims.
External
Opportunities events or changes outside the organisation that could be exploited to the
organisation’s benefit.
Threats events or changes outside the organisation that are unfavourable to the
organisation and need to be guarded against.
8 Strategic option, choice, implementation & review

Strategic options
8.1 Having completed the corporate appraisal, it is up to managers to identify the options open
to the organisation. While some of these will extend clearly from the SWOT analysis, others
may emerge through a more creative idea-generation process.
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Strategic choice
8.2 With a range of options to choose from, a strategic choice is made using the following three
criteria:
 Will it achieve competitive advantage?
 What is the organisation’s strategic advantage?
 What methods will be used to meet these objectives?
8.3 The organisation can choose to meet their objectives using the following methods:
 Internal development / organic growth
 Takeover / acquisition or merger
 Strategic alliance
Strategic implementation
8.4 Having agreed the overall strategy, it is necessary to convert it into a set of detailed plans in
order to implement it. These take place at tactical and operational levels.
Strategic review
8.5 The strategy should be continually reviewed from two perspectives:
 Will the delivery of the strategy help the business meet its strategic objectives?
 Do changes in the environment require a change in strategy?
9 Criticisms of the rational planning model

9.1 Although the rational planning model is the most widely used method of generating a
strategic plan, it has been criticised by some for being too academic and failing to reflect
“the real world”. These criticisms include:
(i) The model is too rigid.
The rational planning model does not allow users to go backwards – only forwards.
This could result in a strategy being implemented that does not reflect recent changes
to the internal or external environment.
(ii) No strategy can be completely formalised in advance.
Any strategy is based on imperfect knowledge of the future. Any attempt to allow
scope for change undermines the stability of the whole model.
(iii) Managers only declare their strategy after the event.
Mintzberg argues that managers present their past actions as being part of an
intentional strategy, whether they were or weren’t. In other words, strategy is not
created in advance but emerges over time.
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(iv) An organisation cannot set an objective – only the people within it.
Objectives are the outcome of negotiation between internal factions. Objectives
therefore conflict with each other and become obsolete as different groups become
more or less dominant.
(v) The people who set the strategy aren’t the people responsible for implementing
it.
Objectives are set by senior management, who don’t have sufficient awareness of the
issues being faced in the front line or the social and cultural values of staff.
(vi) Strategy is not a rational process.
An excessively rational approach to strategy can cause managers to become
obsessed with the associated problems (inconsistency between objectives, resistance
from those who disagreed with their approach). Instead, it is argued, lower level
managers should select shorter-term courses of action.
In addressing these criticisms, two alternative models have been identified:
 Emergent strategy
 Logical incrementalism
10 Emergent strategy
10.1 Mintzberg (1987) sees strategy as including an unanticipated or emergent dimension.
Intended strategy is formally created by established senior management. Some of these

will be taken forward (deliberate strategy) and others will not. At the same time, informal
patterns or consistencies will create an emergent strategy.
10.2 The emergent model reduces the reliance on a formal process and instead shifts the focus
for creating a strategy on the manager. Mintzberg recognised that managers could develop
deliberately emergent strategies by creating conditions that allow new ideas to flourish.
10.3 To develop such a strategy effectively, the manager needs the following skills:
 Manage stability – there is no need to constantly re-think the organisation’s strategy.
 Detect discontinuity – look for subtle changes that may impact on future performance.
21
 Know the business – develop a hands-on feel for the business.

 Manage patterns – encourage strategic initiatives to grow and intervene as
necessary.
 Reconcile change and continuity – major change will require careful management.
11 Logical incrementalism
11.1 Lindblom (1959, 1979) used logical incrementalism to demonstrate how administrators
operated without implementing any radical changes.
Radical strategy
Environment
Strategic
drift
Logical incrementation
Now Time
11.2 Administrators do not take drastic action to achieve radical strategy but continue along the
same path as before, towards logical incrementation. However, where there are changes
in the environment, the path of logical incrementation will deviate from what is required and
create a strategic drift.
11.3 Note that this is a statement of reality rather than a recommendation to follow!
11.4 Quinn (1978) develops logical incrementalism into something more positive, where the
manager moves towards a defined destination through a series of small steps, adapting to
circumstances as they change.
11.5 In Quinn’s model, logical refers to the use of a formal strategic framework (such as the
rational planning model), while incrementalism is the belief that stakeholder consensus is
best achieved through incremental (rather than rapid) change. In this context, the
manager’s role is to:
 Be attuned to the issues the organisation is facing by networking formally and
informally with internal and external stakeholders.
 Develop a strategic vision when the need arises.
 Build political support for the vision (as opposed to presenting a full-blown strategy).
 Obtain commitment by initiating a trial of the new strategy.
 Allow the consensus to build and implement the change incrementally.
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Required
Explain how the duties and skills required of a manager using the rational planning model compare
to those of a manager using logical incrementalism.
Solution
12 Further considerations
Positioning view versus resource-based view of strategy
12.1 In the context of a strategy’s aim to “meet the challenges of arising from the external
environment”, theorists disagree over how organisations can compete successfully. This
has led to two conflicting theories: the positioning view and resource-based view.
23
Positioning view
12.2 The positioning view sees competitive advantage as coming from the way a firm positions
itself in relation to its competitors, customers and stakeholders. This competitive advantage
can therefore be secured through:
 High market share compared to rivals
 Differentiated products
 Low costs
According to this view, the organisation therefore needs to adapt to fit its environment
(referred to as an outside-in view).
Criticisms of the positioning view

12.3 Until the 1990s, the positioning view was widely accepted. However, the following criticisms
emerged:
(a) Competitive advantages are not sustainable
Positioning advantages can be replicated by competitors with relative ease.
(b) Environments are too fast-moving for positioning to be effective
If the environment changes too quickly, the organisation will always be changing in a
futile attempt to catch up.
(c) It is easier to change the environment than the organisation
The organisation’s structure and competences will be destroyed if it is always having
to change to meet the environment’s demands.
Resource-based view
12.4 Resource-based theorists believe that, instead of permanently reacting to its environment,
the organisation should focus on developing a unique competence or asset and then find a
market which wants it. This is referred to as an inside-out view.
12.5 Stalk et al (1992) identify four principles of the resource-based view (referred to by them as
capabilities-based competition):
(a) Advantage needs to be based on business processes, not products.
(b) Success derives from converting these processes into value-adding capabilities.
(c) These capabilities require group-wide investment (i.e. across functional boundaries).
(d) The CEO needs to champion this group-wide approach for it to be effective.
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12.6 Resource-based theorists have attempted to identify where internal competitive advantage
comes from:
Stalk et al (1992) Barney (1991) Kay (1997)

Competitive architecture
Speed Valuable
(see below)
Consistency Rare Reputation
Acuity Imperfectly imitable Innovative ability
Agility Substitutability Owning strategic assets
Innovativeness
12.7 Kay’s competitive architecture refers to the relationships that make up the organisation.
These break down into:
(i) Internal architecture (relationships with employees)
(ii) External architecture (relationships with suppliers and customers)
(iii) Network architecture (relationships between a group of collaborating firms)
As compared with the Resource-Based Approach the Positioning Approach to strategy:

A assumes the future of markets is predictable
B ensures the organisation has a good fit with the environment
C is outside-in
D is based on core competences
E focuses around what the organisation does best
Solution
12.8 Prahaland & Hamel (1990) argue that organisational controls should be based, not on a
division/SBU basis, but instead on its competence. This supports Stalk et al’s theory that
failing to cross divisional boundaries can ultimately damage an organisation’s competence.
Implications of the resource-based view

12.9 Taken to its logical conclusion, the resource-based view conflicts with theories that focus on
products and/or markets. Such theories include Porter’s Five Forces, the Product Life Cycle
and even the rational planning model! However, resource-based theorists would argue that
even a unique product will eventually be replicated or substituted, whereas processes can
form a long-term source of competitive advantage.
25
The political approach to strategy

12.10 The political approach to strategy recognises the influence of power in strategy
development, and hence the use of bargaining and negotiation in setting strategy.
The formulation of strategy is viewed as a political process where political and stakeholder
analysis is critical to determine the main sources of power.
13 Strategy and small businesses

13.1 Brian Birely (1982) saw the traditional top-down approach to strategy as being inappropriate
for small businesses for four reasons:
(a) Internal stakeholder interests
Small businesses are often owner-managed, making it difficult to separate strategic
decision making from shareholder (and, potentially, family) issues.
(b) Limited market choice
A small business will have fewer products / services than larger competitors and
therefore have a narrower range of strategic options to choose from.
(c) Limited resources
Even when a strategy has been proposed, small businesses often have insufficient
capital to pursue it.
(d) Organisational structure
Small firms may not have the infrastructure (or management skills) to deliver the
strategy.
13.2 Although Birely’s points will be familiar to many small, family-run firms, some entrepreneurs
have grown rapidly due to adopting a freewheeling opportunism approach. This involves:
 Successfully competing against a much larger, complacent competitor.
 Sticking to the founder’s vision of how they wanted the business to develop.
 Providing products / services in markets where customers behave spontaneously.
 Not reliant on conventional funding sources.
 The day-to-day involvement of the founder who demonstrates appropriate skills.
Some very large businesses have been successful with a freewheeling opportunism
approach also.
26
Summary
model
Strategy is "a course of

action, including the
What is Strategy? specification of resources
required, to achieve a
specific objective.
The rational Criticisms of the

planning model rational planning
model
Mission and Emergent

objectives strategy
SMART and PRIME Intended strategies

Unrealised strategies
Deliberate strategies
Environmental
Emergent strategies
analysis
Realised strategies
PESTEL
O&T of SWOT Logical
incrementalism
Position audit
a series of small
steps toward a goal,
Value chain adapting to the
S&W of SWOT environment as it
changes
Strategic option, Strategy & small

choice, businesses
implementation
and review Stakeholder interests
Limited market choice
3 Questions: Limited resources
1 will it achieve competitive Organisational
advantage? structure
2 what is the organisation's
strategic direction?
3 what methods will be used
to meet these objectives 27

model
What is Strategy?
Top-down Positioning view

strategy process vs resource-
based view
Requirements: Positioning:
Designated team Outside-In
Formalised collection of internal and
Resource-based:
external information
Inside-Out
Collective decision-making
Formal communication &
implementation of strategy
Regular review of strategy
Advantages:
Avoids short-termist behaviours
Helps identify strategic issues
Gives goal congruence
Improves stakeholder perception of
the business
Provides a basis for strategic control
Develops future management
potential, and helps ensure continuity
Disadvantages:
Too infrequent
Prevents innovative strategies
Harder to implement due to lack of
participation
Loss of entrepreneurial spirit
Impossible to use if environment is
uncertain
Too expensive and complicated for a
small business
END OF CHAPTER
28
Contemporary
perspectives in strategy
development
Introduction
 30%
Lead learning outcome  Discuss developments in strategic management
 Compare and contrast alternative approaches to strategy development
Syllabus component  Distinguish between different aspects of the global business
environment including the competitive environment
Context
This syllabus component introduces you to other strategic considerations organisations can have in the modern
environment, in addition to the models learnt in the previous chapter.
Strategy development in different contexts, e.g. SMEs, public sector, not-for-profit 5-6
Strategy and structure 2-3
Globalisation 1
Transaction cost theory in the context of shared service centres and outsourcing, 4
including contractual relationship, SLAs (service level agreements), bounded rationality
and co-creation with customers

Chapter 3
Competitive
Environment
29
1b: CONTEMPORARY PERSPECTIVES IN STRATEGY DEVELOPMENT
Overview
Contemporary
perspectives
Mergers and Transaction cost Ecological perspective

acquisitions theory of strategy
Complex Hierarchy solutions

organisational forms
Strategic alliances Market solutions
Asset specificity
30
1 Contemporary perspectives
1.1 The growth of internationalisation and globalisation means that, although firms have the
opportunity to explore new international markets, they will also find themselves having to
defend their domestic market against new entrants from overseas.
Globalisation
1.2 The growing economic interdependence of countries worldwide. (IMF)
Required
Why has there been such a strong move towards globalisation?
Solution
1.3 However, at the same time as global markets opened up, there emerged an increasing
emphasis on customising products and services to local conditions. This has resulted in
glocalisation (sic) under the tag line: “think global, act local”.
1.4 The modern business environment is now characterised by internationalisation and
globalisation:
Internationalisation Extension of trade beyond national / economic / political boundaries
Globalisation Functional integration of internationally dispersed activities
1.5 Dicken (1998) clarifies that globalisation is not uprooting political or cultural differences.
Nevertheless, he recognises that globalisation has become prevalent due to:
 Production chains being extended across national boundaries
 Foreign Direct Investment (FDI)
 Creation of supranational organisations (aided by legal / tax / currency harmonisation)
 Transformation of communication and transport through technology
 “Webs of enterprise” transcending political boundaries
 Transference of culture, lifestyle and personnel across national boundaries
31
Required
Discuss the challenges facing governments and individuals in industrialised nations as a
consequence of the increased growth of the globalised economy.
Solution
1.6 As a business decides how to approach a global market, it would consider adopting one of
the following strategies.
2 Mergers and acquisitions

2.1 The traditional approach to becoming a global player was to acquire a subsidiary in the
target country. However, by the 1990s, many firms found that any economies of scale they
experienced were more than offset by the need for increased structure and management.
This overall lack of synergy combined with a desire to focus on the customer’s need led to a
number of high-profile de-mergers.
2.2 In this context, the concept of a strategic alliance has replaced as a viable alternative to
mergers and acquisitions.
3 Complex organisational forms

3.1 In exploring alternatives to traditional mergers and acquisitions, firms are driven by two
needs:
 Cost reduction
 Market penetration
32
Strategic alliances
3.2 A strategic alliance is the sharing of resources and activities across two or more
organisations in order to pursue strategies. Types of strategic alliance include:
Franchising The franchisee manufactures or distributes a product or service while the
franchiser retains control of the brand and marketing.
Joint ventures A new, shared organisation is set up by two or more firms who each retain
an independent entity.
Consortia Short-term legal entities to deliver a particular project.
Licensing The right to manufacture a patented product (in return for a fee)
Network organisations
3.3 Often, when a customer deals with a supplier, he or she is dealing with a network of firms
which come together to provide a single product or service.
ABC Ltd has decided to work with a foreign manufacturer of a complementary service to market
both services jointly in both countries, through a new legal entity, DEF Ltd. What type of structure
have they agreed on?
A Franchise
B Joint venture
C Consortium
D License
Solution
3.4 Where an organisation owns relatively few physical assets and instead relies heavily on
IS/IT, it may be referred to as a virtual network.
3.5 Ghoshal & Bartlett (1997) explain that firms can replace traditional organisational
structures with a network (or virtual) structure and buy in those value-adding activities they
require:
(a) Staff can be hired on a contract / temporary basis
(b) Capital assets can be leased
(c) Outsourcing production / service provision
(d) Customer referrals
33
4 Transaction Cost Theory (TCT)

4.1 Organisations seeking to adopt a network / virtual orientation need to consider two
questions:
(a) Which activities should be bought in?
(b) How can management control operations in a network organisation?
These questions are addressed through Transaction Cost Theory.
4.2 Oliver Williamson (1981) identifies two alternative approaches to controlling resources:
Hierarchy solutions
Having decided to own the relevant assets (or employ staff directly), managers focus on
controlling their use and performance.
Market solutions
Managers enter into a contract to buy in the relevant asset (or staff) from outside the
organisation.
If the transaction costs associated with the market solution are too high, the hierarchy
solution will be preferred.
Required
Identify the transaction costs associated with a market solution and explain why they are hard to
quantify.
Solution
4.3 Transaction Cost Theory (TCT) leads to the following conclusions:

TCT allows distinctive competences to be identified
A firm’s distinctive competence is one that cannot be provided by another company without
prohibitive transaction costs. Anything that can be provided cheaper with a market solution
cannot be a source of competitive advantage.
TCT supports organisational restructuring
For the reasons highlighted above, any non-core competences should be bought in from
outside using a market solution.
IT reduces transaction costs
IT allows the more efficient searching, comparison and monitoring of suppliers.
34
4.4 Williamson goes on to ask why any firm would choose incur transaction costs over and
above the cost of the project itself. His answer is based on the concept of asset
specificity.
4.5 If the relationship between supplier and customer is of high asset specificity, the supplier
is expected to provide an expensive asset with no alternative use. This increased risk may
deter suppliers from entering this market at all but, even if they did, the transaction costs
would become prohibitively high. Therefore, high asset specificity is likely to encourage a
hierarchy solution.
4.6 Williamson identifies six types of asset specificity:
Site specificity a location with a limited range of uses.
Physical asset specificity a unique work of art or building
Human asset specificity knowledge or skills unique to one organisation.
Dedicated asset specificity a man-made asset with only one application.
Brand name capital specificity a brand that would lose impact if spread wider.
Temporal specificity exclusive access to a product / service for a certain time
Other issues to consider

4.7 The following issues need to be considered when investigating TCT:
Organisations may underestimate the costs of internal control
As an organisation takes on more hierarchy solutions and becomes more complex, its
internal costs may increase exponentially.
Increased trust reduces transaction costs
Where an existing relationship of trust exists between supplier and customer, the transaction
costs are likely to be considerably lower.
5 Ecological perspective of strategy

5.1 With ecological issues becoming an increasing social, political and economic issue, a new
style of strategy has emerged that focuses on the organisation’s relationship with the
environment.
5.2 Bennett & James (1996) identify six ecological areas that need to be monitored:
Production minimising inputs required to generate outputs
Environmental auditing compliance with legislation, treatment of waste etc
Ecological approach trace the full life-cycle of the product
Quality A TQM approach to continuous improvement
Accounting Shadow pricing to quantify environmental consequences
Economic Environmental costs allocated to relevant processes
35
6 Social responsibility
6.1 Social responsibility involves “taking more than just the immediate interests of the
shareholders into account when making a business decision.”
Required
Discuss whether or not social responsibility conflicts with shareholder interests.
Solution
Implications for the accountant

6.2 When facing a real-life ethical issue, the philosophies above offer no simple solution. For
the purposes of E2, the following facts should be borne in mind:
 What seems ethical to you may seem unethical to someone else, especially if they
have a different social, commercial or cultural background.
 Different stakeholders are likely to expect different behaviour from the firm.
 Moral and ethical debates inform government policy, often through pressure groups.
36
Summary
Contemporary
perspectives
Mergers and Transaction cost Ecological perspective

acquisitions theory of strategy
Production
Complex Hierarchy solutions Auditing
organisational forms Ecological approach
Quality
Accounting
Strategic alliances Market solutions
Economic
Franchising
Joint ventures Asset specificity
Consortia
Licensing
Site
Physical asset
Human asset
Dedicated asset
Brand name
capital
Temporal
37
END OF CHAPTER
38
Achievement Ladder Step 1
You have now covered the Topic that will be assessed in Step 1 of your Achievement Ladder.
It is vital in terms of your progress towards ‘exam readiness’ that you attempt this Step in the near future.
You will receive feedback on your performance, and you can use the wide range of online resources and
ongoing BPP support to help address any improvement areas. This will help you to tailor your learning
exactly to your own individual requirements.
Course notes
Topic name Subtopic/Chapter name
chapter
Introduction to strategy 1a
Introduction to strategy and
contemporary perspectives Contemporary perspectives in strategy 1b
development
39
Achievement ladder
40
General Environment
Introduction
 Introduction strategic management and assessing the global environment
Syllabus Area A
 30%
 Analyse the relationship between aspects of the global business
Lead learning outcome
environment
 Distinguish between different aspects of the global business
Syllabus component
environment, including the competitive environment
Context
This syllabus component builds on the rational planning model and looks at various techniques to assess the external
environment. You will need to be able to differentiate between the different models and apply them to specific
scenarios.
The macro and micro environments 1
LoNGPEST analysis and its derivatives 2
Country and political risk factors 3
Emerging markets 6
Porter’s Diamond and its use for assessing the competitive advantage of nations 5
Porter’s Five Forces model and its use for analysing the external environment 4

