Chap - 14 Strategies For Change

chapter 14
Strategies for change

Contents
Introduction
Examination context
Topic List
1
The need for change
Strategic change in organisations
Change and the individual
Project management
Summary and Self-test

Answers to Self-test
Answers to Interactive questions
The Institute of Chartered Accountants in England and Wales, March 2009
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Business strategy
Introduction
Learning objectives
Explain the levels of change in a business and the approaches used at each level, using
appropriate examples
Describe the key stages in a change management project
Identify in a given situation the key issues which should be addressed by the management of a
business during the planning and implementation of a change project, including project
management
Tick off
Specific syllabus references for this chapter are: 3h, k, l.
Practical significance
Successful business strategies rarely involve 'leaving things as they are'. The business environment changes and
therefore so must the business.
Change affects people inside and outside the business and it is essential to avoid resistance from significant
groups who might derail the changes. These could include major investors, key groups of organised labour or
significant clients.
Stop and think

Earlier chapters have explained the increasing challenge from globalisation, opening new markets and also new
competitors. One reputable source states that Chinese labour costs, after adjustment for short term exchange
rate effects, are 25% to 40% of US costs. Its per capita income may overtake the USA's within 35 years
according to some estimates. What changes will be needed in US and European firms to cope with this and
how will they implement them? Conversely how will the Chinese population be affected by these
opportunities?
Working context
Changes in organisation affect internal controls and can be a source of audit risk. For example rapid growth or
restructuring often leaves staffing stretched and segregation of duties compromised.
Syllabus links
This chapter involves the implementation of the strategies discussed in the preceding 13 chapters. It has not
been covered in the syllabus of previous examinations.
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STRATEGIES FOR CHANGE
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Examination context
Exam requirements
Previous chapters concentrate on identifying the need for and the direction of change if an organisation is to
remain successful. This chapter looks at the issues which need to be addressed by an organisation during the
planning and implementation of such changes.
In exams, candidates should be careful not to make the common mistake of providing a generic answer,
repeating elements by rote from the learning materials. In the Business Strategy paper it will be important to
focus on applying the concept of change management to the scenario, tailoring a discussion to the changes that
have been identified.
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Business strategy
1 The need for change

Section overview
1.1
The sources of change are both internal and environmental.
The range of impacts of a 'change trigger' will be felt as shock waves through the organisation and will
affect staff and management at all levels.
Change must be handled carefully to avoid the organisation being overwhelmed.
The need for an organisation to change or develop

The need for an organisation to change or develop could be caused (or 'triggered') by a number of factors:
Changes in the environment: These could be changes in what competitors are doing, what customers
are buying, how they spend their money, changes in the law, changes in social behaviour and attitudes,
economic changes, and so on.
Changes in the products the organisation makes, or the services it provides: These are made in
response to changes in customer demands, competitors' actions, new technology, and so on.
Changes in technology and changes in working methods: These changes are also in response to
environmental change such as the advent of new technology and new laws on safety at work.
Changes in management and working relationships: For example, changes in leadership style, and
in the way that employees are encouraged to work together. Also changes in training and development.
Changes in organisation structure or size: These might involve creating new departments and
divisions, greater delegation of authority or more centralisation, changes in the way that plans are made,
management information is provided and control is exercised, and so on. Organisation re-structuring
will be made in response to changes of the types discussed above.
Postacquisition: Incoming management will wish to improve and integrate the firm into the new
parent's structure and systems. This will involve visible change to names and signage but also deeper
changes to organisational structures, culture, job roles, staff numbers and management systems.
Case study: Ford Motor Company

'The Ford Motor Company could lose as much as $9bn (4.8bn) this year as it undergoes a huge restructuring
in a desperate attempt to halt its ongoing loss of market share in the US.
Ford announced yesterday [15 September 2006] it would cut a third of all salaried employees 14,000 jobs
and offer voluntary redundancy to all of its 75,000 hourly paid workers. It also announced it would close two
more manufacturing plants by the end of 2008, on top of 14 closures already announced this year.
Ford, which hopes the cuts will save it $5bn in operating costs, also admitted it would no longer reach
profitability in 2008 as it had expected.
'These actions have painful consequences for communities and many of our loyal employees,' said chairman Bill
Ford, who this month stepped down as chief executive of the company founded by his great-grandfather, Henry
Ford. 'But rapid shifts in consumer demand that affect our product mix, and continued high prices for
commodities, mean we must continue working quickly and decisively to fix our business.'
The situation at the Michigan-based carmaker could be even worse than it admitted yesterday. The Detroit News
reported on Thursday that an internal company report dated September 6 and prepared by chief finance officer
Don Leclair's office projected that its worldwide automotive operations' losses would be nearly $6bn this year.
Once restructuring costs were included, the report said, Ford's 2006 pre-tax loss could be between $8bn and
$9bn.
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The central cause of Ford's problems is that Americans are increasingly buying their cars from Japanese
competitors such as Toyota. Ford has lost market share in the US for 10 successive years. It now has a share of
only 16%, and said yesterday it expected that to drop to between 14% and 15%. Above all, it has been hit by
falling sales of pick-up trucks such as the F-150 and sports utility vehicles (SUVs), once best-sellers that
generated the bulk of profits, as petrol prices have hit $3 a gallon.
Ford yesterday revealed details of new, smaller, more fuel-efficient models that it hopes will help it to regain
market share. It announced the launch of a new 'crossover' (a cross between an SUV and a car). But analysts
remain sceptical.
The problems faced by carmakers were underlined yesterday when DaimlerChrysler announced losses of
$1.2bn for the third quarter, double previous forecasts.
Under Ford's previous restructuring plan announced in January, titled the Way Forward, Ford planned to cut
25,00030,000 manufacturing jobs and close 14 plants by 2012. It has now decided to bring forward the plans
by four years and complete the cuts by the end of 2008.
The voluntary redundancies at Ford are similar to a plan by General Motors earlier this year that succeeded in
cutting 34,000 workers or about a third of the hourly workforce from the payroll. GM now employs
95,000 hourly workers, 39% of the number it employed 10 years ago.
Ford announced last month that it plans to sell Aston Martin, and there has been speculation about sell-offs of
other parts of its Premier Automotive Group, which includes Land Rover and Jaguar. But it insisted yesterday
that it had no plans to dispose of Jaguar. 'Jaguar is not for sale,' Mark Schulz, executive vice-president, said.
Ford's announcement of its restructuring plans came days after Mr Ford stood down as chief executive. Mr
Ford admitted at the time of his move that he was overwhelmed by the job, and he had been 'wearing too
many hats'.
In his place he appointed Boeing's head of commercial aircraft, Alan Mulally, who is known as a turnaround
expert. Mr Mulally was not involved in the plan announced yesterday, and whether the company will have to
put together yet another restructuring once he has got his feet under the table remains to be seen.
'We know our work is far from over,' he said yesterday.'
Source: The Guardian Saturday 16 September, 2006
Case study: Tesco goes global