Chapter 3
Competitive
Environment
41
2: GENERAL ENVIRONMENT
Overview
Environmental analysis
Analysing the Analysing the micro-

macro-environment environment
LoNGPEST Corporate political Porter's Five Industry life cycle

activity Forces analysis
Comparative Emerging nations

advantage
Porter's Diamond
42
1 Environmental analysis
1.1 The environment can be seen as any factor outside management’s control which can impact
on the organisation’s operations. It can be analysed at macro (wider business environment)
and micro (industry) levels.
2 Analysing the macro-environment

LoNGPEST analysis
2.1 The macro-environment covers developments in the wider business environment and
examines four key factors, across three levels:
Political government policy, legislation, stability of ruling party
Economic tax rates, inflation, interest rates, exchange rates, unemployment
Social cultural or demographic factors; attitudes, values & beliefs
Technological impact of IT on work processes
These are examined across three levels, which is useful for management when attempting
to understand the key external influences on the organisation. Once those influences
considered most important are known the decision on how to respond can be made:
Local the community that they operate within
National the country that they operate within
Global the international environment that they operate within
Additionally, the PEST analysis is often extended to include two extra factors, referred to as
a PESTEL analysis:
Ecological energy consumption, waste disposal
Legal employment law, product safety, monopolies legislation
ABC Ltd’s management accountant is carrying out a PESTEL analysis. During her research she
discovers a significant growth across the country in the number of female-led small businesses,
which she deems to be an important strategic issue for the company. In which section of her
analysis should she record this matter?
A Local Political
B National Social
C Global Technological
D Local Economic
Solution
43
3 Economic systems
3.1 Economic nationalism – Protectionism
One country (or group of countries) attempts to restrict trade with another, to protect their
producers from competition.
3.2 Economic liberalisation – Free Trade

The movement of goods, services, labour and capital without tariffs, quotas, subsidies,
taxation or other barriers likely to distort the exchange. (CIMA)
Lecture example 2 Idea generation
Required
Explain the advantages and disadvantages of a country adopting a Free Trade policy.
Solution
Corporate political activity

3.3 If political factors are identified through the PEST analysis, organisations can get involved in
the political process in two ways:
Buffering
Lobbying government before legislation is ratified in order to explain its potential impact.
Bridging
Monitoring political developments so as to ensure compliance with upcoming legislation
44
4 Analysing the industry / micro-environment

Porter’s Five Forces
4.1 Unlike PEST, which analyses the general environmental influences on an organisation,
Porter’s Five Forces focus on the competitive environment in which an organisation
operates.
Threat of
new entrants
Bargaining power Rivalry among Bargaining power

of suppliers existing firms of buyers
Substitute
products/services
4.2 Threat of new entrants

The arrival of a new entrant can lead to reduced economies of scale and / or a price war.
However, even the threat of a new entrant can result in costs to existing firms as they try to
prevent the new entrant from becoming established. Barriers to entry include:
 Economies of scale enjoyed by existing firms.
 Differentiated (normally branded) products.
 Capital investment required.
 Switching costs.
 Access to distribution channels.
 Government policy / legislation.
4.3 Pressure from substitute products or service
A substitute product is one that meets a similar need but is manufactured in a different way.
4.4 Bargaining power of buyers / suppliers
Buying power will be greater if:
 There are a small number of customers buying high volumes.
 The products are undifferentiated.
 Buyers are aware of alternative prices.
 Low switching costs.
45
4.5 Competitive rivalry

Michael Porter identifies six factors that create high competitive rivalry:
1. Numerous rivals.
2. Low industry growth rate.
3. High fixed costs.
4. Low differentiation / switching costs.
5. High strategic stakes.
6. High exit barriers.
Which of the following would encourage new entrants into a market, with regard to Porter’s Five
Forces?
A High competition
B A monopoly supplier of a vital component
C One large customer
D Low competition
Solution
5 Comparative advantage & Porter’s Diamond

5.1 In a Free Trade global economy, each nation would theoretically produce the products and
services most suited to its own circumstances.
46
5.2 Michael Porter’s Diamond identifies 4 factors to be considered when determining a nation’s
comparative advantage. These factors can lead to clusters of successful businesses.
Firm strategy,
structure and rivalry
Factor Demand
conditions conditions
Related and
supporting industries
5.3 Factor Conditions

What sources of comparative advantage does the country have? They can be basic (e.g.
raw materials, unskilled labour) or advanced (e.g. IT infrastructure, trained labour).
5.4 Related and supporting industries

What support is available to enable a new industry to emerge in this country?
5.5 Firm strategy, structure and rivalry

Does the country’s culture and management style help or hinder the industry?
5.6 Demand conditions

To what extent does consumer demand in the home country encourage a global approach?
Limitations of the Diamond

5.7 There are a number of difficulties in applying Porter’s Diamond:
1. The choice of country does not, in itself guarantee success.
2. Globalisation makes it difficult to identify a single country of origin.
3. When exporting, it ignores the traits of the target country.
4. Services are more impacted by their local environment.
47
Which of the following is an example of “firm strategy, structure and rivalry” under the Porter’s
Diamond model?
A The demand in the home market
B The quality of domestic competitors
C The presence of competitive supplier industries
D The demand in the global market
Solution
6 Newly industrialising and emerging nations

6.1 Developing nations seek to attract overseas investment from multi-national enterprises
(MNEs). This is known as foreign direct investment (FDI) and can take two forms:
(a) acquisition
purchasing an existing company based in a developing nation.
(b) greenfield investment
setting up new facilities in a developing nation.
6.2 The BRIC countries (Brazil, Russia, India, China) are developing nations growing at a rapid
rate.
This growth has led to the BRIC countries undertaking foreign direct investment themselves.
For example, in February 2010, China had over $750bn invested in US Treasury Bonds.
6.3 Successful emerging nations have adopted some of the following methods:
Export of national commodities
Selling oil, metals or land to foreign countries to generate income that can be invested in the
domestic infrastructure.
Import-substitution
The government uses import taxes or tariffs to protect developing industries and remove the
country’s dependence on foreign imports.
Export led industrialisation
The government devalues the local currency to make exports cheaper and imports more
expensive. The government may also subsidise the cost base of industries.
48
Summary
Environmental analysis
Analysing the Analysing the micro-

macro-environment environment
LoNGPEST Corporate political Porter's Five Industry life cycle

activity Forces analysis
Political Buffering Existing rivalry Introduction

Economic Bridging Threat of new entrants Growth
Social
Technical Threat of substitute Maturity
Local products Decline
National Bargaining power of
Global buyers
Ecological
Legal Bargaining power of
suppliers
Comparative Emerging nations

advantage
Acquisition
Greenfield
Porter's Diamond
Factor conditions
Demand conditions
Related and
supporting industries
Firm strategy,
structure and rivalry
49
END OF CHAPTER
50
Competitive environment
Introduction
 30%
 Analyse the relationship between different aspects of the global business
environment
 Explain the approaches to achieving sustainable competitive advantage
Syllabus component  Discuss the approaches to competitor analysis including the collection
and interpretation of trend data
Context
This syllabus component requires you to understand the competitive environment that modern businesses operate in,
and how an organisation can create and retain competitive advantage.
The concept of competitive advantage; Generic competitive strategies 6
Value, rarity, inimitability, non-substitutability as bases of competitive advantage 6
Achieving sustainable competitive advantage 6
Key concepts in competitor analysis 2
The role of competitor analysis 1
Approaches to collecting competitor information; Sources, types and quality of competitor 3
data
Analysing and interpreting competitor data 4
The application of Big Data to competitor analysis 5

Chapter 3
Competitive
Environment
51
3: COMPETITIVE ENVIRONMENT
Overview
Competitor analysis
Levels of competitor Gathering competitor Responding to Benchmarking

intelligence competitors
Use of big data Competitive advantage
52
1 Competitor analysis
Wilson & Gilligan (1997) identify three roles of competitor analysis:
 Help managers understand their own competitive advantages / disadvantages.
 Generates insights into competitors’ past, present and future strategies.
 Informs future strategies to out-perform competitors.
2 Levels of competitor
2.1 Kotler (2008) identifies four levels of competitor:
(a) Brand – similar size, structure, and products
(b) Industry – same products, but different size or structure
(c) Form – satisfy the same needs but in a different way
(d) Generic – different products competing for the same disposable income
2.2 The extent to which these competitors pose a threat to an organisation depend on:
(a) The number of rivals.
(b) The extent of differentiation.
(c) Entry and mobility barriers.
(d) Cost structure.
(e) Degree of vertical integration.
ABC Ltd has only been in existence for two years, while one of their competitors, XYZ Ltd, was
founded over fifty years ago and is three times the size. What type of competitors are they?
A Brand
B Industry
C Form
D Generic
Solution
53
2.3 Kotler (2008) identifies four reactions to competitor action:

 Laid back competitor
 Selective competitor
 Tiger competitor
 Stochastic competitor
3 Gathering competitor intelligence

3.1 Gathering competitor intelligence is more than a fact-finding mission. Grant (2002) advises
that, to properly understand a competitor, you need to identify their:
 Current strategy
 Objectives
 Assumptions about the industry
 Resources and capabilities
3.2 Two approaches can be taken to sourcing information to inform strategic decision-making:
environmental scanning and detailed environmental analysis.
Environmental scanning
3.3 Environmental scanning is a low-intensity method of gathering information. It can be done
by line managers, the strategic management team or a specialist unit. Wilson & Gilligan
(1997) emphasise the importance, not just of generating this information but also of sharing
it effectively.
Detailed environmental analysis

3.4 Detailed environmental analysis takes place to address a specific issue. This requires a
more in-depth understanding of competitors (see Chapter 17).
Categories of information sources

3.5 Tudor (1992) identifies three categories of information source:
 Primary (original information)
 Secondary (commentary on primary sources)
 Computer-based information services (online databases, web sites)
Qualitative and Quantitative information

3.6 Quantitative research is based on facts and numbers, and is objective. The following
methods are examples of quantitative research:
 Time series analysis
 Regression analysis
 Econometrics
54
3.7 Qualitative research involves collecting and analysing non-numerical data, and is useful for
understanding behaviours and attitudes. This can be done through:
 Observation
 Interviews
 Focus groups
 Surveys
Strategic Intelligence
3.8 Strategic intelligence is defined as “what a company needs to know about its business
environment to enable it to anticipate change and design appropriate strategies that will
create business value for customers and be profitable in new markets and new industries in
the future” (Marchand).
3.9 Key dimensions of strategic intelligence:
Information culture What is the role of information to the

organisation?
Future orientation Specific decisions or general line of enquiry
Structure of information flows Vertical or horizontal?
Processing strategic intelligence Who does it? Experts, or everyone?
Scope Senior management or whole organisation?
Time horizon Short- or long-term view?
Role of IT What kind of management information system is
there?
Organisational “memory” Do we learn from past successes and failures?
Required
Identify the sources of information about a competitor that would be useful to an organisation.
Solution
55
4 Benchmarking
4.1 Benchmarking can be performed as part of SWOT analysis to determine the extent of
strengths or weaknesses. Performance should improve if best practices can be identified
and adopted. Benchmarking can also be used a control technique when measuring
performance.
4.2 Benchmarking is “The establishment, through data gathering, of targets and comparators,
through whose use relative levels of performance (and particularly areas of
underperformance) can be identified.”
4.3 The main types of benchmarking include:

 Internal benchmarking. A means of comparing one operating unit or function with
another in the same business.
 Functional benchmarking. Internal functions are compared with those of the best
external practitioners of those functions, regardless of the industry they are in (also
known as operational benchmarking or generic benchmarking).
 Competitive benchmarking. Information is gathered about direct competitors.
Financial information is easier to obtain but information on products can be gained,
through reverse engineering (the process of dismantling a competitor’s product in
order to understand its content and configuration).
4.4 Competitive benchmarking is sometimes also referred to as competitor accounting, the

analysis of competitors’ costs in order to determine their likely strategies and impact on the
firm.
When Sony launched the PlayStation 3 in 2006, competitors couldn’t understand how it could
provide such an advanced piece of technology (including a Blu-Ray player) at such a low price.
Required
(a) How could one of Sony’s competitors work out the cost of manufacturing a PS3?
(b) Why would Sony choose sell each PS3 at a significant loss?
Solution
56
5 Big Data in Competitor Analysis

5.1 Big data is a term used to describe the extraction of meaning from vast quantities of
uncorrelated data. Organisations are particularly interested in identifying trends and
correlations in the data that they collect and store with the aim of putting this to commercial
use.
Big data was defined by Doug Laney by using the 3 V’s:
Volume The volume of data generated is a key feature of ‘big data’. The quantity of data
now being produced is being driven by social media and transactional-based
data sets recorded by large organisations, for example data captured from in-
store loyalty cards and till receipts. Data is also now being derived from the
increasing use of ‘sensors’ in business.
Velocity Velocity refers to the speed at which ‘real time’ data is being streamed into the
organisation. To make data meaningful it needs to be processed in a
reasonable time frame.
Variety Modern data takes many different forms. Structured data may take the form of
numerical data whereas un-structured data may be in the format of email or
video. This presents a challenge for organisations as processing varied forms of
data requires significant investment in people and IT infrastructure.
Big data can be used in competitor analysis to identify and analyse competitor’s strategies,
as well as trends in customer behaviour. Benefits to using big data in this way are as
follows:
Examine vast quantities Big data analytics allows for large quantities of data to be
of data relatively quickly examined to identify trends and correlations e.g. shopper
buying habits
Improves organisational Better data analysis help management to take advantage of
decision making current social trends by introducing new products to meet
customers needs
Greater focus on the Organisations can target special offers or discounts directly to
individual customer individual customers to encourage repeat business
Cost reduction Improved data about customers and internal operations may
help to reduce costs.
57
Which of the following is not an advantage of using big data?

A Making faster, better decisions
B Creating brand-new revenue streams
C Increased volume of data within the organisation
D Generating insights to tackle important challenges
Solution
6 Competitive advantage
6.1 Competitive advantage is anything which gives one organisation an edge over its rivals.
When a company can continue to earn excess profit despite the effects of competition, it
possesses a sustainable competitive advantage.
To transform a short-term competitive advantage into a sustained competitive advantage for
the long-term, the following criteria must be met:
(a) Value
(b) Rarity
(c) Inimitability
(d) Non-substitutability
6.2 A competitive strategy is ‘taking offensive or defensive actions to create a defendable

position in an industry; to cope successfully with… competitive forces and thereby give a
superior return on investment for the business' (Porter).
Porter believes there are three generic strategies for competitive advantage. To be
successful, Porter argues, a company must follow only one of the strategies. If they try to
combine more than one they risk losing their competitive advantage and becoming 'stuck in
the middle.'
 Cost leadership means being the lowest cost producer in the industry as a whole.
 Differentiation is the exploitation of a product or service which the industry as a
whole believes to be unique.
58
 Focus involves a restriction of activities to only part of the market (a segment)

through:
– Providing goods and/or services at lower cost to that segment (cost-focus)
– Providing a differentiated product or service to that segment (differentiation-
focus)
Cost leadership and differentiation are industry-wide strategies. Focus involves
segmentation but involves pursuing, within the segment only, a strategy of cost leadership
or differentiation.
Which of the following best describes a strategy of differentiation, according to Porter's generic
strategies model?
A When an organisation's products or services offer features that are not offered by
competitors' offerings
B When an organisation has a competence that distinguishes it from other organisation in its
industry
C When the products are perceived to offer greater satisfaction and for which customers are,
consequently, prepared to pay premium price
D When an organisation has a widely recognised brand name
Solution
59
Summary
Competitor analysis
Levels of competitor Gathering competitor Responding to Benchmarking

intelligence competitors
Brand Environment scanning Laid back The establishment,

Industry – low-intensity gathering Selective through data gathering, of
Form of information Tiger targets and comparators
Generic Stochastic through whose use
Detailed environmental
relative levels of
analysis – i.e., using
performance can be
LoNGPEST
identified.
Research –
Internal
Primary (original)
Functional
Secondary (conducted
Competitive
by someone else)
Qualitative (numbers) &
quantitative (words)
information
Use of big data Competitive advantage
Increased speed Cost

Improved decision-making Leadership
Greater focus on individual
customer Differentiation
Cost reduction Focus
END OF CHAPTER
60
You have now covered the Topics that will be assessed in Step 2 of your Achievement Ladder. This
mainly focuses on the shaded topics below but will also include some recap questions on earlier
topics.
Course notes
chapter
development
General environment General environment 2
Competitive environment Competitive environment 3
61
Achievement Ladder
62
Key Concepts in
Management
Introduction
 The human aspects of the organisation
Syllabus Area B
 20%
 Discuss the concepts associated with managing through people
Lead learning outcome  Discuss the hard and soft aspects of people and organisational
performance
 Discuss the concepts of leadership and management
Syllabus component
 Discuss behavioural aspects of management control
Context
This syllabus component requires you to understand the history of management and the main theories from each era.
You will need to be familiar with the various theorists and be able to apply their concepts to various situations.
Fundamental and contemporary concepts in management 1-6
Performance management and measurement frameworks e.g. management by objectives 7
Other chapters in Syllabus Area B

Key Concepts in Key Concepts in Culture
Management Leadership
Chapter 6
Conflict, Negotiation &
Communication
63
4a: KEY CONCEPTS IN MANAGEMENT
Overview
Role of the manager
The classical Human relations Systems theory Contingency

school school theory
Management by
objectives
64
1 Role of the manager

1.1 Management is “the art of getting things done through other people” (Mary Parker Follett).
This chapter looks at how the understanding of what management is has developed over
time:
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Human
Classical Relations System Contingency Mgt By Objectives
2 The Classical School

2.1 Classical theory sees management as a rational, logical and mechanical process.
The administrative school

2.2 Henri Fayol (1841 - 1925) identified management as one of six operations that established
control within a business:
 Technical (production, maintenance, design)
 Commercial (sales & marketing)
 Financial (investments)
 Security (of goods and staff)
 Accounting (financial statements)
 Managerial
2.3 Managerial control, according to Fayol, was achieved by acquiring a set of skills that had
universal application:
(a) Planning
Setting objectives for the organisation and processes for achieving them
(b) Organising
Grouping tasks and providing the resources necessary to complete them
(c) Commanding
Giving instructions to subordinates
(d) Coordinating
Ensuring that all staff are working towards an agreed goal
(e) Controlling
Monitoring performance against plans and correcting any gaps
65
Having been the branch manager of an electrical shop for five years, Gerry is keen to develop his
career. He has secured an interview for a call centre manager position with a financial services
company selling pensions and life insurance. At the interview, he is asked why he should be
considered for the job given that he has no experience in the finance sector.
Required
Advise Gerry how he should answer this question.
A He should explain how he is a frequent user of call centres
B He should discuss the transferable managerial skills that he has
C He should tell them that he is a quick learner, despite his lack of finance experience
D He should admit that he isn’t the strongest candidate for the position
Solution
2.4 Fayol later expanded his POCCC list to create fourteen general principles of management:
 Division of labour – generating efficiency by creating specialist roles
 Unity of command – each employee should receive orders from one manager only
 Scalar chain – a clear organisational structure
 Teamwork, referred to as esprit de corps
 Initiative should be encouraged and developed to the full
 Equity (fairness) should prevail in managers and employees
 Remuneration should be fair
 Material & social order – “a place for everything and everything in its place”
 Unity of direction provided by one head with a single plan
 Discipline, with penalties judiciously applied by worthy superiors
 Central control should be maintained for maximum efficiency
 Authority & responsibility (see Chapter 2)
 Personal interests should not supersede the aims of the organisation
 Stability of tenure (secure jobs) are required to enable long-term goals to be achieved
66
Scientific management
2.5 F.W. Taylor (1856 – 1917) published four principles of scientific management:
(a) Development of a “true science of work”
The ability to accurately calculate what constitutes “a fair day’s work”
(b) Scientific selection and development of workers
Selection of the most suitable worker using objectively measurable criteria, followed
by specific technical training
(c) Combining the science of work with the scientifically selected worker
Uniting 1 and 2 together should allow the workforce to reach its full potential.
(d) Constant and intimate cooperation between management and workers
Taylor believed that a more efficient workforce was in the interests of both managers
and workers.
Scientific management has not gone away – quite the reverse.

Required
Explain the weaknesses of Scientific Management and recommend contemporary situations where
it would be appropriate.
Solution
Bureaucracy
2.6 In the nineteenth century, success was more commonly due to family status and wealth than
an individual’s ability. Max Weber (1864 – 1920) believed that strict adherence to rules and
procedures was a superior method of running a business and identified eight characteristics
of a successful bureaucracy:
 Hierarchy which gives a clear chain of command
 Impersonal, objective and rational decision-making
67
 Public funding, as Weber feared private (e.g. family) money would lead to
conservative decision-making in an attempt to avoid risk
 Specialised roles with a clear division of labour
 Career development occurs within a defined salary structure
 Appointed officials selected based on qualifications, education and training
 Rules strictly followed and used as a basis for decision-making
 Full time commitment from officials (no “part-timers”!)
2.7 Unfortunately, bureaucracy has become more renowned for its weaknesses:
 Slow to respond to change
 Slow to communicate (due to the segregation of officials)
 No involvement of staff in decision-making
 Innovation stifled by “jobs worth” attitude
 Failure to consider important informal relationships
Required
Which of the following is not a benefit of using the bureaucratic form in a hospital?
A Appointment based on technical competence
B Clear rules and procedures
C Lack of innovation
D Decisions and action recorded
Solution
3 Human Relations school

3.1 By the 1920s, management theorists began to shift the focus from rules and processes
towards people and relationships.
The Hawthorne Effect

3.2 The Human Relations school is exemplified by the Hawthorne Studies (1927 – 1932)
conducted by Elton Mayo (1880 – 1949).
68
The Hawthorne Studies were originally concerned with managing fatigue among production line
workers. It was found that installing better lighting improved output and it was logically concluded
that the brighter lighting reduced fatigue and improved productivity. However, when the new lights
were removed, output improved even more! Why was this?
Solution
3.3 Mayo identified that workers defined themselves as members of a group (see Chapter 4).
This led him to conclude that people should not be managed as individuals but as members
of a wider group.
3.4 Henry Mintzberg (1955) grouped a manager’s activities into three roles:
 Interpersonal building relationships with others; leading and liaising
 Informational collecting and disseminating information
 Decisional making strategic decisions about the organisation’s future
Motivation theory
3.5 Frederick Herzberg (1959) saw human behaviour at work as being driven by a desire to
avoid undesirable situations and achieve desirable ones. This was the basis for his Two
Factor Theory (as seen in E1):
Hygiene (or maintenance) factors cannot actively satisfy. They can only prevent
dissatisfaction.
Motivational factors can actively motivate but only if hygiene factors have already been
met.
69
Required
Which of the following are hygiene factors for a police constable?
A Fair supervision
B Level of responsibility
C Salary
D Sense of achievement
Solution
4 Systems theory
4.1 Systems theory regards the working environment as a combination of social and technical
issues – a “socio-technical system”.
4.2 Trist & Bamforth (1951) found that the implementation of new machinery, instead of
improving efficiency, prompted a rise in absenteeism and a total breakdown of workplace
relations. Although there was nothing technically wrong with the machinery, it had:
 Broken up close-knit groups
 Made communication more difficult because of the geographic spread of workers
 Caused jealousy through a new payment scheme
 Built in too much specialisation and individuality into the job
4.3 Trist & Bamforth concluded that the workplace is strongly influenced by both social and
technical factors:
70
5 Contingency theory
5.1 In the 1960s, theorists recognised that it was not possible to select a single management
theory that would apply to all situations. Instead, they concluded that the best theory was
contingent (dependant) upon a range of variables.
Mechanistic v Organic
5.2 Burns & Stalker (1961) saw the level of change in the environment as a contingent
variable. They presented a spectrum ranging from mechanistic to organic.
Mechanistic (used in stable, unchanging environments)
High degree of task specialisation
Clearly defined responsibilities and authority
Each management level responsible for coordination and communication
Selective release of top-level information to subordinates
Great emphasis of fostering loyalty and obedience
Employees often recruited locally
Organic (used in dynamic, changing environments)

Skills, experience and specialist knowledge are valued
Extensive communication networks to integrate efforts
Leadership based on consultation and involvement in problem-solving
Commitment to task achievement exceeds need for obedience
Employees recruited from a variety of sources
6 The flexible firm

6.1 It is widely perceived that flexibility is key to the success of the modern organisation.
6.2 Handy suggested businesses organise themselves as a “shamrock”, i.e. with three key
elements:
(a) The professional core
(b) Flexible labour force
(c) Contractual fringe
6.3 Handy also noted a fourth element which is the customer who, thanks particularly to modern
communications technology, can be drafted in to do some of the work for themselves e.g.,
self scan at the supermarket, or self check-in at the airport.
71
7 Management by objectives
7.1 Management by objectives (MBO) is a control strategy developed by Peter Drucker (1954)
that has more recently gained a higher profile. He advised organisations to set time-bound
objectives or targets in four areas in order to achieve their aims:
 Profitability
 Management performance
 Worker performance
 Public responsibility
7.2 To ensure that these objectives are met, managers need to follow a process:
 Clarify organisational objectives and goals
 Define areas of individual responsibility in conjunction with that individual
 Then jointly define the key tasks
 Key results will also need to be defined jointly
 Agree performance improvement plans
 Monitoring, self-evaluation and review of performance at regular intervals
 Periodic review of performance against objectives
Required
What are the advantages and disadvantages of using MBO?
Solution
72
Summary
Role of the manager
The classical Human relations Systems theory Contingency

school school theory
Fayol Mayo Trist & Bamforth Burns & Stalker

Planning Groups & individuals Technical systems Mechanistic
Organising both have to be Social systems Organic
Commanding managed
Coordinating
Mintzberg
Controlling
Management have 3
Taylor roles:
"True science of
(i) interpersonal
work"
(ii) informational Management by
Scientific selection
(iii) decisional objectives
and development of
workers Herzberg
Drucker
Allow the workforce to Hygiene factors:
SMART objectives in
reach its potential Working conditions
the following 4 areas:
Constant and intimate Salary
Profitability
cooperation between Supervision
Management
management and Job security
performance
workers Motivators: Worker performance
Weber Advancement Public responsibility
HIPSCARF Achievement
Recognition
Responsibility
73
END OF CHAPTER
74
Key Concepts in
Leadership
Introduction
Syllabus Area B
 20%
Lead learning outcome  Discuss the concepts associated with managing through people
Syllabus component  Discuss the concepts of leadership and management
Context
This syllabus component differentiates leadership from management and discusses what makes a leader. You will
need to consider the different situations that leaders can arise in and how the approach taken will differ.
The concepts of power, authority, delegation and empowerment 1-3
Different approaches to leadership, including personality/traits, style, 4-9
contingency/situation, transaction/transformational, distributive
Leadership in different contexts 10

Chapter 6
Communication
75
4b: KEY CONCEPTS IN LEADERSHIP
Overview
Leadership
Power Theories of leadership Leadership in different

contexts
Power Trait theory
Authority Style theory
Contingency theory
Delegation
Transformational
leaders
Distributive leadership
76
1 Power
1.1 Power is the ability to take action. French & Raven (1959) identified five sources of power
in an organisational context:
 Reward power the ability to influence the distribution of rewards.
 Coercive power the threat of punishment to enforce compliance.
 Referent power exerted by charismatic or inspirational people.
 Expert power derived through knowledge or expertise.
 Legitimate power derived from the position held – also referred to as authority.
The Finance Director of ABC Ltd has strong relationships with the company’s owners, employees
and customers. He generates strong feelings of loyalty and commitment among the people that
currently work for him and they know that he is immensely capable.
Required
What type of power does he have?
A Legitimate power
B Referent power
C Coercive power
D Expert power
Solution
2 Authority
2.1 Authority is the right or permission to take action and makes power legitimate. Max
Weber identified three ways in which authority can be obtained:
 Charismatic authority secured by charismatic or inspirational people
 Traditional authority authority accepted and agreed by society
 Rational-legal authority vested in the position held rather than the individual
77
2.2 Most authority in business is rational-legal. However, it’s not always clear what the
boundaries to a manager’s authority are. Rational-legal authority can, in fact, be broken
down into four main areas:
 Line authority the authority of a line manager over a subordinate who reports
directly to him / her (aka control authority)
 Staff authority a manager’s authority to give professional advice to colleagues
in other departments (aka advisory authority)
 Functional authority a hybrid of line and staff authority, where the manager is
authorised to control actions in other departments
 Service authority the authority of a manager or department to provide a service
which the receiving department must accept
3 Delegation
3.1 Delegation is the process whereby a superior gives to a subordinate part of his or her own
authority to make decisions. While authority and some types of power can be delegated,
overall responsibility for the work remains with the superior.
3.2 The process of delegation involves one or more of the following actions:
 Abdication leaving a gap for someone else to fill
 Custom & practice precedent dictates that subordinates have to do certain jobs
 Explanation subordinates are briefed as to how to do a task
 Consultation encouraging input from staff before making a decision
Insert the correct words to complete the sentence defining delegation.
responsibility authority power accountability
Required
Delegation is the process whereby a manager assigns part of his __________________ to a
subordinate but the manager’s __________ can never be delegated.
78
4 Theories of leadership
4.1 Whereas a manager plans, organises, co-ordinates and controls routine operations, a leader
creates a strategic vision and influences others to work towards it. In reality, most business
managers also need leadership skills in order to do their job effectively.
4.2 Three broad schools of thought attempt to explain what makes a leader effective:
 Trait theory the leader’s personal characteristics (see section 5)
 Style theory the leader’s style of management (see section 6)
 Contingency theory the ability of the leader to adapt to the situation (see section 7)
5 Trait theory of leadership
Required
Identify some well-known, successful leaders. Explain what traits they share and what made them
successful.
Solution
5.1 Trait theory assumes that, while management skills can be taught, leaders are effective
due to innate personal characteristics. The most commonly reported traits include:
 Above-average intelligence
 Initiative
 Motivation
 Self-assurance
 The ‘helicopter factor’
This list has been extended to include integrity, tough-mindedness, enthusiasm, sociability,
imagination, determination, energy, faith and even virility.
79
Required
Which of the following is not a problem with trait theory?
A Unable to measure the factors objectively
B Hiring highly effective people who require minimal training
C The list is too long for any one person to meet all the requirements
D Exceptions to the rule aren’t considered
Solution
6 Style theory of leadership

6.1 As well as using their innate traits, leaders also choose how they interact with their followers
– in other words, how they manage them. As a result, the effectiveness of a leader is
dependent on the management style he or she adopts.
Theory X & Theory Y

6.2 Douglas McGregor (1906 – 1964) realised that managers select a management style based
on their perception of their subordinates.
6.3 Theory X managers assume that their staff have an inherent dislike of work and therefore
need to be coerced, directed and threatened in order to meet the organisation’s objectives.
6.4 Theory Y managers, on the other hand, assume that “work is as natural as play or rest”
and that staff naturally seek out responsibility and personal achievement. They should
therefore be supported and given opportunities rather than coerced and controlled.
McGregor saw Theory Y as the path to “true innovation”.
80
A management style continuum

6.5 McGregor’s Theory X and Theory Y represent two ends of a continuum. The categories of
other theorists can be plotted on the same continuum as follows:
McGregor Theory X Theory Y

Kurt Lewin Authoritarian Democratic Laissez-faire
Rensis Likert Exploitative Benevolent Consultative Participative
Authoritative Authoritative
Tannenbaum Tells Sells Consults Joins
& Schmidt
6.6 These theorists agreed that a democratic or consultative approach generated the best
productivity and staff satisfaction, while the authoritarian approach was the least productive
and satisfying.
The Managerial Grid

6.7 Blake & Mouton (1994) believed the manager’s choice of style is based on concern for the
task (production) and concern for the individual (people). These concerns are each scored
from 1 (low) to 9 (high) to create the following grid:
HIGH (9)
Country club Team
Concern Middle-of-
for the-road
people
Authority
LOW (1) Impoverished compliance
LOW HIGH
(1) Concern for production (9)
6.8 The five points marked on the graph can be explained as follows:
The impoverished style manager (1, 1) abdicates responsibility and shows concern for
neither people nor production. This style of management may be demonstrated by a de-
motivated manager and is doomed to failure.
81
The authority compliance manager (9, 1) sees people as a commodity to be directed and
controlled like a machine. This can lead to subordinates becoming apathetic or even
rebellious.
The middle-of-the-road manager (5, 5) is a “give and take” style that aims to balance
people and production while believing that any improvements are probably idealistic and
unachievable.
The country club manager (1, 9) encourages and supports staff, overlooking any
inadequacies on the assumption that everyone is doing their best. This approach can lead
to inefficiencies as staff are not challenged to work more efficiently.
The team manager aims to find the best and most effective solutions to meet the needs of
both people and production. The skill here is in effectively managing the conflicts that will
inevitably emerge.
Required
Using Blake & Mouton’s Managerial grid, explain when would it be appropriate for a leader to use a
style of leadership other than Team.
Solution
7 Contingency theories of leadership

7.1 Contemporary theorists have concluded that a leader’s success depends on his or her
ability to adapt their leadership style to a given situation.
82
Action-centred leadership
7.2 John Adair (1983) built on Blake & Mouton’s Managerial Grid to theorise that a leader’s
style had to alter depending on the needs of the task, team and individual. The successful
leader is the one who can understand these three dimensions and bond them together.
Fiedler’s contingency model

7.3 Fred Fiedler (1922 - ) theorised that the leader could, at any one time, be people-oriented or
task –oriented but not both. The decision whether to be people or task oriented is based on
three factors:
 Leader / member relations
 Task structure
 Leader position power
For example, imagine a group with a favourable attitude towards their leader who had a high
level of authority by virtue of his position and was easily able to control what the group does.
Given these contingencies, the leader would have sufficient support and power to be more
task oriented.
If, on the other hand, the group was ambivalent towards its leader, it would be more
appropriate to have a people oriented style of leadership.
Hersey & Blanchard

7.4 Hersey & Blanchard (1969) defined leadership style in terms of the level of direction (task
behaviour) and the level of personal support (relationship behaviour) given to the
subordinate.
7.5 The position on the graph, and therefore the leadership style, is contingent on the maturity
of the subordinate. In this case, the subordinate’s maturity is defined as:
 Their desire for achievement
 Their willingness and ability to accept responsibility
 Their education, experience and skills
Each level of maturity (M1 to M4) has a corresponding leadership style (S1 to S4
respectively).
83
8 Transformational leaders
8.1 Unlike a manager, a leader creates a vision of the future. However, the leader will need to
transform this vision to reflect the rapidly changing, modern business environment. Boyd
sees this transformational leader as requiring five key skills to do this effectively:
(a) Anticipatory skills –the foresight to be proactive in a changing environment
(b) Visioning skills – persuading all staff members of the need for change
(c) Value-congruence skills – reconciling the organisation's needs to those of staff
(d) Empowerment skills – delegating and sharing power effectively.
(e) Self-understanding skills – understanding their own needs as well as those of staff
9 Distributive leadership
9.1 Distributive leadership is the concept of mobilising leadership at all levels in the organisation
not just relying on leadership from the top. This will have positive impacts on motivation,
ownership, experience and efficiency. However, the organisation requires clear reporting
lines and training in order to execute this correctly.
10 Leadership in different contexts

10.1 While transformational leaders can deal with change, there is also a need for leaders to
innovate. Wickham (2004) describes entrepreneurs as managers who manage in an
entrepreneurial way – pursuing opportunities, driving through change and learning as they
go.
84
10.2 Bolton & Thomson (2003) identify the following characteristics of an entrepreneur:
 Identifies opportunities
 Determined in the face of adversity
 Liaises well with others
 Exploits opportunities by finding suitable resources
 Creates capital
 Has control of business
 Innovative, creative
 Manages risk well
 Puts the customer first
85
Summary
Leadership
Power Theories of leadership Leadership in different

contexts
Characteristics of
Power Trait theory entrepreneurs
Power is the ability to leaders share similar

take action characteristics
Authority Style theory
Authority is the right or Theory X Theory Y

permission to take Mgmt Style Continuum
action Managerial Grid
Contingency theory
Delegation
Action-centered
Delegation is the leadership
process whereby a Contingency model
superior gives a Hersey & Blanchard
subordinate part of
his/her authority to
Transformational
make decisions
leaders
Anticipatory
Visioning
Value-congruence
Empowerment
Self-understanding
Distributive leadership
Mobilising leadership at
all levels of the
organisation
END OF CHAPTER
86
Culture
Introduction
Syllabus Area B
 20%
 Discuss the hard and soft aspects of people and organisational
performance
Syllabus component  Explain the importance of organisational culture
Context
This syllabus component takes a holistic view of the organisation and breaks down the different components that
contribute to an organisation’s culture. You will need to be able to analyse a company or country’s culture and relate it
back to the models covered.
Explaining the concept and importance of culture; Levels of culture; Influences on culture 1
Analysing organisational culture – the cultural web framework 2
Models for categorising culture 3
National cultures and managing in different cultures 4

Chapter 6
Communication
87
5: CULTURE
Overview
Aspects of organisational
culture
Analysing Cultural models Culture & structure International

organisational culture culture
88
5: CULTURE
1 Aspects of organisational culture

1.1 Culture refers to the underlying beliefs, values and codes of practice that makes an
organisation what it is. Put simply, it is “the way we do things around here” (Charles Handy)
1.2 The culture of an organisation has a major impact on the behaviours and actions of its
members. For an organisation to be successful, therefore, it must understand and manage
its culture effectively.
The organisational iceberg

1.3 An organisation’s culture can be split into formal and behavioural factors. French & Bell
(1990) illustrated these factors using an iceberg:
Formal aspects (overt, apparent)

Structure, technology, goals, skills
Behavioural aspects (covert, hidden)

attitudes, behavioural patterns, group dynamics, personalities, political behaviour
1.4 Although formal aspects are easier for a manager to control, they make up a relatively small
proportion of the overall culture.
1.5 For the organisation to work effectively, each aspect needs to be aligned with the others to
create and support a single set of shared values.
Trompenaars’ levels of culture