'Tesco Ltd today [9 February 2006] announces that it intends to enter the United States through the
development of a new convenience format, beginning on the West Coast in 2007.
The development of the business will be through organic growth, with initial planned capital expenditure of up
to CU250 million per year, which will be funded from existing resources, with break-even expected by the end
of the second full year of operation. Tim Mason, currently our Marketing and Property Director, will move to
the US to run the business, remaining on the main Board.
The new format is designed for the American market, following extensive consumer research and modelled on
Tesco's highly successful and innovative Express concept, which we now operate in five countries, with over
800 stores serving around eight million customers every week.
International growth forms a key element of Tesco's four part strategy and the business currently trades in 12
countries outside the UK, mainly in Asia and Central Europe. Over half of Tesco's selling space is now outside
the UK. Today's announcement represents a strategic move into another developed market, complementing
our entry into the emerging Chinese market in July 2004. It will allow us to build our position in the world's
largest markets, and brings the population of markets we operate in to 2.1 billion people, contributing over
55% of global GDP.'
Source: Tesco Press Release 9 February 2006
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1.2
Types of change
Change itself may be divided into two types, incremental and transformational, and so may the
management approach to change be divided into reactive and proactive.
Definitions
Incremental change is characterised by a series of small steps. It is a gradual process.
Transformational change is characterised by major, significant change being introduced relatively quickly.
Step change describes an unexpected jump (upwards) or drop (downwards) in the pace of change. The step
is caused by an unexpected event (e.g. environmental disaster, unexpected change in government etc).
Planned change involves following a series of pre-planned steps.
Emergent change views change as a series of continuous open-ended adjustments to the environment.
Johnson, Scholes and Whittington suggest the model of change shown below:
The importance of proactive management is that it implies that organisational change may be undertaken
before it is imposed by events. It may, in fact, result from the process of forecasting and be a response to
expected developments. Forced change is likely to be both painful and risky.
Interactive question 1: Types of change
[Difficulty level: Easy]
Classify and explain the following changes using Johnson, Scholes and Whittington model.
Ford Motor Company turnaround strategy
Tesco's entry into the US and Chinese markets
See Answer at the end of this chapter.
1.3
Levels at which change efforts may focus

There are three main levels to which organisational development and change efforts may be directed:
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Individual level where the focus is on improving individual skill levels, attitudes and motivation.
Techniques employed could include education and training, management development, coaching and
counselling, team building activities, inter-group activities, role analysis, job re-design, planning and
objective setting activities and process consultation.
Organisation structure and systems level: The characteristics of the organisational situation in which
people work (e.g. job redesign, reward systems, setting clear objectives) that help achieve organisational
goals.
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Organisational climate and interpersonal style levels: The improvement of social and other
informal processes among organisation members by creating a system with a wide climate of high
interpersonal trust and openness and a reduction in the negative consequences of excessive social conflict
and competitiveness.
2 Strategic change in organisations

Section overview
2.1
Change management involves management of people's expectations and attitudes. This can range
from the willingness of an operative to learn a skill or change a shift up to the willingness of the
Board to authorise the necessary resources.
Therefore most change models seek to describe stages of psychological transition.
These stages may be the focus of planned change management initiatives.
Change processes
For an organisation to be innovative, and continually responsive to the need for change, a systematic approach
should be established, for planning and implementing changes.
Although each situation should be considered individually, the following general steps can be identified in a
major change initiative.
Step 1
Determine need or desire for change in a particular area.
Step 2
Prepare a tentative plan. Brainstorming sessions are a good idea, since alternatives for change should be
considered.
Step 3
Analyse probable reactions to the change.
Step 4
Make a final decision from the choice of alternative options. The decision may be taken either by group
problem-solving (participative) or by a manager on his own (coercive).
Step 5
Establish a timetable for change.
'Coerced' changes can probably be implemented faster, without time for discussions.
Speed of implementation that is achievable will depend on the likely reactions of the people affected.
Identify those in favour of the change, and perhaps set up a pilot programme involving them. Talk with any
others likely to resist the change.
Step 6
Communicate the plan for change. This is really a continuous process, beginning at Step 1 and going through to
Step 7.
Step 7
Implement the change.
Step 8
Review the change. This requires continuous evaluation.
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2.2
The three-stage approach (iceberg model)

The Lewin/Schein three-stage model of change identifies key steps as unfreeze, move and refreeze.
UNFREEZE
Existing behaviour
MOVE
Attitudinal/behavioural
change
REFREEZE
New behaviour
Step 1
Unfreeze is the most difficult (and in many cases neglected) stage of the process, concerned mainly with selling
the change, with giving individuals or groups a motive for changing their attitudes, values, behaviour, systems or
structures.
Unfreezing processes require four things:
A trigger
Someone to challenge and expose the existing behaviour pattern
The involvement of outsiders
Alterations to power structure
Step 2
Move is the second stage, mainly concerned with identifying what the new, desirable behaviour or norm should
be, communicating it and encouraging individuals and groups to 'own' the new attitude or behaviour. This might
involve the adoption of a new culture. To be successful, the new ideas must be shown to work.
Step 3
Refreeze is the final stage, implying consolidation or reinforcement of the new behaviour. Positive
reinforcement (praise and reward) or negative reinforcement (sanctions applied to those who deviate from the
new behaviour) may be used.
2.3
Adaptive change approach

Adaptive change occurs when an organisation's environment changes slowly. It is change in little stages, and
thus has the advantage of minimising the resistance faced at any one time.
2.4
Crisis management
An external change that endangers the company's survival is a crisis.
Crisis has the effect of inducing panic which managers must do what they can to minimise but it can also
promote an immediate willingness to change: it can be the necessary 'unfreeze' process before an
organisational change.
If there is a crisis on the horizon, there are three options:
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Convince the others of the crisis and prepare preventative measures.
Accept that the crisis will happen anyway and prepare to capitalise on it by acting as saviours.
Trigger an early artificial crisis, 'usually by inventing an 'external enemy' who threatens survival of the firm.
(sometimes called the 'burning platform' approach, implying that it is not possible to stay where we are
now). This is an approach which has been used by political leaders throughout history.' Artificial crises
reduce resistance, and perhaps build up support for recovery.
2.5
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Coercive change approach

Coercive change is enforced without participation. Change of culture and power structures is left to the
end of the change process. There are several problems with a coercive approach:
Underestimation of the forces of resistance

Failure to muster forces in favour
Failure to attack root causes of resistance
Management shift their attention too quickly elsewhere
Failure to ensure implementation
This approach is necessary in situations of crisis where there simply is no time to consult, or where decisions
need to be taken quickly. An example is a sudden environmental shock.
Most of the time, a mixed approach between coercive change and adaptive change is suitable.
Adaptive change may be too slow, whereas coercive change is often resented and therefore not accepted.
2.6
Change agents
A change agent is an individual (sometimes called a Champion of Change), a group or external consultancy
with the responsibility for driving and 'selling' the change.
The role of the change agent varies depending on the brief they are given. It may include:
Defining the problem

Suggesting possible solutions
Selecting and implementing a solution
Gaining support from all involved
To be effective a change agent should have the following skills and attributes:
Communication skills
Negotiation and 'selling' skills
An awareness of organisational 'politics'
An understanding of the relevant processes
Worked example: ASDA