1.6 Trompenaars (1993) explained the three levels of culture as follows:
(a) Observable elements such as behaviour, artefacts and rituals
89
5: CULTURE
(b) Values & beliefs which in themselves are not observable but may have observable
manifestations. For example, to make a senior employee feel valued and
appreciated and illustrate the importance of knowledge and experience, they may get
an office with a good view.
(c) Assumptions which are also unobservable. These are the deepest level of cultural
awareness that determines behaviour.
Required
According to Trompenaars, organisation culture exists at three different levels. Which of the
following are included in the level ‘values & beliefs’?
Select ALL that apply:
A Staff contentment
B Quality product
C Polite treatment of customers
D Refunds cleared within 3 business days
E Concept of customer as “king”
Solution
2 Analysing organisational culture

Johnson’s cultural web framework
2.1 Johnson et al (2005) created a web of elements that, together, make up a culture:
Stories what people talk about to each other
Routines what the normal ways of doing things are
Rituals events highlighted by the organisation as being important
Symbols logos, titles, company cars
Power structures who makes the decisions and who influences them
Control systems the selection of criteria to monitor and subsequent measuring
Organisational structure who reports to whom
90
5: CULTURE
Required
Discuss the extent to which a manager can influence each element of the cultural web.
Solution
The McKinsey 7-S framework

2.2 The McKinsey 7-S framework expands the iceberg into seven elements of an organisation
that make up its culture.
Hard aspects (formal)

Strategy actions planned in order to meet organisational goals
Systems the procedures that enable the strategy to be met
Structure the way the organisation is structured (functional, divisional, matrix)
Soft aspects (behavioural)

Style management and leadership style (see chapters 1 – 2)
Skills the key capabilities of the organisation
Staff the numbers and types of personnel in the organisation
Other organisational determinants of culture

2.3 In addition to the factors outlined above, an organisation’s culture can also be determined by
the organisation’s history, age, size and stage in its life cycle as well as the personality of its
leader.
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5: CULTURE
3 Cultural models
3.1 Having understood some of the different aspects of culture, it is possible to create
classifications of cultures that share similar elements.
Handy’s cultural types

3.2 Charles Handy (1993) in his book Gods of Management developed four types of culture,
based on the work of Roger Harrison.
Power culture (web) - Zeus

Dominated by one or more powerful individuals
No rules or procedures – the controller decides what happens
Role culture (temple) - Apollo

Bureaucratic rules and procedures
Decisions still made centrally
Task culture (net) - Athena

Flexible teamwork
Focus on achieving objectives rather than hierarchy
People culture (constellation of stars) - Dionysus

Organisation is founded on individuals who provide specialist expertise
Individuals have high levels of freedom and independence
Required
Which of the following is not an advantage of a Task culture?
A Allows flexibility to solve problems
B High creativity
C Job satisfaction
D Matrix structure that doesn’t follow the traditional hierarchy
Solution
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5: CULTURE
Miles & Snow’s cultural types

3.3 Miles & Snow linked culture to strategy, defining four cultural types:
 Defenders, which are low-risk operators in secure, niche markets
 Prospectors, which seek to expand their market presence
 Analysers, which try to balance risk and profits, with a stable core but some
prospector tendencies
 Reactors, which lack strategy and respond to changes in the environment as the
occur.
Strong culture theory

3.4 Deal & Kennedy (1982) suggest that culture is determined by the level of risk associated
with the organisation’s activities and the speed of feedback on the outcome of the
organisation’s decisions.
High risk
BET YOUR COMPANY TOUGH-GUY MACHO
Long decision-cycles (years) Individualistic, high risk-taking
Stamina and nerve required High pressure
Slow Fast
feedback PROCESS WORK-HARD-PLAY-HARD feedback
Bureaucratic order & predictability Focus on teamwork
Technical performance is key Customer feedback is key
Low risk
4 International Culture
4.1 A strong culture can produce the following benefits for an organisation:
 Reflects the values of the organisation
 Strengthens norms of behaviour
 Minimise differences of perception between members of the organisation
 Impacts on the organisation’s ability to respond to change
4.2 Instead of seeing culture as being contingent on the industry or environment, some theorists
try to identify fundamental cultural traits that have the potential to generate competitive
advantage.
4.3 The term “supranational culture” refers to culture that extends its influence across
national boundaries.
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5: CULTURE
Theory A, Theory J & Theory Z

4.4 William Ouchi (1980) compared the culture of a “typical” American organisation (Theory A)
with that of a typical Japanese one (Theory J). He used this research to identify
modifications to the culture of American companies (Theory Z) in order to make them more
competitive.
Features Theory A Theory J Theory Z

Encourage a loyal,
Short-term Life-long committed workforce by
Employment
Lay-offs common Lay-offs rare offering fairly long-term
employment
Very fast
Slow down promotion and
Evaluation and Staff look externally Very slow instead emphasise
promotion if not promoted development & training
internally
Very specialised Very general
More general
Career path Staff tend to stay in Staff are rotated
Encourage job rotation and
one function for around the whole
broader training
their whole career organisation
Individual managers
Decision By individual By group or
should seek group
making managers committee
consensus
Very explicit
Implicit and informal There needs to be a better
Control Staff are formally All parties rely on balance between formal
aware of their trust and informal control
responsibilities
Assigned on an Continue to assign on an
Responsibility Shared collectively
individual basis individual basis
Employer is only
Employer is
Concern for interested in Expand concern to include
concerned with the
personnel employee’s work aspects of home life
worker’s whole life
life
4.5 For the increasing number of organisations that operate internationally, the culture of the
different countries they operate in need to be taken into consideration.
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5: CULTURE
4.6 Geert Hofstede summarises national culture under five key headings:
(a) Individualism v Collectivism
Are people seen as distinct individuals or members of a society?
(b) Masculinity v Femininity
Do people generally adopt a masculine (assertive) or feminine (nurturing) approach?
(c) Power – Distance
To what extent are those in power expected to wield it over subordinates?
(d) Uncertainty avoidance
To what extent are people wary of ambiguity and change?
(e) Confucian dynamism
How far do individuals conform to their status and obey social expectations?
HIGH LOW
Individualism UK, USA Pakistan, Taiwan
Masculinity Japan, Italy Denmark, Sweden
Power distance France, India Denmark, Austria
Uncertainty avoidance Japan, France Denmark, Sweden
Confucian dynamism China, Japan USA, Australia
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5: CULTURE
Summary
Aspects of organisational
culture
Analysing Cultural models Culture & structure International

organisational culture culture
Trompenaar's levels of Handy's Cultural Types Handy's Cultural William Ouchi's

culture Power Types Theory A, Theory J,
observable Role Power (entrepreneurial Theory Z
unobservable Task structure)
Geert Hofstede's
People Role (functional
Johnson's cultural web National Cultures
structure)
Stories Miles & Snow's Cultural
Task (matrix structure)
Routines Types
People (co-operative)
Rituals Defenders
Symbols Prospectors
Power structures Analysers
Control systems Reactors
Organisational structure Deal & Kennedy's
McKinsey's 7-Ss Strong Culture Theory
Strategy Bet your company
Structure Process
Systems Tough-guy macho
Style Work-hard-play-hard
Skills
Staff
END OF CHAPTER
96
topics.
Course notes
chapter
development
Key concepts in management Key concepts in management 4a
and leadership Key concepts in leadership 4b
Culture Culture 5
97
Achievement ladder
98
Conflict, negotiation &
communication
Introduction
Syllabus Area B/C  Managing relationships
 20% each
 Discuss the concepts associated with managing through people
 Discuss the effectiveness of organisational relationships
 Discuss management tools and techniques in managing organisational
relationships
 Discuss HRM approaches for managing and controlling individuals'
performance
Syllabus component  Discuss the roles of communication, negotiation, influences and persuasion in
the management process
 Discuss approaches to managing conflict
Context
This chapter covers two syllabus sections, which cover employee performance and behaviour within an organisation, and the
various barriers towards good performance. You will need to be familiar with various sources of conflict as well as the various HR
strategies available to resolve it.
The sources and causes of conflict in organisations; The different forms and types of conflict 2
Strategies for managing conflict to ensure working relationships and productive and effective 2
HR policies and procedures 1
Different approaches to employee performance appraisals 7
The contribution of coaching and mentoring in enhancing individual and organisational 8
performance
Equality and diversity practices 6
Disciplinary and grievance procedures in resolving poor performance 3
Dismissal and redundancy 4
Employer and employee responsibilities in managing the work environment (e.g. health and 5
safety)
The communication process, types of communication tools and their use, ways of managing 9
communication problems
The importance of effective communication skills for the Chartered Management Accountant; The 9
importance of non-verbal communication and feedback
Developing effective strategies for influence/persuasion/negotiation; The process of negotiation; 10
Negotiation skills
99
6: CONFLICT, NEGOTIATION & COMMUNICATION

Chapter 6
Communication
100
Overview
communication
Conflict Discipline Grievance Dismissal

procedures
Health & safety Discrimination Appraisal Communication
101

communication
Coaching and Negotiation

mentoring
102
1 HR Policies and Procedures

1.1 Human Resources (HR) have staff authority, a cross functional role to guide line management in
terms of how their subordinates should be managed and developed. They have authority over the
following areas:
 Conflict management
 Disciplinary and grievance procedures
 Dismissal and redundancy
 Health & safety
 Equality and diversity practices
 Performance appraisals
 Coaching and mentoring
2 Conflict
2.1 Conflict is “a disagreement... when one party is perceived as preventing or interfering with the goals
or actions of another.” (CIMA) While conflict can be constructive, it is often destructive, for reasons
identified by Daft (1989):
 Diversion of energy to win conflict rather than achieving organisational goals
 Altered judgement due to intense nature of conflict
 The loser of the conflict may deny or distort the reality of losing (the loser effect)
 Poor coordination
Sources of horizontal conflict

2.2 Horizontal conflict takes place between departments at the same level in the hierarchy and arises
from the following sources:
Uncertainty, leading to disagreement about the future and the need for renegotiation
Size and structure of the organisation
Task interdependence, often made more complicated through the use of technology
Incompatibility of goals, exacerbated by the grouping of people with similar traits in the same
department.
Reward system
Sources of vertical conflict

2.3 Vertical conflict takes place between those at different levels of the hierarchy and can be caused
by:
Power and status – employees at lower levels of the hierarchy can feel powerless.
Ideology – there are basic differences between goals of organisation and unions.
Psychological distance – employees feel that their needs are being ignored.
Scarce resources – employers, unlike the workers, want to keep salaries low.
103
Handling conflict
2.4 Thomas (1976) identifies five different ways of handling conflict:
High
Co mp et itio n Col lab ora tio n
F ocu s o n
o wn Co mp ro mise
in terest
Low Avo id an ce Ac co mmod at io n

Low F ocu s o n ot her’s interest Hig h
2.5 Avoidance – one or more party seeks to avoid, suppress or ignore the conflict. This is not
recommended as it does not resolve the conflict.
2.6 Accommodation –one party puts the other's interests first and suppresses their own interests in
order to preserve some form of stability and to suppress the conflict.
2.7 Compromise – often seen as the optimum solution. A deal is accepted after negotiation and debate.
However, both parties lose something and there may be a better alternative.
2.8 Competition – the parties do not co-operate, but instead seek to maximise their own interests and
goals, creating winners and losers. The resulting conflict can be damaging.
2.9 Collaboration – this is likely to be the optimum solution. Differences are confronted and jointly
resolved, novel solutions are sought and a win-win outcome is achieved.
Handling intergroup conflict

2.10 When conflict occurs between groups, the following actions can be taken:
 Confrontation, involving negotiation
 Third party consultant to arbitrate over differences
 Member rotation – seconding staff to other departments to break down barriers
 Superordinate goals – setting goals that require the co-operation of conflicting groups
 Intergroup training – shared training sessions to explore the relationship
Trade unions
2.11 The relationship between trade unions and managers is a classic example of vertical conflict.
Industrial conflict between trade unions and employers can be addressed using:
(a) Collective bargaining – negotiation following a series of formal stages.
(b) Avoidance strategies - refusing to recognise unions and/or shifting operations to non-
unionised sites.
(c) Human resource management strategies - no longer dealing with staff collectively but
establishing an individualistic approach to pay and benefits.
(d) Gain sharing – using profit-related pay and bonuses rather than flat rate increases.
104
(e) Partnership agreements – agreeing common interests between unions and companies and
working towards them.
(f) Labour-management teams – designed to increase co-operation and improve worker
participation.
As a result of a global economic downturn, the government of Rohan plans to revise the final-salary
pension entitlements currently offered to public sector workers. This has been met with hostility by staff,
75% of whom belong to the General Worker’s Union (GWU) and there are threats of a general strike if the
changes are implemented.
Required
Discuss the ways in which the government could address this conflict.
Solution
3 Disciplinary & Grievance Procedures

3.1 Once employees know what is expected of them in the workplace, and assuming that they believe
these expectations to be reasonable, they would ideally exercise self-discipline. Furthermore, if
the group as a whole accepts the rules, then they often exert group pressure on those who may
dissent.
3.2 If a disciplinary issue remains in spite of self-discipline and group pressure, it is the responsibility of
the manager to take disciplinary action with the aim of improving the future behaviour of the
employee and other staff.
3.3 According to McGregor’s “hot stove rule”, the manager’s disciplinary action should be immediate,
consistent, impersonal and with advance warning. The employee’s privacy should also be
respected.
105
3.4 Disciplinary action involves a number of steps. Depending on the seriousness of the issue, action
can commence at any point:
(a) Informal talk to resolve minor issues
(b) Oral warning – an interview warning the employee that continued action could result in
serious disciplinary action.
(c) Written warning – a formal part of the employee’s record
(d) Final written warning – as above, with the understanding that future infringements will result
in demotion, suspension, transfer or dismissal.
3.5 The Advisory, Conciliation and Arbitration Service (ACAS) publishes guidelines on employment
practices which are taken as a yardstick in disciplinary procedures and tribunals. The ACAS
disciplinary code of practice requires that procedures should:
(a) Be in writing
(b) Specify to whom they apply
(c) Allow for problems to be dealt with quickly
(d) Indicate the disciplinary action that may be taken
(e) Inform individuals of the complaint against them and give them the opportunity to reply
(f) Allow the individual to be accompanied by a trade union representative or work colleague
(g) Ensure that disciplinary action is not taken until the case has been carefully investigated
(h) Provide a right of internal appeal
External methods of resolving conflict

3.6 If, after all internal procedures have been exhausted, the employee disagrees with the outcome, he
or she can take the case to an industrial tribunal. These judicial bodies are employment
specialists and can make legally binding rulings on both parties.
3.7 Although an industrial tribunal is less formal than other parts of the judicial system, it can be a costly,
time-consuming and stressful experience for those involved. As a result, an alternative dispute
resolution may be sought using a neutral third party such as ACAS. This service includes:
Advice The third party advises both parties on possible solutions, but there is no obligation
for either conflicting party to follow the advice.
Conciliation The third party attempts to get the conflicting parties to reach their own agreement.
Arbitration The conflicting parties agree in advance to be bound by the recommendation of the
third party.
3.8 A grievance exists when an employee believes that he/she is being wrongly treated by colleagues or
superiors. A typical procedure would involve:
(a) The individual sounding out a colleague and/or union representative.
(b) Raising the matter with his or her immediate supervisor.
(c) If unresolved, referring the matter to a higher manager and the personnel department.
(d) Investigating alternative dispute resolution processes (arbitration, conciliation)
(e) As a last resort, going to an industrial tribunal.
106
4 Dismissal
4.1 Dismissal is “the termination of employment... by the employer”.
Constructive dismissal is resignation by the employee because the employer’s conduct was
deemed to have terminated the contract.
Wrongful dismissal means that the incorrect procedure was followed when dismissing the
employee.
Unfair dismissal means that, although the correct procedure was followed, the reason for dismissal
was unfair.
Reasons for dismissal that are recognised as fair include:
(a) Conduct
(b) Capability
(c) Breach of statutory duty
(d) Redundancy
(e) Some other substantial reason
4.2 Redundancy is defined as dismissal under two circumstances:

(a) The employer has ceased to carry on the business at all, or in the place where the employee
was employed.
(b) The requirements of the business for employees to carry out work of a particular kind have
ceased or diminished, or are expected to.
It is desirable to consult with employees or their representatives, and notice of impending
redundancies is a legal duty for redundancies over a certain number.
5 Health and safety legislation

5.1 A healthy and safe working environment, as well as being one of Herzberg’s hygiene factors, is a
legal obligation under the Health and Safety at Work Act 1975 (HASAWA).
Employer’s responsibility
5.2 HASAWA defines five key areas of employer responsibility:
(a) The provision of safe and risk-free plant and systems of work
(b) Ensuring safety in the use, handling, storage and transport of articles and substances
(c) Provision of information, training, instruction and supervision
(d) Maintenance of a safe workplace
(e) Provision of a safe working environment and adequate facilities
107
Employee’s duties
5.3 HASAWA additionally places the following burdens upon employees, who must:
(a) Take reasonable care of themselves and others
(b) Allow the employer to carry out his or her duties (including enforcing safety rules)
(c) Not interfere intentionally or recklessly with any machinery or equipment
(d) Inform the employer of any situation which may be a danger
(e) Use all equipment properly
Contractors
5.4 As ‘strangers’ to the working environment, contractors need to communicate closely with managers
to foresee and guard against hazards.
Safety representatives
5.5 Safety representatives are appointed, normally by their trade union, to inspect the workplace from a
health and safety perspective. The employer has a legal duty, where a safety representative exists,
to co-operate with them.
6 Discrimination legislation
6.1 Discrimination takes place when a worker (or job applicant) is treated less favourably than others.
This can be addressed through equal opportunities or diversity.
Equal opportunities
6.2 Equal opportunities focuses on removing discrimination through pro-active action, often initiated by
a disadvantaged group. Legislation in this field includes:
 Disability Discrimination Act 1995
 Equal Pay Act 1970 / Equal Pay (Amendment) Regulations 1993
 Race Relations Act 1976, amended 1996, 2000
 Sex Discrimination Act 1975, amended 1986
 Trade Union Regulation & Employment Rights Act 1993 (TURERA)
 Employment Equality Regulations 2003
6.3 This legislation, alongside other acts, make it illegal to discriminate against an employee on the
grounds of:
 gender
 marriage or civil partnership
 gender reassignment
 pregnancy and maternity leave
 sexual orientation
 disability
 race
 colour
 ethnic background
108
 nationality
 religion or belief
 age
 part-time working
 working on a fixed term contract
Required
Which of the following is not a benefit to an employer of offering flexible child care provisions to staff with
children?
A Cost of the provision
B Attract and retain good employees
C Enhanced perception of the employer
D Reduced employee absenteeism and turnover
Solution
Diversity
6.4 The aim of diversity is to focus on maximising the potential of all staff. This broadens the
discrimination agenda into something positive that relates to all employees rather than just
disadvantaged groups.
6.5 The concept of diversity can be extended to recognise and make use of the unique characteristics of
a particular group. An organisation will need to be proactive in managing the needs of a diverse
workforce in areas (beyond the requirements of equal opportunity and discrimination regulations)
such as:
(a) Tolerance of individual differences
(b) Communicating effectively with (and motivating) ethnically diverse workforces
(c) Managing workers with increasingly diverse family structures and responsibilities
(d) Managing the adjustments to be made by an increasingly aged workforce
(e) Managing increasingly diverse career aspirations/patterns, flexible working etc
(f) Dealing with differences in literacy, numeracy and qualifications in an international workforce
(g) Managing co-operative working in ethnically diverse teams
109
For many years, the Northland Police Force (NPF) has adhered to an equal opportunities policy when
recruiting police officers and was proud of the controls it had in place not to differentiate against applicants
because of their racial, sexual or religious background.
However, in recognition of the fact that nearly all its officers are British men aged 25 – 35, the NPF has
announced that, in some cases, preference will be given to applicants who are female and / or from racial
or religious minorities.
The Daily Hail has published an article accusing NPF of “political correctness gone mad” and, in an
editorial, argues that this positive discrimination against white, British men is illegal.
Required
Advise the Chief Constable of NPF whether this recruitment policy is legal.
Solution
7 Appraisal
7.1 There are three main types of appraisal:
(a) Reward review: measuring the extent to which the employee deserves a bonus or pay
increase
(b) Performance review: for planning and following-up training and development programmes
(c) Potential review: aid to planning career progression and succession planning
110
Approaches to appraisals
7.2 Approaches are used and combined according to management’s philosophy of HR:
(a) Management led: employee is assessed by manager according to targets set by manager.
(b) Self-appraisal: employee assesses own performance against criteria, identifies issues, and
discusses with manager how to resolve them.
(c) 180 degree: feedback on the appraisee is sought from his/her colleagues
(d) 360 degree: feedback on the appraise is sought from the following parties: line management,
peers, subordinates, customers, self
7.3 The benefits of a good appraisal include:

(a) Rewards good performance
(b) Sets motivating challenges
(c) Identifies training needs
(d) Provides an ideal forum for exchanging feedback
(e) Allows employees to express views
(f) Identifies future aspirations and expectations (career management)
Barriers to effective appraisals

7.4 Lockett pointed out that appraisals may fail for the following reasons:
Confrontation Conflict between both parties involved
Judgement Appraiser takes a one-sided approach to the process
Chat Lacks purpose or outcomes being set
Bureaucracy Appraisee sees the process as a form filling exercise
Unfinished Appraisal should be part of a continuing process towards performance
business management
Annual event Annual targets may be irrelevant after 3-6 months so rendered
meaningless
111
W Co is a firm which appraises its employees once a year. At the firm X Co, the employees are required to
rate themselves. At Y Co, annual bonuses are conditional upon satisfactory levels of customer feedback.
At Z Co, all of the subordinates rate their managers.
Required
Which one of the following statements is true?
A W Co’s method of appraisal is the best way to keep appraisals relevant
B X Co does not use a 360 degree appraisal system
C Y Co’s method of appraisal assumes that the appraisee’s boss may not be the best judge of
customer service
D Z Co uses a downward appraisal method
Solution
8 Coaching and Mentoring

8.1 A mentor is an experienced member of staff who offers support and guidance to less experienced
employees.
Bruce, a CIMA student, reports to Alfred, the Finance Manager of Gotham plc. Company policy dictates
that Bruce has a mentor and Henri, the Operations Manager, has agreed to perform the role. Alfred
believes that a trainee with a good manager should not need a separate mentor and is therefore resisting
Henri’s appointment.
Required
Explain to Alfred the benefits of Bruce having Henri as a mentor.
Solution
112
8.2 Coaching is where a trainee is put under the guidance of an experienced employee. For coaching to
succeed the following steps are appropriate:
Step 1 Establish learning targets
Step 2 Plan systematic learning and development programme
Step 3 Identify opportunities to broaden trainee's knowledge and experience
Step 4 Allow for trainee's strengths and weakness
Step 5 Exchange feedback
9 Communication
9.1 The effective sharing of information is key to an organisation’s effectiveness, so managers need to
understand the process by which information is communicated.
The communication process

9.2 Communication can be broken down into the a five stage process:
Sender has a Sender Message Receiver Receiver

message encodes transmitted decodes receives
message message message
N O I S E
9.3 There is a risk that the sender and receiver will distort the message:
Sender
 Not being clear on what message needs to be communicated
 Omitting information or using inappropriate language (e.g. jargon)
 Choosing an inappropriate method of communication
Receiver
 Not receiving the communication or being selective about what is received
9.4 In this context, noise is any distraction or interference that comes from the environment (as opposed
to from the sender or receiver).
9.5 Communication can be facilitated or emphasised using non-verbal techniques, e.g.

 Posture
 Expressions
 Eye contact
 Movement
 Silence
113
Harold is a chartered management accountant. He is shy, enjoys solitary fishing trips and playing World of
Warcraft. At work he eats lunch at his desk and does not attend team outings if he can possibly avoid it.
However, he enjoys data analysis and finding the “right answer” to a problem. Because of his fastidious
nature, Harold has garnered a reputation as an asset to the business and has consequently been assigned
to the project team responsible for delivering a strategically important new product.
Required
Discuss the potential consequences of Harold’s lack of natural talent for communication and building
relationships.
Solution
10 Negotiation
10.1 Sometimes, the manager’s communication will not be agreed with and he/she must enter
negotiation. Negotiation in this context has three characteristics:
 A conflict between two or more parties
 An absence of any agreed set of rules for resolving the conflict
 Both parties want to resolve the conflict themselves
10.2 Although both parties will seek to “win” the negotiation, it is important that any agreement is stable.
If one party exploits the other (win – lose), then the losing party is likely to attempt to break the
agreement at the earliest opportunity. In long-term relationships, therefore, the aim should be
towards a win – win solution.
114
10.3 The process of negotiation involves four phases:

(a) Preparation (gathering information)
(b) Opening (each party presents their case in an attempt to influence the other)
(c) Bargaining (both parties try to bridge the gap using rational debate)
(d) Closing (agreement is reached and formally agreed)
10.4 Preparing the negotiation strategy involves the following steps:

(a) Set objectives for the negotiation: what you want to get out of it. These should be achievable
and consistent with the organisation's policies.
(b) Gather information on the issues over which negotiations are going to be conducted: trends
in union demands, market pay rates, case studies from similar organisations/sectors, etc.
(c) Identify potential areas of conflict. In bargaining, each side accepts that the objectives and
viewpoints of the other side are as real and legitimate as their own. So recognition of the
needs, wants and fears of the other party will help in devising a workable trade-off.
(d) Identify potential areas of movement. Each party identifies the key issues or items likely to
be on the table, and decides on which of these it will be willing to trade or make concessions.
It also tries to anticipate the items on which the other party will be willing to trade or make
concessions.
(e) Formulate a negotiating strategy. There are basically three possible outcomes:
(i) If we were to achieve all our objectives, what would be the ideal settlement or
outcome?
(ii) If we were able to make progress, but being realistic about the bargaining power of the
other side, what is a realistic settlement or outcome?
(iii) If we were to concede, what is an acceptable fall-back position: the least favourable
outcome that can be accepted without failing to meet our objectives?
A position for each side should be estimated for each of the above options – and areas of
agreement concentrated on, as potential middle ground.
10.5 John Hunt lists some characteristics of successful negotiators in his book Managing People at Work:
 They avoid direct confrontation.
 They consider a wide range of options.
 They hold back counter proposals rather than responding immediately.
 They use emollient verbal techniques: 'would it be helpful if we…'
 They summarise on behalf of all involved.
 They advance single arguments insistently and avoid long winded, multiple reason arguments
115
Summary

communication
Conflict Discipline Grievance Dismissal

procedures
Horizontal between Process: Sound out a Constructive
departments Informal talk colleague or union
Wrongful
Oral warning rep.
Vertical between Unfair
levels in the hierarchy Written warning Raise the matter with
Handling conflict Final written warning a supervisor
with: Alternative dispute
resolution: Refer matter to a
Avoidance higher manager and
Accommodation Advice
Conciliation personnel department
Compromise
Competition Arbitration Use
arbitration/conciliation
Industrial tribunal
Health & safety Discrimination Appraisal Communication
Employer's Illegal on the Types of appraisal:

responsibility grounds of: Management-led
Gender Self-appraisal
Employee's
Marriage 180 degree
responsibility
Gender-reassignment 360 degree
Contractors Pregnancy Barriers to effective
Sexual-orientation appraisal (Lockett):
Disability Confrontation
Race colour Judgement
Ethnic-background Chat
Nationality Bureaucracy
Religion or belief Unfinished business
Age Annual event
Part-time-working
Working on a fixed-
term contract
Diversity
116

communication
Coaching and Negotiation

mentoring
Mentoring is where The negotiation

an experienced process:
member of staff
1 Preparation
provides guidance
2 Opening
and support to a more
3 Bargaining
junior member of staff
4 Closing
Coaching is role
specific guidance
provided by a more
experience staff
member
The coaching
process:
1 Establish learning
targets
2 Plan L&D
programme
3 Identify
opportunities to
broaden trainee's
experience
4 Allow for trainee's
strengths and
weaknesses
5 Exchange
feedback
117
END OF CHAPTER
118
Control & The Finance
Function
Introduction
Syllabus Area B/C  Managing relationships
 20% each
 Discuss the hard and soft aspects of people and organisational
Lead learning outcome performance
 Discuss the behavioural aspects of management control
 Discuss the effectiveness of handling relationships between the finance
Syllabus component function and other parts of the organisation and the supply chain
 Discuss the effectiveness of handling relationships between the finance
function and external experts and stakeholders
Context
This syllabus component requires you to have a solid understanding of the various control mechanisms an
organisation can have, especially from a people perspective. The role of the chartered management accountant is also
key.
Theories of behavioural aspects of management control 2
Performance management and measurement frameworks, e.g. 3
• Target setting
• The Balanced Scorecard (BSC)
Trust and control 1
Management of relationships between the finance function and other parts of the 5
organisation (internal)
The concept of the Chartered Management Accountant as a business partner in creating 4
value
Management of relationships with professional advisors (external) e.g. accounting, tax 5
and legal, auditors and financial stakeholders such as the shareholders and other
investors to meet organisational objectives and governance responsibilities
119
7: CONTROL & THE FINANCE FUNCTION
Other chapters in Syllabus Area C
Chapter 6 Chapter 7 Chapter 10

Conflict, Negotiation & Control & The Finance The Project Team
Communication Function
120
Overview
Organisational control
What is control?
Behavioural aspects of The finance function

control
Performance
management
Role of the Chartered Management of

Management Accountant business relationships
121
1 What is control?
1.1 Control is “the process of ensuring that operations proceed according to plan”. (Lucey) It is
a process integrally linked to the role of a manager (see Fayol, Chapter 4a).
1.2 Environments with fewer controls generally have higher levels of trust between management
and employees. In organisations where trust is weak, more controls are introduced to
monitor and manage performance.
The control loop
Standard
Regulator Compare
Input Process Output Sensor
1.3 Control operates at different levels of the organisation:

 Strategic control e.g., setting policies and procedures, managing corporate
governance, strategic planning for the organisation as a whole.
 Tactical control e.g., tactical planning for a specific department, monitoring,
budgeting
 Operational control e.g., credit controls, order processing, invoicing. I.e., activities
that probably require little management oversight.
1.4 William Ouchi identified three basic control strategies used by organisations.
(a) Market control is the use of the price mechanism and related performance
measures, internally and externally, to control organisational behaviour. It is used in
loose organisational forms such as consortia and alliances.
(b) Bureaucratic control uses an impersonal system of rules and reports to maintain
control (refer to Chapter 4).
(c) Clan control is based on corporate culture. It depends on shared values and
standards of behaviour within the organisation, and assumes that employees 'buy in'
to the purpose, goals and expectations of the organisation.
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2 Behavioural Aspects of Control

2.1 Accountants must consider the impact of their financial control systems on human
behaviour, which can be negative as well as positive.
Example 1: Budgets
(a) Budget pressure unites employees against management
(b) Pressure may lead to negative results
(c) Workers form into protective groups
(d) Accounting personnel equate success with finding fault in workers
(e) Workers feel victimised – loss of confidence and motivation results
(f) Supervisors use budgets as an expression of their position of superiority
Example 2: Standard Costing
Traditional Modern Impact on Standard Costing

Manufacturing Environment
Stable environment / Rapidly changing Regular revision of standards can be de-
products environment / motivating for employees as the goal
products posts keep moving
Standard product Customised product Differences between products make

developing a standard difficult. Resulting
variances may not be meaningful and
certain employees may be unfairly
penalised
Raw material and Just In Time Inventory may be built up in an effort to
finished goods philosophy improve efficiency variances
inventory is
important
A good system of control must influence employees in the direction of the company’s best
interests.
2.2 To address these concerns, the following aspects should be considered:

 Targets should be set which support the company objectives
 Managers should only be assessed on those items that they can control
 Targets should incorporate long-term as well as short-term objectives
 Targets should be set that motivate
 Targets should encompass the big picture and may include financial and non-financial
aspects
123
Required
Analyse how different management theorists would address the issue of control.
Solution
Classical school
Human Relations school
Contingency theory
3 Performance Management
3.1 To address the above issues, a popular alternative to purely financial targets is the use of a
‘balanced scorecard,’ which consists of a variety of indicators both financial and non-
financial.
3.2 This creates a broader control mechanism for the organisation, as managers will no longer
be measured on monetary objectives alone, but will appraised against a wider range of
factors which contribute to the long-term success of the organisation.
124
3.3 The balanced scorecard focuses on four different perspectives and aims to establish goals
for each together with measures which can be used to evaluate whether these goals have
been achieved.
Perspective Question
Customer What do existing and new customers value from us? This
perspective gives rise to targets that matter to customers: price,
durability, service
Internal What processes must we excel at to achieve our financial and
customer objectives? This perspective aims to improve internal
processes and decision-making
Innovation & Can we continue to improve and create future value? This
Learning perspective considers the business's capacity to maintain its
competitive position by acquiring new skills and developing new
products
Financial How do we create value for our shareholders? This perspective
covers traditional measures, such as growth, profitability and
shareholder value, but these are set by talking to the shareholder or
shareholders direct
3.4 The scorecard is ‘balanced’ in the sense that managers are required to think in terms of all
four perspectives, to prevent improvements being made in one area at the expense of
another.
3.5 The method has the advantages of looking at both internal and external matters concerning
the organisation, and of linking together financial and non-financial measures.
125
3.6 Disadvantages of this will arise from the selection and interpretation of appropriate
measures, and any potential conflicts between measures (e.g. R&D expenditure).
Which of the following statements is correct?

A The primary purpose of a balanced scorecard is to create a corporate strategy
B Balanced scorecards always report using the same time periods as the financial accounting
system
C Organisations should use a ‘traffic-light’ system on their balanced scorecard to help them
prioritise their activities
D The primary purpose of a balanced scorecard is to increase the number of performance
indicators used to manage the business
Solution
4 The role of the chartered management accountant

4.1 This evolution in the role of the finance professional has lead to the creation of the term the
‘hybrid accountant’, which is now regarded as the modern model of an accountant.
4.2 Often management accountants spend the majority of their time as internal consultants or
business analysts. They spend less time preparing standardised reports, but more time
analysing and interpreting information. They are based in the operational departments with
which they work, meaning they are more actively involved in decision-making.
4.3 Important areas where the accountant’s role has developed have included:
 Providing more useful information on business units, projects, products and
customers
 Supplying business cases for new investments
 Giving support in helping operational managers understand the information provided
 Collaborating in strategic planning and budgeting
 Designing information systems that provide greater support for operational managers
126
Fill in the missing words in the paragraph below.
commercial theoretical finance operational strategic tactical
This transition has led to many management accountants

focusing their role to that of a business partner, adopting a more _____________, action-
orientated approach. This means gaining broad knowledge of the business, participating as full
members of ____________ teams and bringing financial expertise to the management process.
They are expected to integrate management accounting information with _____________
management accounting data.
4.4 Management accountants will also work with the finance function, which is responsible for
financial control and treasury activities. This includes dealing with external stakeholders
such as banks, shareholders and the government.
4.5 As with other departments, the finance function must deliver control efficiently and
effectively. Options for achieving this is include business process outsourcing or shared
service centres.
4.6 With business process outsourcing (BPO), an external third party takes responsibility for
running the finance function’s internal processes.
Required
Briefly explain the benefits and drawbacks of outsourcing a finance office function and discuss
which of its elements should be outsourced.
Solution
127
4.7 Shared service centres (SSCs) involve centralising operations that would previously have
been found in more than one part of the organisation. It is sometimes referred to as
“internal outsourcing”. Benefits include:
 Economies of scale (lower headcount, premises costs)
 Selection and delivery of single best practice from all operations
 Improved control and quality
5 Management of business relationships

5.1 The increasing use of the finance function as a business partner emphasises the importance
of managing organisational relationships and collaborative working practices.
Internal relationships
5.2 Collaborative relationships are beneficial for both organisation and the individual, as they
help to develop the careers of the finance professionals involved. Building closer links
between the finance function and the entities operations is believed to facilitate the sharing
of experiences throughout the organisation and help drive innovation by generating new
ides to take the business forward.
External relationships
5.3 Due to factors including globalisation and increasing levels of corporate governance, most
large organisations now have an increasingly diverse range of stakeholders to consider.
5.4 Besides shareholders, CFO’s must become increasingly engaged with groups including: tax
authorities, auditors, regulators, finance providers, customers and suppliers.
Building relationships
5.5 Collaborative relationships can be established using a range of techniques:

 Talent programmes: aimed at identifying professionals from different business
functions who possess desired skills needed for the entities future success.
 Multi-functional teams: where finance professionals increasingly work with
individuals from other functions across the organisation on a variety of projects. This
facilitates the flow of expertise and helps with relationship building.
 Job rotations: help to create a more collaborative culture as they allow finance
professionals to interact with other parts of the business on a longer term basis.
 Coaching and mentoring programmes (chapter 6): ‘afford the individuals the
opportunities to develop the close and personal constructive working relationships
that are the basis of any strong network’.
128
Which of the following is not a benefit of collaborative working relationships?

A Increased profit
B Increased staff motivation
C Increased efficiency
D Increased staff retention
Solution
129
Summary
Organisational control
What is control?
Behavioural aspects of The finance function

control
Financial Control Treasury
Performance Business Partnering
management Outsourcing
Shared Service Centres
The Balanced Scorecard –
Customer perspective
Internal Business
perspective
Innovation and Learning
perspective
Financial perspective
Role of the Chartered Management of

Management Accountant business relationships
– Provide useful
Internal & external
information
– Business cases for new Building relationships
investments through:
– Help operational Talent programmes
managers understand Multi-functional teams
financial information Job rotations
– Collaborate in strategic Coaching and mentoring
planning and budgeting
– Design information
systems that provide
information needed for
the business to achieve
its objectives
END OF CHAPTER
130
131
Change Management
Introduction
 Managing change through projects
Syllabus Area D
 30%
Lead learning outcome  Advise on important elements in the change process
 Discuss the concept of organisational change
Syllabus component
 Recommend techniques to manage resistance to change
Context
This syllabus component requires you understand the change management process. You will also need to be familiar
with the reasons for resistance to change and how to resolve that.
Types of change 2
External and internal triggers for change 1
Stage model of change management; Principles of change management 3
Problem identification as a precursor to change 4
Reasons for resistance to change 5
Approaches to managing resistance to change 6
Other chapters in Syllabus Area D

Change Management Introduction to Project The Project Team
Management
131
8: CHANGE MANAGEMENT
Overview
Change management
What is change
management?
Process Types of change Problem Resistance to

identification change
Balogun & Hope Balogun & Hope Lewin Managing resistance

Hailey Hailey to change
Lewin's Stage
model
132
1 What is change management?