One company that exemplifies successful combinations of change styles is ASDA, the UK grocery chain. Archie
Norman took over as CEO of ASDA in December 1991 when the retailer was nearly bankrupt. Norman laid
off employees, flattened the organisation, and sold off loss making businesses acts that usually spawn distrust
among employees and distance executives from their people. Yet during Norman's eight-year tenure as CEO,
ASDA also became famous for its atmosphere of trust and openness. It has been described by executives at
Wal-Mart itself famous for its corporate culture as being 'more like Wal-Mart than we are'. With his
opening speech to ASDA's executive team Norman indicated clearly that he intended to apply both soft and
hard strategies in his change effort. He said: 'Our number one objective is to secure value for our shareholders
and secure the trading future of the business. I intend to spend the next few weeks listening and forming ideas
for our precise direction. We need a culture built around common ideas and goals that include listening,
learning, and speed of response, from the stores upwards. [But] there will be management reorganisation. My
objective is to establish a clear focus on the stores, shorten lines of communication, and build one team.' If
there is a contradiction between building a high-involvement organisation and restructuring to enhance
shareholder value, Norman embraced it.
In 1992 Archie Norman appointed Allan Leighton, from Mars' Pedigree Petfoods division, to the role of Group
Marketing Director. Allan Leighton was appointed ASDA CEO in 1996. Leighton pioneered the idea of
'huddles' at ASDA in which teams of managers and staff, would get together to discuss the daily issues and find
ways to resolve them.
In June 1999 ASDA was bought by Wal-Mart for 6.7bn having been worth only 500m five years earlier.
Leighton was appointed Chairman of the Royal Mail in 2002 with a brief to turn it around.
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Business strategy
The champion of change model recognises the importance of change being led by a change agent, who
may be an individual or occasionally a group.
Step 1
Senior management are the change strategists and decide in broad terms what is to be done. There is a need
for powerful advocacy for change at the strategic apex. This will only occur if senior management are
themselves agreed on the need for change. This is a role requiring a clear vision of what the change is to
achieve.
Step 2
They appoint a change agent to drive it through. Senior management has three roles:
Supporting the change agent, if the change provokes conflict between the agent and interest groups in the
organisation
Reviewing and monitoring the progress of the change
Endorsing and approving the changes, and ensuring that they are publicised
Step 3
The change agent has to win the support of functional and operational managers, who have to introduce and
enforce the changes in their own departments. The champion of change has to provide advice and information,
as well as evidence that the old ways are no longer acceptable.
Step 4
The change agent galvanises managers into action and gives them any necessary support. The managers ensure
that the changes are implemented operationally, in the field. Where changes involve, say, a new approach to
customer care, it is the workers who are responsible for ensuring the effectiveness of the change process.
It is important to realise that successful change is not something exclusively imposed from above. There is a
sense in which middle and junior managers are change recipients in that they are required to implement new
approaches and methods. However, they are themselves also change agents within their own spheres of
responsibility. They must be committed parts of the change process if it is to succeed.
2.7
The Gemini 4Rs framework for planned strategic change

Management consultants Gouillart and Kelly describe a four-dimensional process for business transformation in
their book Transforming the Organisation. Known as the Gemini 4Rs framework, this approach aims to cover all
the important components of the organisation's identity.
Reframing involves fundamental questions about what the organisation is and what it is for:
Achieve mobilisation: Create the will and desire to change.

Create the vision of where the organisation is going.
Build a measurement system that will set targets and measure progress.
Restructuring is about the organisation's structure, but is also likely to involve cultural changes:
Construct an economic model to show in detail how value is created and where resources should be
deployed.
Align the physical infrastructure with the overall plan.
Redesign the work architecture so that processes interact to create value.
Revitalising is the process of securing a good fit with the environment:
Achieve market focus.

Invent new businesses.
Change the rules of competition by exploiting technology.
Renewal ensures that the people in the organisation support the change process and acquire the necessary
skills to contribute to it:
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Create a reward system in order to motivate.

Build individual learning.
Develop the organisation and its adaptive capability.
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Worked example: UK Royal Mail

'Royal Mail [17 May 2005] today announced a record 537 million profit on its operations for 200405 with
quality of service to customers now hitting the highest levels in a decade.
Royal Mail's Chairman, Allan Leighton, said: 'Postmen and women have achieved a fantastic turnaround. They
will now deservedly get a 'Share in Success' payment of 1,074, amounting to 218 million of the company's
profit. It's one of the biggest profit shares with employees in UK corporate history.'
But Mr Leighton warned: 'There is still a huge amount to do. Transforming our operations, cutting our costs
and, above all, winning the support of our people for the modernisation plan with its top priority being to
improve customer service, has been Royal Mail's greatest achievement in decades.
But competing successfully in an open mail market is going to be even more difficult. We've a mountain to
climb and we've only reached the base camp.
The greatest challenge now is to bring about a complete culture change in Royal Mail. We need everyone in the
company focused on ensuring that we consistently deliver high quality, value-for-money services that customers
need and want. Competition has arrived and customers have a choice; so we need to prove that Royal Mail is
the best and our people are key to that' said Mr Leighton.
The company, he said, was also facing other daunting hurdles:
Royal Mail will have to generate sufficient profit to pay millions of pounds into its pension fund to tackle the
2.5 billion deficit, the 14,609-strong network of Post Office branches made a loss on its operations last year of
110 million. Its rural network of 8,037 branches is fundamentally uneconomic and needs an injection of 3
million a week to survive. However, with the current annual Government funding of 150 million due to end in
2008, Post Office Ltd cannot be expected to absorb extra costs at this level.
Royal Mail lags behind its major rivals in automated sorting technology. It needs to make a several billion pound
investment if it is to compete successfully and that means being more profitable in order to invest. However,
the 8.6% return on its domestic letters business last year compares with the 16.4% Deutsche Post makes in its
home market, and 22.2% made by TNT Post Group.
Royal Mail's Chief Executive, Adam Crozier, also stressed the challenges ahead.
He said Royal Mail had made good progress against each of the priorities set in 2002 when it launched its
three-year renewal plan:
Make Royal Mail 'a great place to work',

Improve customer service
Return to profit
Generate a positive cash flow.
'We're delivering on all our objectives,' said Mr Crozier.

'The huge task now facing Royal Mail is to make the cultural change needed to succeed as a commercial
business and to become the postal operator of choice for customers in an open competitive market.
Our vision remains to be demonstrably the best and most trusted mail company in the world. With the
dedication and commitment of our people, we are confident we can achieve our goal. '
Source: Royal Mail Press Release 17 May 2005 (extract)
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Interactive question 2: Transforming the Royal Mail [Difficulty level: Intermediate]

Consider the cultural change described in the final paragraphs of the Royal Mail example above and the steps
that have been taken so far.
Requirement
Apply the activities of the Gemini 4Rs approach to this change. Suggest additional actions that management
needs to consider.
3 Change and the individual

Section overview
3.1
Understanding the implications of change for the individual is essential to a change agent or other
would-be 'midwife' of change.
The way the individual views the change will be influenced by the manner of its introduction and the
forces driving it and restraining it.
How change affects individuals

Change may affect individuals in several areas.
3.2
Physiological changes: Pattern of shift-working, location of place of work
Circumstantial changes: Unlearning previous knowledge and learning new ways of doing things, new
work-mates, using new IT/IS
Psychological changes: Feelings of disorientation, insecurity, changing relationships etc
Reactions to proposed change

The importance of staff support during a change programme should not be underestimated. We look here in
more detail at the barriers to change they may cause to arise.
3.2.1
Cultural barrier
Structural inertia is the cumulative effect of all the systems and procedures the organisation has installed over
the years to ensure consistency and quality. These act as barriers to change. For example, selection processes
systematically select certain kinds of people; promotion processes regularly reward certain kinds of people.
Group inertia may block change where changes are inconsistent with team/departmental norms, or where they
threaten to make skills and expertise of a particular professional or skill group less important or even
redundant.
Power structures may be threatened by the redistribution of decision-making authority or resources, or the
re-routing of lines of communication.
3.2.2
Personnel barriers
In addition to cultural barriers, there are also barriers which affect individuals and result in them seeing the
change as a threat.
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3.2.3
Habit, because habitual ways of work are hard to change, and the new and unknown is often
uncomfortable.
Security is almost inevitably threatened job security and the security of familiarity.
Effect on earnings may be considerable: impact on promotion and income.
Fear of the unknown reduces people's willingness and interest in learning new skills and processes; they
may lack the confidence to take on a new challenge.
Selective information processing results in employees choosing what to hear and what to ignore; they can
then use their selected information to justify their position and ignore management argument for change.
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The psychological contract

The psychological contract is the 'deal' between employer and employee. It covers the full set of expectations
each party has of the other.
On either side of the contract, there are offers and wants.
EMPLOYER
EMPLOYEE
OFFERS:
WANTS:
Certain pay levels.
Certain pay levels.
Certain benefit levels.
Certain benefit levels.
Job design which offers particular

opportunities for responsibility and
learning.
Match?
Particular opportunities for responsibility

and learning.
Availability of promotion.
Access to promotion/or not.
Working conditions of a certain quality.
Desire for particular level of conditions.
Opportunities for close relationships.
Desire for close working relationships.
Style of management.
Style of being managed.
WANTS:
OFFERS:
Particular skills, experience, attitudes.
Match?
Particular skills, experience, attitudes.
Particular level of commitment.
Capacity level of commitment.
Particular quality of contribution.
Capacity for contribution.
The contract works if offers and wants match. The selection process is the means both parties use to assess
the initial match. The promotion process is the means used to check the ongoing match. In addition, both
parties continuously monitor the match. The model is dynamic, any change in one part triggers changes in
others. If a change programme threatens any item listed under employer offers, the employee will reconsider
what they offer as their part of the deal. If the employee believes that their offers will be made wholly or
partially redundant by the changes, they will anticipate that their wants will no longer be satisfied.
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3.2.4
Identification of pressure points

Two important pressure points can develop in the psychological contract during times of change.
Lack of appropriate skill levels: This can happen if the employer fails to reconsider how employee
wants will alter as a result of changes, or if the employer fails to redesign their offers to ensure these
attract and encourage the right kind of people needed in the new set-up.
Declining staff morale: The driver of employee performance is the human emotions which underlie
employee wants. These wants express personal motives, desires, ambitions and needs and determine
people's commitment to the changes.
A change programme must be preceded by a review of:
New competences and qualities required

Selection processes to ensure they identify the above
Promotion processes to ensure they identify the above
A change plan must include a staff development plan covering:
Communication of implications for jobs

Communication of required skills
Discussions about individual development needs/options
Learning and training opportunities
Opportunities for making a contribution to changes
Worked example
It is interesting to set side by side the comments of Sainsbury's Director of Personnel and a senior official of
the shop worker's union regarding the introduction of Sunday working . It isn't difficult to tell which is which!
3.3
'I have taken a close personal interest to ensure that in every branch the people who are working on
Sundays are those who volunteered. Not working on Sunday is not going to affect promotion prospects, it
is not going to affect people's pay, and it is not going to affect our attitude to them.'
'Retailers have ways of making Sunday working become the norm. Employers work through the ranks.
First they approach the weakest, the people who have less than two years' experience and who have no
rights for unfair dismissal, then they pick the starry-eyed people who think they are going to be managing
director, then they pick the people who work low hours and need a few bob. Then they come to the
resolute minority and say: 'You are out of step'.'
Introducing the change

Three factors for managers to consider when dealing with resistance to change
3.3.1
The pace of change

The manner of change
The scope of change
Pace
Given time, people can get used to the idea of new methods can get acclimatised at each stage, with a
consequent confidence in the likely success of the change programme, and in the individual's own ability to
cope.
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Presenting the individuals concerned with a fait accompli may short-circuit resistance at the planning and
immediate implementation stages. But it may cause a withdrawal reaction (akin to 'shock'), if the change is
radical and perceived as threatening, and this is likely to surface later, as the change is consolidated
probably strengthened by resentment.
3.3.2
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Timing will also be crucial: those responsible for change should be sensitive to incidents and attitudes
that might indicate that 'now is not the time'.
Manner
The manner in which a change is put across is very important: the climate must be prepared, the need made
clear, fears soothed, and if possible the individuals concerned positively motivated to embrace the changes as
their own.
3.3.3
Resistance should be welcomed and confronted, not swept under the carpet. Talking through areas
of conflict may lead to useful insights and the adapting of the programme of change to advantage.
Repressing resistance will only send it underground, into the realm of rumour and covert hostility.
There should be free circulation of information about the reasons for the change, its expected
results and likely consequences. That information should appear sensible, clear, consistent and realistic:
there is no point issuing information which will be seen as a blatant misrepresentation of the situation.
The change must be sold to the people concerned: People must be convinced that their attitudes
and behaviours need changing. Objections must be overcome, but it is also possible to get people behind
the change in a positive way. If those involved understand that there is a real problem, which poses a
threat to the organisation and themselves, and that the solution is a sensible one and will solve that
problem, there will be a firm rational basis, for implementing change. The people should also be reassured
that they have the learning capacity, the ability and the resources to implement the plan. It may even be
possible to get them really excited about it by emphasising the challenge and opportunity by injecting an
element of competition or simply offering rewards and incentives.
Individuals must be helped to learn, that is, to change their attitudes and behaviours. Few individuals
will really be able to see the big picture in a proposed programmed of change. In order to put across the
overall objective, the organisation should use visual aids to help conceptualise. Learning programmes for
any new skills or systems necessary will have to be designed according to the abilities of the individuals
concerned.
The effects of insecurity, perceived helplessness, and therefore resentment, may be lessened if the
people can be involved in the planning and implementation of the change, that is, if it is not perceived to
have been imposed from above.
Scope
The scope of change should be carefully reviewed. Total transformation will create greater insecurity
but also greater excitement, if the organisation has the kind of innovative culture that can stand it than
moderate innovation. There may be hidden changes to take into account: a change in technology may
necessitate changes in work methods, which may in turn result in the breaking up of work groups. Management
should be aware of how many various aspects of their employees' lives they are proposing to alter and
therefore on how many fronts they are likely to encounter resistance.
3.4
Force field analysis

There is a technique developed by Lewin to visualise the change process called force field analysis. It is based
on the idea that in any group or organisational situation there is an interplay of restraining and driving
forces that keeps things in equilibrium.
Lewin's force field analysis maps the forces that are pushing toward the preferred state and the
restraining forces, which are pushing back to the current state. They can then be presented in a chart.
The example below describes a public sector organisation whose management are introducing a performance
review system. A group of workers are producing at 70% of the efficiency that might be expected on purely
technical grounds. Their output can be visualised as a balance between two opposing sets of forces, i.e.
driving forces which are propelling their output upwards and restraining forces which are preventing it
from going beyond the 70% level.
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Business strategy
The role of change management is to help
Weaken the resisting forces

Strengthen the driving forces
The Lewin/Schein 3 step (iceberg) approach is one way to do this.
Arrow sizes denote the relative strength of the forces.
Interactive question 3: Gerrard, Dudek & Smicer
[Difficulty level: Intermediate]
Gerrard, Dudek & Smicer are a small long established firm of solicitors. They have recently appointed Eva, a
new business development manager. She has suggested that the firm introduce electronic diaries as staff often
don't know where to find each other. Secretaries also struggle to book meetings as the partners often keep
their agendas with them, which has annoyed some key clients. However, the partners are extremely reluctant
to consider such a departure from their current methods.
Using Lewin's force field model, analyse the above situation and suggest how the new manager could bring
about the change she wants.
644
Stakeholder
Their needs
What they want to know
How to communicate
Shareholders
Reassurance
That there is well thought-through

strategy. How the strategy will
benefit them
The press
Financial statements
AGM
Website
The press
A good story
What is happening, the rationale,

and whether the changes are under
control
Briefings
Suppliers
Information
How the changes will affect their

working relationship
Meetings face-to-face
with major suppliers
Letters/ e-mail to small
suppliers
Customers
Motivation
That the service will continue

uninterrupted
The press
Advertisements
Senior
managers
Acknowledgement
and involvement
How they will be involved and

opportunities in the new structure.
Reassurance over employment
positions
One-to-one meetings
Staff
Help to adapt
Training and support