1.1 Change management is an approach to transitioning individuals, teams, and organisations
to a desired future state. (Kotter)
1.2 A change agent is an individual or group that helps to bring about strategic change in an
organisation. They are particularly useful where a cultural change is required.
1.3 The stimulus for organisational change is usually driven by some form internal or external
event. Such events are often referred to as ‘triggers’. Triggers may include:
External events Internal events

 Increasing competition  Out of date working practices /
processes
 Changes in customer tastes and buying  Changes in organisational performance
behaviour eg reducing profitability
 Social changes e.g. demographics  Introduction of new technologies
(age, income and gender)
 Changes in the economic cycle  Changes in senior management
(recession)
 Political and legal pressures (new laws,  High staff turnover
regulations and tax rules)
 Increasing use of new technologies
(internet, mobile technologies)
Fill in the blanks in the sentence below, choosing from the following options to do so:
Environment Porter’s Five Primary Research Secondary Research

Scanning Forces
A company could use _____________________ initially to ascertain the existence of any broad
triggers of change. Triggers would then need to be analysed in more detail using
____________________. It is important to identify the triggers of change so that a company can
plan to deal with them.
133
Balogun & Hope Hailey summarise the process of change management in the flow chart
presented below:
Stage 1: Analyse competitive position
Stage 2: Determine type of change needed
Stage 3: Identify desired future state
Stage 4: Analyse the change context
Stage 5: Identify the critical change features
Stage 6: Determine the design choices
Stage 7: Design the transition process – levers and mechanisms
Stage 8: Manage the transition
Stage 9: Evaluate the change outcomes
2 Types of change
2.1 Once a basis for competitive advantage has been chosen, Balogun and Hope Hailey
analyse types of change that an organisation may implement into its scope and nature as
follows:
Scope of change
Realignment Transformation
Incremental Adaptation Evolution
– Step-by-step in the – Paradigm changes
Nature of current way of over time.
change thinking.
'Big bang' Reconstruction Revolution
– Major change within – Rapid, fundamental
current paradigm. shift in the paradigm
134
What is meant by evolutionary change?

A Incremental change within the existing paradigm
B Incremental change outside the existing paradigm
C Big bang change within the existing paradigm
D Big bang change outside the existing paradigm
Solution
3 Stage model of change management

3.1 Whichever type of change is appropriate, the change needs to be managed. Where there is
a significant amount of change, Lewin recommends a 3 stage process as illustrated in his
diagram below:
Unfreeze Change Refreeze
Unfreeze
3.2 This involves breaking up the current state of affairs and preparing an organisation for
change. Approaches to this may include:
(a) Physically removing individuals from current posts and routines
(b) Consulting individuals on proposals for change
(c) Confronting individuals’ perceptions and emotions about change
(d) Creating a positive agenda supporting change
Change
3.3 The new working methods, systems and cultures must be implemented. This will require
staff participation in order to ensure that they ‘buy into’ the new status quo.
135
Refreeze
3.4 The new state is embedded by:
(a) Habituation as staff become accustomed to the new state
(b) Positive reinforcement as compliance is rewarded
(c) Negative reinforcement as non-compliance is punished
Managing the unfreezing process can involve:

A An emphasis on external problems or threats
B Signalling the need for change
C Making internal changes such as adjusting management
D All of the above
Solution
136
4 Problem identification
4.1 Lewin devised the Force Field Analysis model to illustrate how achieving the desired state
depended upon the success of overcoming the forces that resist change. His model
provides a way to identify these forces.
Example – introducing teachers' performance related pay.

Driving forces Current state Restraining forces Desired outcome
(unfreezing factors) (resistance) (freezing position)
Need to improve Existing systems

general standards are sufficient
in schools
Greater motivation Concern over

(meritocratic) effects on jobs and
working conditions
Improved quality of service
Perceived as divisive
Reduced running costs
What if it is not operated

fairly?
137
Why might a force field analysis be useful in thinking about strategic change?
A A force field analysis helps to identify the blockages to change
B A force field analysis help to identify forces which might facilitate change
C A force field analysis identifies those in the organisations with power to make change
happen
D A force field analysis provides a way of identifying forces for and against change in the
organisation
Solution
5 Reasons for resistance to change

5.1 As seen above, one of the greatest challenges for a change manager is staff resistance.
The reason of their resistance can usually be traced back to the one of the following causes:
 High levels of uncertainty
 Increase in workload
 Sense of embarrassment
 Rapid change
 Loss of autonomy
 Skills and competence
138
6 Managing resistance to change

6.1 Kotter and Schlesinger identified 6 approaches to overcoming staff resistance:
Approach Comment
Education and Assumes resistance caused by ignorance
communication Change must therefore be ‘sold’ to staff
Participation and Staff involvement in design of processes lessens resistance
involvement Involvement may alleviate fears on how staff will cope with change
Facilitation and Staff should be offered support via counselling and an open door
support policy
Training on technical aspects of new job design is essential
Negotiation and Essential to negotiate where union influence is strong
agreement Incentives to accept change may be required i.e. additional
payments
Manipulation and Resistance is undermined in covert ways such as manipulation of
co-optation information
A risky strategy as manipulation may increase resistance
Coercion, A suitable approach where management are powerful and staff are
implicit and weak
explicit Rapid change is possible; though staff resentment may be high
The IT Director of a company is trying to roll out a new system, but the employees have been
using the existing system for a long time and refuse to change their ways. The IT Director decides
to start a monthly competition, rewarding the employee that logs the most time on the new system
with a cash prize.
What approach is the IT Director using?
A Participation and involvement
B Facilitation and support
C Negotiation and agreement
D Manipulation and co-optation
Solution
139
Summary
Change management
What is change
management?
Process Types of change Problem Resistance to

identification change
Balogun & Hope Balogun & Hope Lewin Managing resistance

Hailey Hailey to change
1 Analyse competitive Scope & Nature Driving forces Education &
position Restraining forces communication
– Realignment
2 Determine type of – Evolution Current state
Participation & involvement
change needed – Reconstruction Desired outcome
– Revolution Facilitation & support
3 Identify desired
future state Negotiation & agreement
4 Analyse the change Manipulation & co-optation

context Coercion, implicit & explicit
5 Identify the critical
change features
6 Determine the
design choices
7 Design the transition
process
8 Manage the
transition
9 Evaluate the change
outcomes
Lewin's Stage
model
1 Unfreeze
2 Change
3 Refreeze END OF CHAPTER
140
topics.
Course notes
chapter
development
Culture Culture 5
Conflict, negotiation and Conflict, negotiation and
6
communication communication
Control and the finance
Control and the finance function 7
function
Change management Change management 8
141
Achievement ladder
142
143
Introduction to project
management
Introduction
 Managing change through projects
Syllabus Area D
 30%
Lead learning outcome  Discuss the concepts involved in the managing projects
 Discuss the characteristics of the different phases of a project
Syllabus component
 Apply tools and techniques for project managers
Context
This syllabus component requires you to understand what makes a project and a good understanding of the main
project management tools, including control mechanisms such as PRINCE2 and planning techniques including critical
path diagrams.
Definition of project attributes; Time, cost and quality project objectives 1
The purpose and activities associated with the key stages in the project lifecycle 2
Examples of the role of project management methodologies in project control (e.g. 3
PRINCE2, PMI)
Key tools for project management, including work breakdown schedule (WBS), Gantt 5-6
Charts and Network analysis
Managing project risk 4
PERT charts; Scenario planning and buffering 6
The contribution of project management software 7

Management
143
9: INTRODUCTION TO PROJECT MANAGEMENT
Overview
Project management
What is a project?
The project life cycle Risk management
Control methodologies
Project planning Project management

software
Gantt charts
Critical path analysis
144
1 What is a project?
1.1 A project is “a temporary endeavour undertaken to create a unique product or service”.
(Project Management Body of Knowledge).
Required
What is the difference between a project and “business as usual” work?
Solution
1.2 Project management is “the integration of all aspects of a project, ensuring that the proper
knowledge and resources are available when and where needed, and above all to ensure
that the expected outcome is produced in a timely, cost-effective manner.” (CIMA Official
Terminology).
145
There are nine project management areas that need to be managed during a project. These can
be divided into five constraints and four activities.
Required
You work for a building contractor which wants to break the world record for building a house
(currently standing at 2 hours, 52 minutes and 29 seconds). Consider this project from the
perspective of the nine project management areas.
Solution
CONSTRAINTS
Time
Cost
Quality
Scope
Risk
ACTIVITIES
Resourcing
Integration
Communication
Procurement
146
2 Feasibility
Before a project is chosen and initiated, a range of projects will undergo a feasibility study to
ascertain whether the project can achieve its goals in a cost-effective manner. The
assessment of feasibility can be broken down into 4 areas:
(a) Technical feasibility involves consideration of both technology and matters of
technical expertise, such as marketing, financial strategy and human resource
management.
(b) Social feasibility considers the impact of a project on both internal and external
stakeholders.
(c) Ecological feasibility including:
(i) Impact on the local community
(ii) Pollution and the impact on the environment that could be caused by the
project
(iii) Reputational damage should the project not be perceived to be ecologically
sound.
(d) Financial feasibility which means ascertaining whether the costs incurred by a
project are outweighed by the benefits gained. It can be difficult to ensure that all
costs/benefits are considered.
3 The Project Life Cycle

3.1 In order to ensure that a project is successful, a suitable framework needs to be adopted.
The Project Life Cycle, designed by Gido and Clements (1999), is the most common:
3.2 Large projects may follow an iterative process, where the Project Life Cycle is repeated
several times until a solution is agreed and delivered.
147
3.3 This Project Life Cycle was developed by the Project Management Institute (PMI) into a five-
step process:
Project Life Cycle PMI Process Description

Identification of need Initiation Goals and objectives are set
Development of a solution Planning Resources (finance, skills etc) are scheduled
Implementation Execution Using allocated resources to complete the
tasks according to the schedule
Control Measuring progress against plan and taking
corrective action where necessary.
Completion Closing Ensure that the project is completed and
meets the goals and objectives.
These steps are often referred to using the acronym IPECC.
4 Control methodologies – PRINCE2

4.1 One of the most widely used control methodologies is the software package PRINCE2
(Projects IN Controlled Environments version 2).
4.2 PRINCE2 was originally developed by the UK government for the public sector but has been
successfully used across a wide range of projects. It maintains control by prescribing a
series of processes to be followed:
 Initiating a project – setting out criteria against which the project will be judged
 Starting up a project – appointment of project manager and team
 Planning a project – sequencing activities using project management tools
 Managing product delivery – co-ordinating different aspects of the project
 Managing boundaries between each stage of an overall project
 Controlling each stage of a project – solving problems and controlling deliverables
 Closing a project – reporting on the extent to which a project is a success
 Directing the project – carried out by senior management throughout the project
4.3 These processes clearly overlap with the Project Life Cycle, but PRINCE2 is unique in
establishing a detailed structure and documentation system to ensure compliance.
4.4 These processes are supported by three techniques:

 Product-based planning – seeing the project in terms of output rather than activity
 Change control – how to manage changes when they arise
 Quality reviews – a structured measurement of “fitness for purpose”
4.5 As a result of these processes and techniques, PRINCE2 is associated with the following
features:
(a) It enforces a clear structure of authority and responsibility on the project team.
(b) It ensures that ‘management products’ such as the PID, budgets are produced.
148
(c) It generates different types of plan to ensure that all participants have a clear
understanding of their role in the completion of a task.
(d) It has detailed, documented technical procedures which act as quality controls.
Which of the following is a benefit of using PRINCE2?

A Increased bureaucracy and ‘red tape’ within the organisation
B Management control of any deviations from the plan
C Lack of autonomy for individual employees
D Specialist knowledge required from employees
Solution
4.6 PRINCE2 is the most extensively used control methodology (especially in the public sector).
However, there are other systems on the market that meet the same need, including:
 Project Management Body Of Knowledge (PMBOK)
 Six Sigma
 DEAL/INTRo
5 Risk management
5.1 All projects contain an element of risk. These risks can be managed using the following
process:
(a) Risk identification – produce a list of risks
(b) Risk analysis – decide size and probability (see below)
(c) Risk prioritisation – rank
(d) Risk management – decide strategy (see below)
(e) Risk resolution – undertake strategy
(f) Risk monitoring – ongoing monitoring
Risk analysis
5.2 Risk can be considered under three headings:
5.3 Quantitative Risk can be calculated using the equation p(E) x p(L) x M where:
p(E) probability of an event occurring
P(L) probability of the event causing a loss
M worst-case monetary loss
149
5.4 Qualitative risk can be used in the absence of sufficient numerical data to calculate
quantitative risk. Instead of allocating a value to p(E) and p(L), projects are ranked in each
category as high / medium / low. Projects with both high likelihood and high potential loss
are ranked as highest overall risk.
5.5 Socially constructed risk reflects peoples’ perception of risk, regardless of the reality. For
example, seat-belts on a plane do nothing to reduce the risk of injury in the event of a
serious accident but they are provided because they make passengers feel safer.
Risk management strategies

5.6 (a) Transfer – pass the risk to a 3rd party (e.g. by taking out insurance)
(b) Avoid – remove the facts that give rise to the risk
(c) Reduce – mitigate the likelihood of the risk occurring
(d) Absorb – accept the risk on the grounds that it can be managed if it occurs
This can be remembered using the TARA mnemonic.
Uncertainty
5.7 Risk analysis assumes that a probability can be allocated to an event. In the absence of
any historical data to generate a probability, the outcome is described as uncertain.
For example, there is a risk that a clothing retailer may see a fall in sales due to external
factors (weather, day of the week etc). However, if this retailer launched a revolutionary
new garment made from photo cells that changed colour, the impact on sales would be
uncertain.
5.8 It is impossible to reduce uncertainty as it has no quantifiable value to begin with. Its effects
therefore need to be managed using contingency plans.
ABC Ltd has a project team working to update their IT systems. The team has identified a
significant risk, about possible unauthorised access by hackers. To mitigate this, they invest more
money into the security provisions of the system and consult experts. What strategy are they
using?
A Transfer
B Avoid
C Reduce
D Absorb
Solution
150
6 Project planning tools – Gantt Charts

6.1 There are two common planning tools used for projects: Gantt Charts and Critical Path
Analysis (also referred to as a Network Chart). Both tools use the components generated
by the Work Breakdown Structure and present them diagrammatically.
Gantt Charts
6.2 Gantt Charts are horizontal bar charts that present each component part of the project on a
timeline. The Gantt chart below shows the stages of a simple kitchen installation.
Activity Days
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
1. Measure existing kitchen
2. Agree new design & layout
3. Order units and other components
4. Strip out old kitchen
5. Prepare electrics & plumbing
6. Install new units
7. Connect up electricity & water
8. Tile walls
9. Install flooring
KEY : Estimate Current Time Line

Actual
6.3 The Gantt Chart above suggests that, as at the end of Day 10, the project is probably
running 1 day behind schedule due to a delay at the design stage (activity 2).
6.4 While Gantt Charts are easy to read (at least, for small projects) and show both estimated
and actual performance to date, it is not always easy to see which activities are reliant on
each other, especially as projects become more complex.
151
7 Project planning tools – Critical Path Analysis

7.1 Critical path analysis is used to prepare a network chart which helps with the planning and
controlling of complex projects. It works as follows:
(a) Projects are broken down into sequences of tasks.
(b) The duration of each task is estimated.
(c) The tasks are arranged in a logical sequence.
It is then possible to determine critical/non-critical activities, and the overall duration of the
project.
Drawing a network chart

7.2 You will be given a list of activities that go to make up a project, together with details of:
(a) Times for each activity.
(b) Any other activities which must be completed before that activity can start.
Each activity is denoted by an arrow, with the activity name above and the duration below:
Installation
5 days
Each activity must start and finish with an event, denoted by a circle. The circle is divided
into three sections, each with a number:
3
1
5
1 indicates the event number. Each event is given a unique reference number so that it can
be easily identified.
3 indicates the Earliest Event Time (EET). This indicates the earliest time that the
subsequent activity (arrow) can be started.
5 indicates the Latest Event Time (LET). This indicates the latest time that the subsequent
activity can be started without delaying the overall project.
7.3 The following conventions are followed when preparing a network chart.
(a) Sequence from left to right
(b) One starting and one finishing event for whole project
(c) No looped or crossed lines
(d) All events should be linked together
(e) No more than one path between any two events
152
Calculating the EET & LET

7.4 The EET of the first event is always Nil. The EET for each subsequent event is calculated
by adding the duration of the activity to the EET of the previous event. If more than one
activity feeds into the same event, then the higher of the two EETs is always used.
7.5 Having established an EET for each event, the LET for the final event is always the same as
its EET. The preceding LETs are calculated by subtracting the duration of the activity from
the later LET. This may lead to an LET that is greater (but never less) than the equivalent
EET.
7.6 Where the LET is greater than the EET, the difference is referred to as slack or float. This
indicates the delay that can be experienced by preceding activities without delaying the
overall project.
7.7 Where the EET and LET are the same, there is no slack. This is referred to as the critical
path – the sequence of activities that cannot be delayed without delaying the overall project.
7.8 Each activity on the critical path is marked with a double line on the arrow:
Dummy activity
7.9 Even if two activities start at the same time and share the same the start event, they must
each have a separate end event.
If the next activity cannot commence until both previous activities have been completed,
then a dummy activity, shown by a dotted arrow, is required. This activity has no duration
and normally points from the event with the lower EET to the event with the higher one.
In the network chart above, activities C and D have the same starting event so must have
different ending events. However, as activity E cannot commence until both C and D are
complete, a dummy activity is needed to join events 3 and 4 together.
Alternative approaches
7.10 The process described above is referred to as the activity on line approach. An alternative
approach, activity-on-node, is also recognised by the examiner and included in published
answers. Since either technique is acceptable in the exam, it is BPP’s policy to only teach
the simpler activity on line approach.
153
6
3
C
3 3
2
D
4 7 E
4
Lecture example 5 Technique demonstration
Required
Construct a network diagram from the information provided.
Activity Duration Preceded by
A 1 –
B 2 –
C 3 A
D 4 B
E 6 C,D
Solution
154
Calculate the float time for a project activity if the earliest start time is day 3, the latest finish time is
day 25, and the total time needed for the work is 17 days. Give your answer to the nearest whole
day.
Solution
Milestones & control gates

7.11 A Network Chart is designed to enable a project to be properly understood and managed.
In order to do this effectively, additional controls can be added.
7.12 Milestones are key events that measure how much of the project has been completed and
how much remains outstanding. By monitoring when these milestones have been reached,
the progress of the project can be objectively measured.
7.13 Sometimes, the milestone cannot be passed until the project has been reviewed and a
decision taken whether or not to proceed. Such milestones are referred to as control
gates.
Managing risk and uncertainty

7.14 A Network Chart requires accurate data about the duration of activities. In reality, there will
be a degree of risk and uncertainty attached to this data. This can be managed in three
ways:
Project Evaluation & Review Technique (PERT)
Three estimates are created for each activity: optimistic (o), probable (m) and pessimistic
(p). Expected values are used to calculate the expected duration, and these are then
incorporated into the network diagram.
Contingency planning
Alternative plans are drawn up in case of a risk materialising.
Buffering
Slack time is added in to the activity durations. This should not be encouraged as it can lead
to inefficiencies and complacency.
155
8 Project management software