Job security
Briefings
One-to-one with line
manager
Line managers
Involvement
Opportunities to be involved and

opportunities to learn
Briefings
One-to-one with senior
manager/HR
14
4 Project management
Section overview
4.1
Project management is a distinct management skill which must combine the soft elements of managing
the human side of change with the harder aspects of budgeting and scheduling activities.
The project manager is a key figure in this process who must show the right balance of skills.
The project life cycle provides a general framework for the management of projects.
What is a project?
Definitions
A project is 'an undertaking that has a beginning and an end and is carried out to meet established goals within
cost, schedule and quality objectives'. (Haynes, Project Management)
Resources are the money, facilities, supplies, services and people allocated to the project.
In general, the work which organisations undertake involves either operations or projects. Operations and
projects are planned, controlled and executed. So how are projects distinguished from 'ordinary work'?
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Business strategy
Projects
Operations
Have a defined beginning and end
On-going
Have resources allocated specifically to them, although

often on a shared basis
Resources used 'full-time'
Are intended to be done only once (e.g. organising the

2008 London Marathon the 2009 event is a separate
project)
A mixture of many recurring tasks
Follow a plan towards a clear intended end-result
Goals and deadlines are more general
Often cut across organisational and functional lines
Usually follows the organisation or

functional structure
Common examples of projects include:
4.2
Producing a new product, service or object

Changing the structure of an organisation
Developing or modifying a new information system
Implementing a new business procedure or process
What is project management?

Project management is the combination of systems, techniques, and people used to control and monitor
activities undertaken within the project. It will be deemed successful if it is completed at the specified level of
quality, on time and within budget.
Definition
Project management is the combination of systems, techniques, and people used to control and monitor
activities undertaken within the project. Project management co-ordinates the resources necessary to
complete the project successfully.
Objective
Comment
Quality
The end result should conform to the project specification. In other words, the
result should achieve what the project was supposed to do.
Budget
The project should be completed without exceeding authorised expenditure.
Timescale
The progress of the project must follow the planned process, so that the 'result'
is ready for use at the agreed date. As time is money, proper time management
can help contain costs.
Projects present some management challenges.
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Challenge
Comment
Teambuilding
The work is carried out by a team of people often from varied work and
social backgrounds. The team must 'gel' quickly and be able to communicate
effectively with each other.
Expected
problems
Expected problems should be avoided by careful design and planning prior to

commencement of work.
Unexpected
problems
There should be mechanisms within the project to enable these problems to

be resolved quickly and efficiently.
Challenge
Comment
Delayed benefit
There is normally no benefit until the work is finished. The 'lead in' time to
this can cause a strain on the eventual recipient who is also faced with
increasing expenditure for no immediate benefit.
Specialists
Contributions made by specialists are of differing importance at each stage.
Potential for
conflict
Projects often involve several parties with different interests. This may lead
to conflict.
14
Project management ensures responsibilities are clearly defined and that resources are focussed on specific
objectives. The project management process also provides a structure for communicating within and
across organisational boundaries.
All projects share similar features and follow a similar process. This has led to the development of project
management tools and techniques that can be applied to all projects, no matter how diverse. For
example, with some limitations similar processes and techniques can be applied whether building major
structures (e.g. for 2012 London Olympics) or implementing a company-wide computer network.
All projects require a person who is ultimately responsible for delivering the required outcome. This person
(whether officially given the title or not) is the project manager.
4.3
The project life cycle

The life cycle concept can be useful in the management of projects, since it breaks the whole down into more
easily manageable parts. This is particularly applicable to the allocation and management of resources,
since their type and quantity vary from phase to phase.
Maylor (Project Management) describes four phases or stages: this is the 4D model.
Stage in project life
cycle
Component
Activities
Define the project
Conceptualisation
Produce a clear and definitive statement of

needs
Analysis
Identify what has to be done and check its

feasibility
Planning
Show how the needs will be met
Justification
Compute costs and benefits
Agreement
Obtain sponsor agreement
Start up
Assemble resources and people
Execution
Carry out planned project activities
Completion
Success or abandonment
Handover
Output passed to sponsor/user
Review
Identify outcomes for all stakeholders
Feedback
Document lessons and improvements for

future use
Design the project
Deliver the project

(Do it!)
Develop the process
(1) Define the project

Larger projects are likely to involve the creation of a project brief or terms of reference for
discussion. A project initiation document may be prepared, if it is decided to continue with the
project. This will include a statement of requirements, a statement of the vision for the project
and a business case.
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Business strategy
(2) Design the project
There are several techniques used for scheduling and time planning, such as network analysis and Gantt
charts (diagram below). This stage also deals with the need to plan for cost, quality and risk using
techniques such as risk assessment, resource budgeting, and cost budgeting.
Activity
Month
w/c
Week
January
14
2
7
1
21
3
28
4
February
4
5
1
2
3
4
Plan
Actual
Gantt chart
(3) Deliver the project
This is the operational phase of the project. Planning will continue as required in order to control agreed
changes and to deal with unforeseen circumstances, but the main emphasis is on getting the work done.
There are several important themes.
Management and leadership: People management assumes a greater importance as the size of
the project work force increases.
Control: Time, cost and quality must be kept under control, as must the tendency for changes to
proliferate.
Supply chain: All the aspects of logistics management must be implemented, especially with
projects involving significant physical output.
Problems and decisions: Problems are bound to arise and must be solved sensibly and
expeditiously. Complex problems will require careful analysis using the scientific tools of decision
theory.
(4) Develop the process

Improve the way the organisation and project teams cope with projects:
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Completion: All activities must be properly and promptly finished; care must be taken that
contractors do not either leave small things undone or, if paid by time, spin things out for as long as
possible.
Documentation must be completed: This is important on any project but it is vital if there are
quality certification issues or it is necessary to provide the user with operating documentation.
Project systems must be closed down, but in a proper fashion: In particular, the project accounts
and any special accounting systems must remain in operation and under control until all costs have
been posted but must then be closed down to avoid improper posting.
Handover must take place where the project has been managed for a client under contract: At
some point the client must formally accept that the contract is complete and take responsibility for
any future action that may be required, such as the operation and maintenance of a system.
4.4
14
Immediate review is required to provide staff with immediate feedback on performance and to
identify short-term needs such as staff training or remedial action for procedure failures.
The role of the project manager

Definition
Project manager: The person who takes ultimate responsibility for ensuring the desired result of the project
is achieved on time and within budget.
The role a project manager performs is in many ways similar to those performed by other managers. There are
however some important differences, as shown in the table below.
Project managers
Operations managers
Are often 'generalists' with wide-ranging

backgrounds and experience levels
Usually specialists in the areas managed
Oversee work in many functional areas
Relate closely to technical tasks in their area
Facilitate, rather than supervise team members
Have direct technical supervision responsibilities
The duties of a project manager are summarised below.

Duty
Comment
Outline planning
Project planning (e.g. targets, sequencing):

Developing project targets such as overall costs or timescale needed
(e.g. project should take 20 weeks).
Dividing the project into activities and placing these activities into the
right sequence, often a complicated task if overlapping.
Developing a framework for procedures and structures needed to
manage the project (e.g. decide, in principle, to have weekly team
meetings, performance reviews and so on).
Detailed planning
Break work into pieces, scheduling, assessing resource requirements.
Obtain necessary
resources
Resources may already exist within the organisation or may have to be

bought in. Resource requirements unforeseen at the planning stage will
probably have to be authorised separately by the project board or project
sponsor.
Team building
Build cohesion and team spirit.
Communication
The project manager must let superiors know what is going on, and ensure
that members of the project team are properly briefed.
Co-ordinating
project activities
Between the project team and users, and other external parties (e.g.
suppliers of hardware and software).
Monitoring and
control
The project manager should estimate the causes for each departure from
the standard, and take corrective measures.
Problem-resolution
Even with the best planning, unforeseen problems may arise.
Quality control
There is often a short-sighted trade-off between getting the project out on

time and the project's quality.
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Business strategy
Some of the skills required in a project manager are:
Type of skill
How the project manager should display the type of skill
Leadership and
team building
A participative style of leadership is appropriate for much of most projects, but a

more autocratic, decisive style may be required on occasion
Be positive (but realistic) about all aspects of the project
Understand where the project fits into the big picture
Delegate tasks appropriately and not take on too much personally
Build team spirit through co-operation and recognition of achievement
Do not be restrained by organisational structures a high tolerance for
ambiguity (lack of clear-cut authority) will help the project manager
Organisational
Ensure all project documentation is clear and distributed to all who require it
Use project management tools to analyse and monitor project progress
Communication
and negotiation
Listen to project team members

Use persuasion to coerce reluctant team members or stakeholders to support
the project
Negotiate on funding, timescales, staffing and other resources, quality and
disputes
Ensure management is kept informed and is never surprised
Technical
By providing (or at least providing access to) the technical expertise and
experience needed to manage the project
Personal
qualities
Be flexible: Circumstances may develop that require a change in plan

Show persistence: Even successful projects will encounter difficulties that
require repeated efforts to overcome
Be creative: If one method of completing a task proves impractical a new
approach may be required
Patience is required even in the face of tight deadlines. The 'quick-fix' may
eventually cost more time than a more thorough but initially more timeconsuming solution
650
Problem solving
Only the very simplest projects will be without problems. The project manager
must bring a sensible approach to their solution and delegate as much
responsibility as possible to team members so that they become used to solving
their own problems. By the nature of a project there is always uncertainty
and risk in a project. The project manager needs to be able to react to these
situations fast, and adopt an efficient problem solving attitude so as not to hold
up the project at key moments.
Change control
and
management
Major projects may be accompanied by the kind of far-reaching change that has
wide-ranging effects on the organisation and its people. Here, however, we are
concerned with changes to the project itself. Changes can arise from a
variety of sources (not least the intended end-users) and have the potential to
disrupt the progress of the project. They must be properly authorised, planned
and resourced and records kept of their source, impact and authorisation if the
project is not to become unmanageable.
14
Network or critical path analysis

Network or critical path analysis (CPA) may be defined as a diagrammatic representation of the interrelation
over time of the activities involved in a project and the subsequent analysis of those activities in terms of time,
cost and risk.
fill
kettle
boil
water
get cup
add
water
add coffee
3
Network for black coffee, no sugar

Figure above shows an extremely simple network diagram for making a cup of instant coffee. It shows that
some activities logically follow others (boil water after filling kettle) and some can take place at the same time
(getting cup and adding coffee while water is boiling).
Obviously in the case of a complex project there would be far more activities and a far more complex
network, but the principle is the same.
CPA allows the network to be analysed in the first instance in terms of time, which enables the minimum
project time to be determined and the critical path, i.e. the longest path through the network. Any delays to
activities on the critical path delay the whole project. Subsequently the network can be analysed in terms of
cost, e.g. the effect on cost of accelerating activities.
The basic analysis assumes the times for each activity are known with certainty. Variability in activity times (i.e.
risk) can be analysed using PERT (project evaluation and review technique) which can forecast likely outcomes
and the probability of a particular outcome occurring. This is particularly useful when trying to assess the
impact of potential delays in terms of time and cost.
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Business strategy
Summary and Self-test
Summary
652
14
Self-test
Answer the following questions.
1
List the three levels at which organisational development/change efforts may focus.
'An organisation enjoying good profitability should not consider change.' TRUE or FALSE?
List the three stages of Lewin's model for changing the behaviour of individuals.
What is meant by 'refreezing'?
List three possible problems with coercive change.
What causes resistance to change?
What is force field analysis?
Fill in the following blanks.

C, c and c play important roles when introducing change to
an organisation.
In the Lewin/Schein three-stage change management model, what general principle does management use
to embed the desirable new behaviour?
10
List four areas that a project manager should be skilled in.
11
Herring Ltd is in crisis. Major changes in its culture, structure and working practices are needed if it is to
survive. The effects of any changes made are highly uncertain. Identify the type of change involved for
Herring Ltd and the best approach to managing such change.
12
Freddis Ltd has sold its single product in a single market segment for many years. It's only competitor has
just brought out a technically superior and far cheaper version of the product. Outline the cultural
barriers to change which are likely to be present in Freddis Ltd.
13
F Steel
The recently-appointed Chief Executive Officer (CEO) of the F Steel Company is intent on making the
organisation more competitive. He has made it clear that he considers current operational performance
to be below acceptable levels. He recently stated, 'Costs are too high and productivity is too low'.
Demand for steel is growing, particularly in export markets such as countries in the Pacific rim, and the
CEO believes F Steel should capitalise on this. To do this he believes some change to working conditions
at F Steel will be required. A reduction of import duty in some proposed export markets would also be
required for profitable trading.
The trade union that represents the steel workers in F Steel Company is well-organised and has promised
the workers that it will defend their wage levels and working conditions.
Requirement
(a)
List the forces for change and causes of resistance in the F Steel Company. Classify these according
to whether they can be considered as deriving from internal or external sources.
(5 marks)
(b) Recommend how the newly-appointed Chief Executive Officer in the F Steel Company might go
about managing the process of change.
(5 marks)
(10 marks)
14
Plant Ltd
Plant Ltd has just finished implementing a major cost cutting project which involved automating a number
of previously paper processes across the whole company. The project did not go as well as had been
hoped and at one point the telephone ordering system was out of action for over a week as a result of
unexpected problems.
Explain how this type of change could be categorised. What kind of investigation is likely to be instigated
as a result of the problems that occurred?
(2 marks)
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Business strategy
15
Burgermania Ltd
Company background
Burgermania Ltd (hereafter Burgermania) is the world's largest fast food chain. The company has 30,000
restaurants in over 100 countries, and has been committed to opening over 700 new restaurants each
year in recent times. The company has benefited from consumers wanting quick and filling foodstuffs, and
has met this need with its style of product for both adults and children. The company has also had many
tie-in arrangements with sports and films, to encourage consumers to buy its product range. The range is
very limited, focussing mainly on burgers, fries and soft drinks. There are occasional variations in some
countries. This approach has proved popular with consumers who have conservative tastes and are happy
to know that the food will be of a consistent quality wherever it is sold.
The company operates mainly via a combination of owned and franchised restaurants. Franchisees sign a
15-year deal in which they are given the right to use Burgermania trademarks, restaurant decor designs,
formulae and specifications for menu items, use of Burgermania's inventory control systems, bookkeeping,
accounting, marketing and the right to occupy the restaurant premises.
In return the franchisee agrees to operate the business in accordance with Burgermania's standards of
quality, service, cleanliness and value. The company is anxious to avoid any negative publicity, so it
employs 'secret shoppers' who randomly visit and assess restaurants on the above criteria. The company
pays relatively low wages and has high staff turnover; this has prevented Burgermania being able to recruit
high calibre staff, as the image of the jobs offered is poor.
Recent events
The company has had stagnant profits and sales growth in the last two years. The main reasons for this
are increased health concerns in its major geographical markets. The company's products are high in both
fat and carbohydrate content, and stories in the media about preventable obesity, heart disease, diabetes
and cancer have caused turnover to falter. Furthermore, new style diets, whilst promoting meat
consumption, have discouraged many consumers from eating bread or fries due to their high
carbohydrate content. Initially Burgermania claimed that its products were nutritious and healthy, but this
policy was deemed to be a failure as it did not reverse the stagnation of sales. Some high profile legal
claims against the company from consumers claiming that Burgermania products caused health problems
have also had a negative impact on the company's image.
The company has decided at board level to respond to this deterioration in its financial performance by
introducing and promoting a healthier menu, with options that include burgers but no burger buns,
chicken and fish based products, grilled rather than fried meats, salads, fruit and healthier drinks, as well as
phasing out extra large portions of food on its menu. The directors want to give more autonomy to
individual restaurant managers to offer a wider range of products that will vary between different
locations.
In addition, the board intend to change the company name to 'Eatwise' to move away from the association
with burgers and fries. The cost of changing all the company, logos, livery, advertising campaigns and
cooking equipment is expected to be massive. Staff will also will have to be trained to use the new
equipment and promote healthy eating to customers. The company is uncertain how the public and
franchisees will respond to these changes in the business. Moreover, Burgermania is under pressure to
deliver improved financial performance as its share price has underperformed that of the overall stock
market by 20% in the last 18 months.
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14
Requirements
(a)
Identify the type of change that Burgermania is considering.
(2 marks)
(b) Outline the potential barriers to the proposed changes from:

(i) Franchisees
(ii) Restaurant staff
(iii) Customers
(c)
(9 marks)
Prepare a draft blueprint for submission to the board of directors of Burgermania that details how
the company will deal with the changes of menus and name.
(7 marks)
(d) Suggest ways in which the company can communicate successfully the changes to customers,
franchisees and shareholders.
(3 marks)
(21 marks)
16
Timbermate Ltd
After a difficult few years trading, a new chief executive, Brian Parsons, has been appointed to the board
of Timbermate Ltd. A large divisionalised company, it specialises in the production of wood-based
products, from plywood and chipboard, to kitchens and conservatory windows.
Parsons in his initial press interview made it clear that the costs incurred by the business were far too
high and that efficiency and productivity were unacceptably low. He has made clear his intention to turn
the business around. However, there have already been rumblings from the union to which most of the
workers belong. They are not prepared to negotiate over wages or working conditions.
Timbermate is a major importer of wood. Russian and Scandinavian joinery redwood, together with
spruce from North America, make up a high percentage of imports. They also import from the Baltic
States. Although sterling is strong against the dollar it has been struggling lately against the other
currencies. There have been signs that some of Timbermate's overseas suppliers are considering
expanding into Bangladesh directly. There has also been an increase in the popularity of UPVC alternatives
in a number of Timbermate's core business areas.
A number of operational issues need addressing. Recently, complaints about quality and product
specification have become more common. Additionally the delivery fleet has become less reliable and
several key customers have been let down. However many of the senior managers do not seem unduly
concerned. They often talk of the timber crisis of 1992 and how these problems are just part of the
nature of the industry. They rarely stay at their desks after 5pm. There is little in the way of knowledge
sharing and it is unusual for staff in any one division to even know the names of staff in the others.
One key pillar of Parson's plan is to introduce a fully integrated information system, covering (amongst
others) stock control and e-procurement, computer aided design and manufacture, resource planning and
management accounting. The system is to operate across all the divisions and allow potential cross-selling
and better customer management.
Requirements
(a)
Analyse the forces for and against change at Timbermate Ltd.
(b) Recommend to Brian Parsons how he might best manage the change process.
(c)
(6 marks)
(8 marks)
Suggest how the implementation of the information system could best be managed by the project
team at Timbermate Ltd.
(6 marks)
(20 marks)
17
C Hospital
The Executive Board of C Hospital needs to harmonise its payments systems. It wishes to introduce a
single pay scale for all employees of the hospital including nurses, physiotherapists, radiographers,
technicians and support staff (i.e. cleaners, porters, and kitchen staff). The purpose is to achieve greater
role flexibility, recruit and retain better staff and to reward people for their effort.
The hospital has twelve months to do this.
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Business strategy
It has been decided that a project manager should be appointed and a project team set up. The HR
manager has said he will release some members of his HR team to be part of the project team, but states
that designing a new pay system should not form part of the 'business as usual' work for the HR
department.
Requirement
(a)
Describe the factors that distinguish the proposed project from 'business as usual' work.
(10 marks)
(b) Outline the different stages in the project for a new pay and reward system.
(15 marks)
(25 marks)
18
Wholesome Drinks Ltd
(Sample paper)
Wholesome Drinks Ltd (WD) is a Bangladesh-based company, specialising in the production of 100% real
fruit smoothies (a drink made from a blend of whole crushed fruit and fruit juice). The business is run
from the 'Wholesome House' headquarters in Khulna, where the state-of-the-art production facility is
sited and where nearly all of the employees are located.
Company history and funding
The business incorporated and started trading on 1 January 20X4, with the entire shareholding being held
equally by the two founders, Spike Jones and Jemma Sharratt, who are also the only directors. Initial
finance was provided as follows:
Spike and Jemma had both made large bonuses in their previous employment and invested CU50,000
each as equity
Bank finance was obtained in the form of a CU250,000 10-year loan carrying interest at 8% per
annum, secured by personal guarantees on the directors' houses and a CU100,000 overdraft facility
In 20X5, Spike introduced a further CU100,000 as a long-term loan money that had recently been
inherited. It was agreed that interest would be payable at 4% per annum.
The product
The majority of fruit drinks in the industry are produced from concentrated juices and most use
preservatives. This makes the production process faster, the drinks cheaper and because they last longer,
facilitates distribution.
Wholesome's range of fruit smoothies consist of 100% pure fruit with no preservatives or additives.
They buy fruit direct from the growers, squeeze it, bottle it and sell it. As a result, they have a relatively
expensive product with a short shelf-life, although they use high tech containers to ensure the product
lasts as long as possible (around 12 days for 250 ml bottles and 20 days for one litre cartons). As WD's
products are not subjected to ultra-high temperature (UHT) processing (as is the case with traditional
fruit drinks), all the production equipment has to be completely sterilised and the juice has to be kept
chilled at every stage of the process.
Wholesome's fruit suppliers are located all over the world. All batches of fruit undergo strict testing to
ensure that only the highest quality ingredients are used by WD.
Wholesome tries to foster an entrepreneurial environment and welcomes new ideas and suggestions
from staff and customers. All new recipes are tested on family and friends and members of the public
passing by Wholesome House.
Not all new ideas are implemented. WD's mission statement is 'to make juices that are healthy and that
people will enjoy drinking. They will be produced in as socially and environmentally friendly a way as
possible'.
So, as well as public approval, all new products have to fulfil the following criteria:
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Great tasting
Simple
100% pure ingredients
Healthy
14
To maintain their creative image, Wholesome have introduced the concept of 'seasonal blends,' each only
available for three months. This allows them to appear innovative without having to sustain lots of new
lines.
Pricing and packaging
Wholesome smoothies are currently available in two sizes: individual 250ml bottles and one litre takehome cartons. The initial target market was busy young professionals, working long hours and wanting a
convenient healthy drink option. The 250ml bottles retail between CU1.75 and CU2.00 and the takehome cartons between CU3.30 and CU3.50. Take-home cartons are only available in supermarkets.
The average price per drink charged by Wholesome to retailers in 20X6 was CU1.15 (250ml) and CU2.00
(one litre).
The retail value of the Bangladesh smoothie market now stands at around CU46 million. Supermarket
own-brand smoothies account for 29% of this value and Wholesome's nearest competitor, 'Frooty Tooty
Drinks' accounts for 27%. Frooty Tooty have a less exciting range of flavours than Wholesome and the
retail price of their drinks is around 40p cheaper per 250 ml bottle because they use partly concentrated
juice.
WD does not currently produce drinks to be sold under own-brand labels for the supermarkets. These
are made by Frooty Tooty Drinks and a number of other smaller producers.
Market information
Retail value of smoothie market CUm