8.1 The management of complex projects has been dramatically facilitated through the use of
specialised project management software. These packages can assist with:
 Budgeting
 Scheduling
 Resource planning
 Activity planning (Critical Path Analysis)
 Linking activities / sub-projects
 Creating Gantt Charts / Network Charts / Resource Histograms
 Reporting
Required
Discuss the advantages and risks of using project management software to plan a project.
Solution
156
9 Project closure
9.1 Once the project has been completed, it should be reviewed to evaluate its success and
learn from the experiences gained. The key closure activities are:
9.2 Organising and filing project documentation

With the dispersal of the project team on completion of the project, it is important to have full
records kept for future reference.
9.3 Receiving and making final payments

Checking that all accounts are fully settled.
9.4 Formal sign-off from the customer

Confirming that all the agreed goals and objectives have been met.
9.5 Appraising the project team

Ensuring that the project team have been recognised for their contribution and, where
appropriate, are able to move on to another project.
9.6 Reviewing the business case

Reviewing whether the project has benefitted the business in the manner expected.
10 Post-completion audit
10.1 The post-completion audit is a formal review of the project and its activities. It can be
performed internally (with members of the project team) or externally (with the customer).
The following aspects of the project should be assessed:
 Has the required quality been achieved?
 How efficient were the operations?
 Were the costs properly managed?
 Was the deadline achieved?
 Was the management of the project effective?
 How were significant problems dealt with?
157
Summary
Project management
What is a project?
The project life cycle Risk management
Initiation Process:
Planning Identification
Execution Analysis
Control Prioritisation
Closing Management
Resolution
Control methodologies Monitoring
Analysis:
Quantitative
Focus on processes: Qualitative
Product-based planning Socially constructed
Change control Management:
Quality reviews Avoidance
Transference
Reduction
Absorption
Project planning Project management

software
Uses:
Budgeting
Gantt charts
Scheduling
Resource planning
Activity planning (CPA)
Critical path analysis Linking activities
Gantt Charts
Reporting
END OF CHAPTER
158
The Project Team
Introduction
 Managing relationships
Syllabus Area C/D  Managing change through projects
 20%/30%
 Discuss the concepts involved in managing projects
 Evaluate the issues associated with building, leading and managing
effective teams
Syllabus component
 Discuss management and leadership issues associated with projects,
including the roles of key players in projects
Context
This syllabus component introduces you to the various theories behind creating effective teams, and how this
translates to a project environment. The role of the chartered management accountant is also emphasised here.
You will need an in-depth understanding of the rational planning model and its alternatives, and when is appropriate to
use them.
Building effective and high-performing teams 4, 8
Leading and managing teams 2
Factors associated with effective team work 5
Motivating team members 7
Resolving problems and conflict in teams 6
Project structures, including matrix structure and their impact on project achievement 9
The role and attributes of an effective project manager 1
The role of the Chartered Management Accountant in projects 12
The role of other key players in a project 10
Managing key project stakeholders 11
The lifecycle of project teams 3
Leading and motivating project teams 2
159
10: THE PROJECT TEAM

Management
160
Overview
The project team
Project manager Project team Organisational Project

structure stakeholders
Formation &
development of Managing key
teams stakeholders
Team
Role of the
effectiveness
management
accountant
Team dynamics
Problems with
teams
Motivating team
members
Team roles
High performance
teams
161
1 The project manager

1.1 The person who takes ultimate responsibility for ensuring that the desired result is achieved
on time and within budget is the project manager.
The project manager is, in many respects, a manager like any other (see Chapter 4).
However, to fully understand this position we must consider the project manager’s role,
responsibilities and skills.
1.2 Norris et al (1993) identify three aspects of the project manager’s role:
(a) Managing people (project team, customers, other stakeholders)
(b) Carrying out the processes (or ensuring that they are carried out)
(c) Producing the final output
1.3 The project manager is responsible for leading the project team to ensure that the project
objectives are carried out to satisfy the needs of the customer. These responsibilities can
be categorised using Fayol’s structure as seen in Chapter 4a (Planning, Organising,
Commanding, Coordinating, Controlling).
You have been asked to recruit a new project manager for your organisation.
Required
Describe the main skills that the successful candidate needs to be able to demonstrate.
Solution
162
2 The project team

2.1 A group is “any collection of people who perceive themselves to be a group” (Charles
Handy 1993).
A team (see Section 2) is “a small number of people with complementary skills who are
committed to a common purpose... for which they hold themselves mutually accountable.”
(Katzenbach & Smith, 1994)
Teams are a type of group but not all groups are teams.
2.2 Creating a cohesive and well-informed team will be a key task for the project manager.
Some of the common problems the project manager may have to overcome include:
(a) Unclear goals and objectives
(b) Lack of team structure
(c) Lack of role definition
(d) Poor leadership
(e) Poor team communication
(f) Lack of commitment
2.3 At a basic level, a project manager requires the same skills as any other manager in
creating a team.
3 Formation and development of teams

3.1 Bruce Tuckman (1965) described four stages of development that a team goes through:
(1) Forming: individuals begin to get to know each other.
(2) Storming: disagreements emerge due to differences of opinion.
(3) Norming: guidelines and standards of behaviour are agreed.
(4) Performing: group begins to work effectively together.
ABC Ltd has just set up a task force of eight employees who will be responsible for implementing a
new accounting software system. Although each individual is experienced in this field, there has
been an increasing amount of interpersonal friction as working patterns and priorities are debated.
The manager responsible for delivery of the new system is concerned that the group may fall
behind schedule. At the forthcoming staff meeting, he plans to communicate a zero-tolerance
attitude to disagreement, telling people to “stop moaning and get on with your work”.
Required
Use Tuckman’s theory of group development to identify the stage that this group has reached.
A Forming
B Storming
C Norming
D Performing
163
Solution
3.2 One of the things that differentiates a team from a group is that its members have
“complementary skills”. Meredith Belbin (1981) identifies nine roles necessary for a
successful team:
Coordinator stable, dominant extrovert who clarifies the group’s objectives
Shaper an anxious, dominant extrovert with a strong drive to get things done
Plant a high-IQ introvert who generates original ideas
Monitor-evaluator another high-IQ introvert who analyses the plant’s suggestions
Implementer a controlled individual who converts the decision into a series of tasks
Resource investigator a stable extrovert who gets useful resources from outside the group
Team worker a low-dominance extrovert who keeps the team together
Completer-finisher an anxious introvert who is mainly concerned with meeting deadlines
Expert provides the knowledge and skills to solve technical problems
This list can be remembered using the mnemonic:
Combining Skilful People Methodically Into Robust Teams Creates Efficiencies
3.3 There is no requirement for each role to be performed by a separate individual – in small
teams, one person can fulfil two roles.
4 Team effectiveness
4.1 There is a risk that, by the time the team reaches Tuckman’s performing stage, its
objectives no longer coincide with that of the organisation. To reconcile individual and
organisational objectives, the following factors need to be considered:
Membership factors
Size of group, homogeneity of members, alternatives, membership of other groups
Environmental factors
Task, isolation, climate of management and leadership
Dynamic factors
Constant change, success and failure
4.2 Charles Handy (1993) simplifies this list by arguing that a team’s effectiveness depends on:
 Givens the team, the task and the environment
 Intervening factors leadership style, procedures, motivation levels
 Outcomes productivity of the group, satisfaction of members
164
5 Team dynamics
5.1 Team dynamics will impact on an individual’s performance. It is the manager’s responsibility
to ensure that this impact is positive. In order to achieve this, he/she can choose from four
of Steiner’s models:
Additive model
Each individual contributes independently of anyone else. Output is inefficient.
Conjunctive (coordination) model
High sequential dependence between members. Output dependent on weakest member.
Disjunctive (collaboration) model
The idea of the most competent member is implemented. Good for problem-solving.
Complementary model
The task is divided into component parts with a different model chosen for each.
6 Problems with teams

6.1 There are four common problems that can emerge even in the most successful team:
 Conformity Individuals are pressured to agree with the majority against
their better judgement
 The Abilene Paradox Team members accept an idea they don’t like in the belief
that everybody else supports it. In reality, nobody does.
 Groupthink A strong culture of self-belief means that ideas generated
by the team are not critically evaluated.
 Risky shift Individuals recommend higher risk strategies than they
normally would because accountability is diluted across the
whole team
165
7 Motivating team members
Required
How can the problems associated with team working be overcome?
Solution
8 High performance teams

8.1 Peter Vaill (1989) identifies five characteristics of high-performance teams:
(a) They perform excellently against previous achievements and external standards
(b) They exceed what is assumed to be their potential best
(c) They achieve these results with fewer resources than assumed necessary
(d) They are judged by informed observers to be superior to comparable groups
(e) They are seen to demonstrate the ideals of the organisation’s culture
8.2 Staff at the Digital Equipment Corporation (1989) were found to have improved
productivity by initiating a new work design involving teamwork:
 Autonomous teams of 6 – 12 self-managing staff without front-line supervision
 Each team had full responsibility for a whole section of the manufacturing process
 Production targets were negotiated between the team and their product manager
 Team members had no job titles and were expected to share their skills
 Team members were paid according to their skills, not the job they were actually
doing
 Team members were involved in recruiting and appraising colleagues
 An open plan factory floor encouraged communication
166
Which of the following is a not a flaw with Vaill’s research into high performance teams?
A The teams will eventually become demotivated as they are always encouraged to improve
B It requires cultural acceptance before implementation
C It will create a more efficient workforce
D It tells us what a high performing team is, but not how to create one.
Solution
9 Organisational structure
9.1 If an organisation is governed by a strict functional structure, it can be difficult for a project
team to be formed. Organisations which initiate many projects will need to consider how
departmental barriers can be broken down to allow project teams to develop.
9.2 Large scale projects require clear lines of authority at both functional and divisional levels.
This makes a matrix structure, which merges the two levels, particularly appropriate.
167
Required
Explain the benefits and disadvantages of a matrix organisational structure.
Solution
10 Project stakeholders
10.1 Stakeholders are people who have an interest in the end results of the project. They are not
all necessarily involved in the day-to-day work, but may attend project meetings.
10.2 Key stakeholders in a project are:
Project Sponsor
Project brief, Project Owner Project

allocation of proposals
funds, terms of Project Customer schedules,
reference status reports
passed down Project Manager passed up
Project Team
10.3 Project sponsor

(a) Provides the necessary resources for the project
(b) Gives authorisation for the project to go ahead
(c) Responsible for budget provision
168
10.4 Project owner (client)

(a) Person for whom the project is undertaken
(b) Wants required end results delivered
(c) May not be the end user
10.5 Project customer

(a) End user whose needs should be satisfied by the project
(b) Constant involvement and interaction with the project avoids ongoing problems
(particularly if the customer is a group with diverse needs)
10.6 Project champion

(a) Presents the project to the rest of the organisation
(b) Communicates vision, objectives
(c) Secures commitment and resources
10.7 Suppliers/subcontractors
(a) Provide valuable inputs to the project; labour or raw materials
(b) Their opinions may conflict with other project stakeholders
11 Managing key project stakeholders

11.1 Project managers need to consider stakeholders when initiating their projects. Mendelow’s
Matrix analyses the power and interest of different stakeholder groups. It is used to:
(a) Track changes in the influence of different stakeholder groups.
(b) Assess the impact of a proposed strategy on stakeholders.
Level of interest
Low High
A B
Low Minimal effort Keep informed
Level of power
C D
High Keep satisfied Key players
169
Assessing stakeholder power

11.2 High power in the matrix is caused by the stakeholder’s:
 Status – place in the organisational hierarchy, reputation, social standing
 Their claim on resources – size of budget, number / level of staff in their department,
volume of business transacted with them, % of workers they represent (trade union)
 Formal representation in decision-making process – level of management, presence
on committees, legal rights (e.g. shareholders, planning authorities etc)
Assessing stakeholder interest

11.3 The level of interest involves two factors:
 What they want – the assumption is that stakeholders will pursue self-interest.
 Do they have the time or inclination to follow management decisions closely?
Strategies to deal with stakeholders

Level of interest
Low High
These malleable stakeholders Presenting the strategy as
are likely to accept what they rational or inevitable will
Low are told. reduce the likelihood of
Level of power
stakeholders joining forces

with high power stakeholders.
Reassure them of the likely Having had the need for
outcomes of the strategy well change explained to them,
High in advance. these stakeholders should be
involved in discussion
solutions.
Lecture example 6 Technique demonstration
Required
The project manager of ABC Ltd’s task force responsible for implementing a new accounting
software system has just had a bad run-in with a key stakeholder, which led to the team losing
10% of their budget. To prevent further problems, he has instructed the management accountant
to complete a Mendelow’s Matrix, complete with recommendations on how best to manage each of
the stakeholders.
170
Solution
Level of interest
Low High
Low
Level of power
High
Resolving conflicting objectives between stakeholders

11.4 Conflicting objectives can be resolved using rational, mathematical techniques:
(a) Prioritisation – management specifies criteria for objectives to meet (e.g. 10% ROI).
(b) Weighting and scoring – each option is ranked based on the extent to which it
meets defined criteria.
(c) Composite measures – such as the balanced scorecard.
11.5 Alternatively non-mathematical approaches may be used.

(a) Satisficing – a hybrid of satisfying and sufficing – the strongest stakeholders are
satisfied; the rest are given enough to suffice.
(b) Sequential attention – the organisation prioritises a particular goal for a period of
time before moving on to another one.
(c) Side payments – if stakeholders are disadvantaged, they are offered compensation.
(d) Exercise of power – the use of force to resolve deadlock.
12 The role of the management accountant

12.1 One specialist project stakeholder is the management accountant. The skills of the
management accountant are well suited to supporting project teams as they are able to
monitor project progress from a financial perspective. In the case of large scale projects it is
common practice for the project team to be supported by a dedicated project accounting
function distinct from the organisations main finance department.
171
12.2 The management accountant can support the project team in a number of ways, including:
(a) Conducting a cost-benefit analysis of the project proposal as part of the feasibility
study
(b) Working with the project manager to produce project budgets and forecasts
(c) Updating the project accounting system to ensure that accurate project information is
recorded
(d) Maintaining a complete audit trail of project documentation to facilitate the post-
completion audit
(e) Arranging stage payments to project suppliers
(f) Monitoring project progress against the budget and investigating variances
(g) Interpreting variance analysis and communicating this to the project manager to help
avoid project slippage (i.e. cost overruns)
(h) Analysing and interpreting management reports for project team members to facilitate
project decision making
(i) Liaising with the project sponsor to discuss additional project resource requirements
172
Summary
The project team
Project manager Project team Organisational Project

structure stakeholders
Norris: Matrix Advantages:

Formation & Better decisions
1 Manages people Managing key
development of Improved
2 Carries out teams communication stakeholders
processes Direct contact rather
3 Produces final Team than formal control
Role of the
output effectiveness Develops managers
management
Fayol: Disadvantages: accountant
Planning Team dynamics Lack of clear
Organising responsibility
Commanding Conflict between
Coordinating functions
Controlling Problems with
teams
Motivating team
members
Team roles
High performance
teams
173
END OF CHAPTER
174
You have now covered the Topics that will be assessed in Step 5 in your Achievement Ladder. This
topics.
Course notes
chapter
development
Culture Culture 5
6
function
Introduction to project management 9
management
The project team The project team 10
175
Achievement Ladder
176
In the final run up to your exam, you should attempt Step 6 as the final check that you are fully prepared
for your real CBA exam.
It covers all the Topics in your course. As ever, you will receive feedback on your performance, and you
can use the wide range of online resources to help address any final areas where you need to fine tune
your knowledge or technique.
Course notes
chapter
Introduction to strategy
Introduction to strategy and 1a
contemporary perspectives Contemporary perspectives in strategy
1b
development
Culture Culture 5
6
function
Introduction to project management 9
management
The project team The project team 10
177
Achievement Ladder
178
Answers to
Lecture Examples
179
ANSWERS TO LECTURE EXAMPLES
Chapter 1a
Answer to Lecture Example 1
C
Because the consultant has been specific about functions, stores and departments’ contributions will help
the overall strategy, this is a functional strategy. Corporate strategy is the setting of overall objectives,
business strategy is the translation of those objectives into tasks at the business unit level. Competitive
strategy considers how a company will respond to/beat its competition.

Advantages:
 Avoids short-termist behaviour
 Helps identify strategic issues
 Gives goal congruence
 Improves stakeholder perception of the business
 Provides a basis for strategic control
 Develops future management potential and ensures continuity
Disadvantages:
 Too infrequent to allow the business to be dynamic.
 Prevents the development of radical or innovative strategies.
 Harder to implement due to lack of participation of middle / junior management.
 Loss of entrepreneurial spirit
 Impossible to use in uncertain business environments.
 Too expensive and complicated for a small business.

Hooley’s five criteria for a mission statement should be used to structure your answer:
(a) Provide a basis for consistent decision-making.
(b) Assist in translating direction into objectives suitable for assessment and control.
(c) Provide a consistent purpose between different interest groups (stakeholders).
(d) Establish organisational goals and ethics.
(e) Improve understanding and support from key groups outside the organisation.
There is no single, correct answer to this, but the marker will look for a good balance between agreeing
and disagreeing.

D, E
For a services company these are the most important factors. Inbound logistics will probably be
insignificant as there is little product to bring into the company. Procurement and firm infrastructure are
support activities.
180

The rational planning model is a structured process. The manager’s duty is therefore to complete each
stage of the process in the prescribed order. This will involve gathering and analysing information from a
variety of sources before identifying a range of options and selecting one. The manager will need to adopt
a logical, bureaucratic approach to the task in order to ensure that key stages are not omitted. Having
implemented the strategy, all members of the team will have a clear and defined set of criteria to measure
performance against.
Although, according to Quinn, logical incrementalism can use a formal process such as the rational
planning model, this approach emphasises the need to gain the consensus of stakeholders. A manager in
this context will need to “sell” the changes, often through the use of political networking. This almost
inevitably means that the change is more gradual, as stakeholders are given the opportunity to accept
one change before the next is imposed. It also requires clear and consistent communication – something
that can be lacking in many stages of the rational model. However, the incremental nature of the change
means that the full strategy is not revealed (or sometimes even planned) in a single event. This means
that the manager will need to manage staff by referring to a wider mission or corporate objective rather
than a specific strategy. This will inevitably be less specific and invites a greater degree of discretion (not
to say uncertainty) from all involved.

B, C
The positioning approach means considering the external environment and then changing the business to
fit the market. The market doesn’t necessarily have to be predictable, the business would change as the
market changes. A resource-based view takes the opposite approach and focuses on internal
competences that can be used to approach the market in any situation.
Chapter 1b
 Limited growth in traditional & home markets
 Increased competition in home markets
 Consolidation and development of trading blocks
 Liberalisation of trade, resulting in increased international investment
 Free trade opening up emerging markets
 Potential cost / market share advantages
 Lower production costs in developed countries
 Development in communication networks
 Developments in transportation technology
 Global financing.

 Widening differences in incomes and living standards in industrialised countries
 Increased demand for flexibility in workforces, both numerically and functionally
 Change in government policy to promote small firms, increased use of IT, attracting FDI
 Increased pressure for global governance
181

B
A joint venture results in a separate legal entity being created and the sharing of risks and rewards.

Transaction costs:
 Negotiating / drafting the contract
 Monitoring the supplier’s compliance
 Pursuing legal action in the event of a breach
 Penalty / cancellation payments if the customer’s needs change
Difficulties in quantifying the above are caused by:
Bounded rationality
When the contract is entered into, neither party will be able to predict the future, and, by extension, their
future needs.
Opportunistic behaviour
The supplier may try to exploit loopholes in the contract in order to further their own self-interest.

Arguments in favour:
 Firms may incur additional costs (e.g. paying staff more than minimum wage)
 Revenue may be reduced (e.g. not promoting alcohol to teenagers)
 Dividends could be diverted to charitable donations
 Management and staff time could be diverted to charitable projects
Arguments against:
 To be sustainable, a firm cannot conflict with society.
 Attracts socially conscious investors and customers.
 Improves relations with governments and other regulatory bodies.
 Improves staff motivation and morale
Chapter 2
B
The management’s accountant’s research is national and has captured demographic factors. As such it
belongs in the “national social” category.
182

According to the World Trade Organisation, most nations have pledged to abolish protectionism.
Factors in favour of Free Trade:
 The country would be able to utilise its resources to gain a global competitive advantage
 Encourages entrepreneurship and free rein
 Protectionism promotes international conflict
 Encourages most efficient use of resources
 Encourages general economic growth
Factors against Free Trade:
 Undermines national culture (impact of goods from abroad)
 Big multi-nationals can exert significant power (e.g. Wal-Mart)
 Reduction in national security due to reduced border control
Protectionism protects small start-up companies and allows them to grow

D
High competition would discourage new entrants, both a monopoly supplier and one large customer
would make it harder for an organisation to break into a market and establish beneficial working
relationships. Low competition could mean there is much to be gained from entering a market.

B
Strategy structure and rivalry consider whether a company’s culture, structure, and position in the market
help or hinder a company. Demand in the home market is “demand conditions”, the presence of
competitive supplier industries is “related and supporting industries” and demand in the global market is
not an element of the diamond.
Chapter 3
B
An industry competitor is where the companies sell the same products but are different in size and/or
structure.

Products & services
Marketing
HR
Operations
Management profiles
Socio-political
Technology
Organisational structure
Competitive intelligence capacity
Strategy
Customer value analysis
Financial
183

(a) Physical analysis (reverse engineering)
Ex-employees
Current employees (but this would be industrial espionage and therefore unethical. Not one to
recommend in the exam!)
Generalisation based on own cost base
Industry experts/consultants
Physical observations (stand outside factory)
Sony’s published accounts (limited detail)
Trade and media coverage
(b) Sony’s strategy was to secure the Blu-Ray’s dominance over Toshiba’s HD-DVD as the successor
to the DVD. By effectively giving the hardware away free, it succeeded. The question is whether
the life cycle of Blu-Ray will be long enough to justify the cost of doing this.

A
While big data does allow an organisation to hold more data that can be mined for insights and potentially
lead to new revenue streams, it doesn’t necessarily mean that decisions will be made any faster.

A
Differentiation is a strategy whereby a company makes its products or services different from those of
their competitors, thereby attracting a customer who is looking for a certain characteristic. It is not about
competences, brand, or pricing.
Chapter 4a
B
Management is an admin role, the skills that a manager has should be transferrable to any organisation
regardless of the product or service being sold. He should probably not admit that he isn’t the strongest
candidate if he wants the job, and the other two options may not help him build a strong case either.

Weaknesses:
Dehumanises work, presenting workers as machines
Work study misused by management, provoking worker/manager/union conflict
Contemporary situations:
Anywhere where a simple, standard process is repeated many times
e.g. McDonalds, call centres, hotel chamber maids
184

C
In a hospital it is important that staff be competent and that there are clear rules and procedures because
the risks of something going wrong are high and the consequences devastating. Decisions and actions
must be recorded so that patients don’t receive medication twice, for example. A lack of innovation is a
problem because there may be better treatments waiting to be discovered but are not because everyone
is following standard procedure.

The “Hawthorne Effect” (aka The Experimenter Effect) is the increase in productivity simply because the
staff were being observed. Each time the lighting was changed, it reminded staff that they were being
watched and their productivity increased.
However, when Mayo repeated the experiment, the group dynamics were different – this time, the
workers had agreed between themselves not to react to being observed.
The examiner mentions in passing that the first group (who changed) were female while the second group
(who refused to) were male!

A, C
HYGIENE FACTORS
 Clear rules & procedures (when can you stop & search?)
 Fair supervision (probably a degree of trust / discretion given to PCs – i.e. not micro-managed)
 Salary (important to highlight as a hygiene factor, even if it is a generic point)
 Working conditions (as much safety as possible, manageable hours, a staff canteen)
MOTIVATIONAL FACTORS
 Sense of achievement – making a difference in the communities he/she polices
 Level of responsibility – trusted to deal with potentially volatile situations
 Recognition – by superiors (promotion) and public (respect for the uniform?)
 New challenges – never the same day twice

Advantages:
Gets employees involved in performance management
More likely to achieve targets
More realistic targets
Training for lower level management
Considers more than financial performance
Drawbacks:
Takes more time therefore costs more
Could be open to abuse by individuals (although unlikely!)
Disagreement over what objectives & measures should be
Requires continued input
185
Chapter 4b
B
It looks like the Finance Director has referent power because his staff are loyal and committed to him and
he fosters strong relationships. The fact that he is capable may mean that he also has expert power but
the emphasis in this scenario seems to be on his likeability!

Delegation is the process whereby a manager assigns part of his authority to a subordinate but the
manager’s responsibility can never be delegated.

Famous leaders could include Winston Churchill, Nelson Mandela, Mahatma Gandhi. Many (but not all)
of their traits are highlighted in trait theory.

B
Trait theory is problematic because it is hard to measure characteristics like “charisma” effectively, there
are so many traits that it might be unlikely for any one person to have them all, and exceptions to the rule
are not considered. If trait theory is used in the search for a leader, it should be possible to choose a
highly effective person.

Country club – in a country club (!) i.e. when the organisation exists solely for the enjoyment of its
members/staff. Also applicable if you are reliant on voluntary staff.
Authority compliance – in times of crisis (e.g. military combat; company liquidation looming) when survival
depends on swift, task-focussed decisions. Note this approach is not sustainable in the long-term.
Chapter 5
A, E
Values and beliefs are not observable but they have observable manifestations. A quality product, polite
treatment of staff and prompt refunds are observable. Staff contentment and a “customer is king” attitude
are not visible in themselves but will be manifested in staff attitudes toward their work and their
customers.
186

Stories – manager can influence but no more than any other member of staff. In fact, the manager may
find themselves excluded from social conversations and therefore have less influence.
Routines – manager can assert a lot of control over routines
Rituals – these rituals can be set up by the manager. Attendance and participation can be enforced but
not enthusiasm or support.
Symbols – entirely controlled by the organisation
Power structures – the management can allocate authority but not power
Control systems – this is decided upon by management, as is the organisational structure

D
Using a matrix structure that doesn’t follow a traditional functional hierarchy can be confusing to
employees who now have more than one manager and may struggle to effectively prioritise their
workload.
Chapter 6
Avoidance strategies and HRM strategies are not viable options here, given the level of union
membership and critical nature of employment.
Collective bargaining is the most obvious solution here. It recognises that there is a significant conflict
that cannot be easily resolved. Given the nature of the relationship, it is likely that there have been similar
issues in the past, and the process of collective bargaining is one that will be familiar to both parties.
In conjunction with collective bargaining, the government may offer alternative gain-sharing initiatives.
This could include a salary increase to compensate for the loss of pension rights which could be weighted
towards those with the longest service record who stand to lose the most under the new terms.
Ideally, the government and trade union should build a closer working relationship to prevent conflicts like
this emerging in the future. The government could implement labour management teams in order to
improve worker participation although, given the level of unionisation, this is likely to be difficult to sell to
staff.
The alternative would be a partnership agreement, which would identify areas of common interest for the
government, the union and the workers and would act as a point of reference in the event of any future
disagreement.

A
Incurring more costs is not a benefit of offering flexible child care provisions because it will reduce
profitability. Offering the provisions does have knock-on benefits however including employee retention,
reduced absenteeism and a good reputation.
187

On the surface, this sounds like discrimination, as discrimination legislation applies to all forms of
discrimination, including the “positive discrimination” outlined here.
However, the scenario highlights that the police force is dominated by white, 25 - 35 year old men. There
is no evidence of direct discrimination – in fact, there appear to be controls in place to prevent this. This
suggests that there may be indirect discrimination taking place.
Indirect discrimination is when criteria are set that, while not obviously discriminatory, effectively prevent
people from disadvantaged groups from applying. For example, if police officers were expected to be
clean-shaven (for which there is no apparent requirement to perform the job), this would be indirectly
discriminatory against Sikhs. Similarly, if recruitment advertising was limited to publications and locations
not frequented by ethnic minorities, this could also be seen as indirect discrimination.
Given the duty of the NPF to police the whole community, there will be some situations that a white,
25 - 35 old officer may be ill equipped to deal with. Examples could include crimes of rape or religious /
racial hatred. In such cases, the victim is more likely to report the crime if they feel they are going to be
sympathetically dealt with by someone who understands their background and life experience.
It is legal (and advisable) to discriminate on the grounds of race, sex or religion if it is a requirement for
the job. Given that the NPF is definitely not representative of the population as a whole, the Chief
Constable would be advised to include religion, sex and ethnic background as considerations when
recruiting police officers until a more reasonable balance is achieved. It would also be beneficial to review
the recruitment policies to ensure that any indirect discrimination (however unintentional) is removed.

C
By including customer feedback in the appraisal system, Y is recognising that the manager does not
always see the great customer service being given.
W Co’s method of appraisal fails to keep appraisals relevant because they are happening too
infrequently.
X Co might use a 360 degree appraisal system because that system includes rating yourself.
Z Co is using an upward appraisal system because subordinates are rating their superiors.

By being outside the official organisational structure, the mentor is free from operational issues and able
to provide a degree of objectivity and independence.
Henri can therefore address broader issues such as Bruce’s choice of qualification, career goals and any
interpersonal problems. He can give Bruce honest advice about his performance in order to identify his
strengths and weaknesses. Because this is not done in a formal appraisal context, Bruce has the freedom
to be entirely open and honest without fear of undermining his reputation within the workplace.
As the relationship between mentor and pupil develops, the mentor can act as a sounding board for
ideas. This will allow Bruce to question and reflect on his experiences in a safe, supportive environment.
The support of a mentor provide the following benefits to Gotham plc:
 Improved motivation on the part of Bruce
 Lower levels of staff turnover – Bruce is less likely to leave Gotham plc if he has a wider support
base
188
 Faster career progress – Bruce can use this as an opportunity to develop his management skills
(as opposed to his technical knowledge).
It is important, however, that Henri works alongside Alfred and the formal mechanisms within Gotham plc
(e.g. appraisal). Both mentor and manager should have a shared goal of maximising the potential of the
individual, even though they are coming at it from different perspectives.

 Work done slower
 Miscommunication of tasks and results
 Misunderstanding/lack of recognition of problems
 Poorer quality solution due to lack of collaboration
Chapter 7
Classical school
Strict adherence to rules and procedures. Control systems such as standard costing and budgeting come
in here. The problem is, this doesn’t recognise human aspects: such control is demotivating and, as a
result, can lead to poor quality output.
Human Relations school
Control is based on interpersonal interaction rather than adherence to rules. I.e. obey what your manager
tells you (rather than what the social group is telling you). This relationship allows the manager to listen to
the workforce but relies on the manager acting in the best interests of the company.
Contingency theory
Control is a variable that depends on the particular situation. The control system is therefore unique and
tailored. This makes it well-targeted but potentially expensive (in terms of cost and time) to create.

D
The Balanced Scorecard increases the number of performance indicators used to manage the business
because it considers more than just financial factors (customers, internal business processes, and
learning and innovation).
The Balanced Scorecard does not create strategy, it is a product of strategy. Any time period can be used
for reporting. A “traffic-light” system could be used but this is not mandatory.

This transition has led to many management accountants focusing their role to that of a business partner,
adopting a more commercial, action-orientated approach. This means gaining broad knowledge of the
business, participating as full members of operational teams and bringing financial expertise to the
management process. They are expected to integrate management accounting information with strategic
management accounting data.
189

Benefits:
Cheaper (economies of scale)
Access to specialist experience of outsourcer
Release internal finance capacity for strategic decision-making support
Drawbacks:
Loss of control
Erosion of internal knowledge / skills
Loss of competitive advantage
Elements to outsource:
Transaction processing elements can be easily outsourced due to their routine nature. Strategic elements
of investment and financing decisions are better kept in house where specialist knowledge can be
applied. The main issues are the value added by the activities and whether they are considered to be
core to the overall objectives of the organisation.

D
Collaborative working relationships should mean greater efficiency and motivation as staff understand
each other and the business much better. This results in greater profit. This does not necessarily translate
into staff retention.
Chapter 8
A company could use environment scanning initially to ascertain the existence of any broad triggers of
change. Triggers would then need to be analysed in more detail using primary research. It is important to
identify the triggers of change so that a company can plan to deal with them.

B
A refers to adaptation
C refers to reconstruction
D refers to revolution

D
The unfreeze process is about disrupting the current state of affairs so all of the options can be part of the
“unfreeze” phase.

A
Force field analysis identifies the forces driving change (for change) and the forces restraining it (against
change). It does not necessarily help identify forces that facilitate change or people who can help. It does
not only identify the factors blocking change.
190

C
Negotiation and agreement involves compensating employees for losses suffered as the result of a
change – a prize would count here as “compensation”. Participation and involvement is asking for
employees’ ideas before/during change implementation, facilitation and support involves addressing
technical and emotional/psychological needs as a result of the change, and manipulation and co-optation
involves encouraging staff to accept the change through indirect means such as making the members of
a team put pressure on a resisting team member to change.
Chapter 9
(a) Stakeholders with a vested interest in the outcome
(b) A unique nature – something that has not been done before
(c) Two sets of objectives:
(i) Completing the project within the time / cost / quality scope agreed.
(ii) Helping the organisation to deliver its strategy.
(d) Allocated resources (money, people, time etc)
(e) Schedules designed to manage time and resources
(f) Customer satisfaction used as a measure of success
(g) A degree of uncertainty due to the risks involved
(h) A finite timescale
(i) On completion, the team moves on to a new project

Time – crucial factor here, even if quality / cost have to be compromised
Cost – high due to need for quality reasons below
Quality – actual house likely to be very poor quality (not enough time to take care) but labourers need to
be fast, reliable and able to think on their feet
Scope – meet minimum technical requirements for the house (1 storey, small etc). Not important if it falls
apart in a week’s time (?)
Resources – very high level of human resource (see quality) need contingency of people on hand to
trouble-shoot
Risk – very high due to complex nature of project and excessively tight timescale. Pre-empt whenever
possible (e.g. postpone if it rains)
Integration – stand-alone project that doesn’t impact on other building work (other than branding)
Communication – integral to a timely completion. Very clear structure for signing off each stage
Procurement – probably low quality materials, but may need to pay premium to get everything on site at
the right time.
191

B
PRINCE2 is a project control methodology, designed to keep the project on track.
Increased bureaucracy and “red tape” is usually not a benefit to an organisation. PRINCE2 actually
increases autonomy by allowing project managers to control the project themselves. Specialist knowledge
is beneficial but not required. PRINCE2 is a detailed programme which means that people who lack
expertise in project management can still do a good job of running a project.

C
The team have reduced the likelihood of hackers being able to gain entry to the system.
Transfer – take out insurance
Avoid – not to the thing that gives rise to the risk
Absorb – go ahead regardless.
C 4
2 1 4
A 3 3 6
1
0
1
0
B
6 E 12
2 2 D
3 5 6
2 4 6 6 12 Critical Path: B D E

4 days
If the start time is day 3 and the finish time is day 25 there are 22 days to complete the project (25 – 3 =
22). If the project takes 17 days there are 4 days spare (22 – 17 = 4).

ADVANTAGES:
Accuracy
Affordability
Ease of use
Ability to handle complexity
What-If analysis
RISKS:
Emphasis on maintaining plan rather than performing project
Mythical man month (i.e. 10 people in 1 day can’t always do the work of 1 person in 10 days)
Estimates used for planning purposes may not be correct.
Work breakdown structure may not match how people actually work. Do people have 8 fully productive
hours each day?
192
Chapter 10
Leadership
Communication
Negotiation
Delegation
Problem-solving
Change management

B
The correct answer is “storming”. At this stage the group will experience conflict. This is a normal part of
team formation.
Forming is where the team is first assembled, goals and roles are unclear.
Norming is when the team settles into their roles and norms are established.
Performing is when the team is executing the task to the best of their ability.

 Training and development
 Use of Tuckman in forming groups
 Regular feedback
 Team building exercises
 Demarcation of roles/responsibilities

C
A more efficient workforce can never be a bad thing!
The other options are flaws in Vaill’s theory.

Benefits:
 Improves decision-making by bringing a wide range of skills and experiences from different
departments
 Improves communication between technical specialists
 Encourages direct contact rather than formal controls
 Allows managers in the business to develop by experiencing company-wide issues
Disdvantages:
 Lack of clear responsibility
 Conflict between functional and divisional reporting
 Difficult for specialist to appraise the performance of those delivering a different technical
discipline
 Excessive time spent managing the matrix (interpersonal conflicts, prioritising tasks)
193

Interest groups:
Users of the software
Customers of the finance team
The key stakeholder
Suppliers of the new system
Methods of managing:
Communicate scope
Request ideas & input
Establish needs for reporting
Payments on time
Frequent dialogue
END OF ANSWERS TO LECTURE EXAMPLES
194
195
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Project and Relationship

Answers to lecture examples ........................................................................................................ 179

Welcome to E2 Project and Relationship Management

Description of the paper

Syllabus Areas and their weighting

The Objective Test exam

How To Pass Your OT exam

Syllabus Learning Outcomes

Lead Outcome Component Outcome Chapter

2015 Syllabus Changes

The Case Study Exam

Exam Technique Overview

OTQ Type Example

2 Making all the decisions you can before your CBA

3 Maximising your marks in your CBA

Other chapters in Syllabus Area A

The rational planning

The rational Top-down Positioning view vs Criticisms of the

Mission and Emergent

Strategic option, Strategy & small

The rational planning

Top-down Positioning view

Lecture example 1 Exam Standard

2 The rational planning model

Mission Corporate Strategic Strategy Strategic

3 Top-down strategy process

Lecture example 2 Discussion

4 Mission & objectives

4.2 According to Hooley et al (1992), a mission statement should:

Lecture example 3 Discussion

Support Human resource management

Lecture example 4 Exam Standard

8 Strategic option, choice, implementation & review

9 Criticisms of the rational planning model

Intended strategy is formally created by established senior management. Some of these

 Know the business – develop a hands-on feel for the business.

Lecture example 5 Discussion

Positioning view versus resource-based view of strategy

Criticisms of the positioning view

Stalk et al (1992) Barney (1991) Kay (1997)

Lecture example 6 Exam Standard

As compared with the Resource-Based Approach the Positioning Approach to strategy:

Implications of the resource-based view

The political approach to strategy

13 Strategy and small businesses

Strategy is "a course of

The rational Criticisms of the

Mission and Emergent

SMART and PRIME Intended strategies

Strategic option, Strategy & small

The rational planning

Top-down Positioning view

Other chapters in Syllabus Area A

Chapter 1a Chapter 1b Chapter 2

Mergers and Transaction cost Ecological perspective

Complex Hierarchy solutions

Strategic alliances Market solutions