Wholesome market share
(based on retail sales price)
20X4
23.75
20X5
32.4
20X6
46.1
20X7
forecast
69.7
4.2%
10.7%
24.5%
38.2%
20X4
10,000
0
20X5
35,000
0
20X6
80,000
20,000
20X7
forecast
185,000
50,000
624
0
2,184
0
4,784
2,080
11,063
5,200
Sales information for Wholesome Drinks

Average sales volume per week
250ml bottles
1litre cartons
Annual revenue (CU'000)
250ml bottles
1 litre cartons
Distribution
At the end of their first year they signed a deal with a young and growing coffee bar business, which
agreed to stock Wholesome drinks in their shops. Since then, Wholesome have experienced rapid
growth and supply to the major supermarkets now accounts for over 60% of revenue. Their drinks are
also stocked across Bangladesh in some of the well-known chains of sandwich shops, coffee bars and
restaurants. Spike and Jemma have not forgotten their initial customers however and they are always
careful to keep their small independent shops happy.
As the business grew, WD were unable to distribute the product themselves and at the end of 20X5 they
signed a contract with an independent Bangladesh distributor, Chiller Solutions Ltd (CS), who specialise in
cold food and drink logistics. Once the drinks leave the Wholesome factory in Manchester, they are
transported by CS direct to the distribution centres of the supermarkets and larger chains, or to specialist
wholesalers who supply the smaller delicatessens and independent sandwich shops.
Human resources strategy
Wholesome's attitude towards its staff is simple: 'We want Wholesome to be a fun place to work. All our
employees are treated like one of the family and teamwork is one of our key values'.
To ensure their team is happy and motivated, Wholesome spends a lot of money on staff welfare and
training.
657
Business strategy
Support for charity (NGOs) and the environment
From the outset, WD has tried to run its business in an ethical way.
Wholesome cartons and bottles are 40% recycled plastic, which is currently the most technology will
allow, but they would prefer more. They encourage recycling with messages on their cartons and
recycling information on their website.
The company aims to minimise any negative impact on the environment. The company car is electric and
they use a 100% renewable energy supplier.
Wholesome gives away drinks to the homeless and sponsors holiday programmes for disadvantaged
children in Bangladesh. In addition, they donate a proportion of profits (currently 10%) to various projects
in the developing world, particularly in countries where they source their ingredients.
Strategic plans
The directors share the same personal objectives. Their primary aim is to continue working for
themselves, doing something that they enjoy and believe in, which provides them with a comfortable
living. They are in the business for the long term and currently have no plans for an exit route.
Now they have had a taste of success, Spike is keen to open a chain of Wholesome juice bars similar to
the current coffee shops opening up in Bangladesh high streets.
Jemma is more conservative. She favours gradual growth, and has suggested that the company
Target other consumers in Bangladesh by introducing a wider range of drinks e.g. organic
Wholesome drinks, health drinks with added vitamins and minerals and smoothies for kids
Expand their sales into South-East Asia. Research suggests the smoothie market there is currently
about 4 years behind Bangladesh and is not yet served by any major brands
Both continue to share the same vision though:

'We don't want to be like the big companies. Whatever we do, we must stay true to our brand and
continue to operate as an informal, open and ethical company. '
Appendix 1: Extracts of financial information
Sales
Variable costs
Fixed costs
Profit pre-tax and pre-donations
Bank balance
Net assets
20X4
CU
624,000
(580,320)
(222,900)
(179,220)
(94,358)
(79,220)
20X5
CU
2,184,000
(1,834,560)
(317,700)
31,740
(94,561)
(50,904)
20X6
CU
6,864,000
(5,491,200)
(816,800)
556,000
(4,116)
396,296
Requirements
(a)
Provide an analysis of the smoothie industry in which Wholesome operates, under each of the
following from Porter's Five Forces model.
Power of buyers
Power of suppliers
Competitive rivalry
Explain clearly the implications for Wholesome's current position and future strategy.
658
(9 marks)
14
(b) Examine the influence that WD's ethical stance has on its mission and objectives and evaluate the
impact this has had on its competitive position and performance.
(9 marks)
(c)
Explain the issues that are likely to arise for the company as a result of the rapid expansion that is
forecast for future growth. For this purpose ignore the three strategic plans.
(8 marks)
(d) Write a report that critically evaluates the suitability, acceptability and feasibility of each of the three
strategic plans put forward by Jemma and Spike (i.e. juice bars, wider product range, European sales).
(18 marks)
(44 marks)
19
Harburry Hotels Ltd
(Sample paper)
Harburry Hotels Ltd (HH) is a wholly owned subsidiary of a listed company, International Leisure Ltd.
Company history
HH is an autonomous venture, which was created in 20X1 as an off-shoot of its parent company and it is
part of a large leisure group. The vision was to set up an exclusive chain of 'boutique hotels', which are all
small, select five-star establishments, and to develop 'Harburry' as a well-known, luxury brand within 10
years.
Up to 20X5 International Leisure Ltd provided HH with enough finance to purchase and furnish hotels
and therefore to enable rapid expansion.
All the hotels are small, each having about 80 bedrooms. They have a culture of offering a luxury personal
service. The mission statement of HH reflected this as 'Excellence in everything'.
Hotels are located both in large cities and in the countryside. Sales are generated by:
Individual bedrooms this includes leisure and business customers, although there is no separate
analysis of sales from each of these sources. This source generates about 50% of total revenue.
Business conference facilities this includes specific conference rooms and food as part of
conference contracts.
Banquet sales this relates to weddings and other celebrations including banquet halls and food.
Restaurant and bar sales this includes sales in the restaurants and bars to individuals, including
both residents and non-residents.
The hotel industry

Bangladesh hotel accommodation market generates annual revenue of about CU12 billion. Business sales
make up the largest share of revenue. Prices tend to be higher in this sector, and sales are generated not
only from accommodation, but also from the use of other facilities. These include conference and meeting
rooms, with many of the major hotel groups having established separate brands to expand this sector of
the market.
The luxury end of the market tends to be dominated by large chains operating large hotels but
increasingly, small 5-star hotels have been entering the market as consumer demand has risen for them.
Selective company and industry data
Harburry Hotels Ltd
Total revenue (CUm)
Profit before tax (CUm)
Number of hotels operated
Price per room per night (CU)
Occupancy rate (%)
20X4
170
17
28
130
80%
20X5
191
16
32
140
73%
20X6
191
15
33
150
66%
659
Business strategy
Bangladesh hotel industry data
Total revenue (CUm)
Price per room per night:
2-star (CU)
3-star (CU)
4-star (CU)
5-star (CU)
Average (CU)
20X4
11,500
20X5
11,750
20X6
12,000
52
76
90
125
85
56
80
95
130
90
60
84
100
135
95
A strategic dilemma
In 20X6, International Leisure Ltd was acquired by a US company, Zodiac Inc. The terms of reference for
HH were immediately changed. There would be no further finance available for acquiring additional hotels.
Any further expansion would need to be financed from HH's own resources.
Zodiac undertook a business review of HH in order to establish a long-term strategy. It revealed that
customers and hotel guides believed excellent standards were being set which rated the company towards
the top of its industry sector. One exception was the restaurants, where the food was described as 'very
ordinary' in most cases. Another complaint was that accommodation prices were too high and that some
new competition in the boutique hotels sector was beginning to offer similar standards at prices that were
lower than HH's, although still high for the industry generally.
New strategies
In order to respond to the new circumstances, HH set out two proposed strategies:
Proposal 1 Outsourcing of the restaurants. The hotels' restaurants would be outsourced on fiveyear contracts to established chefs or other restaurant owners who were seeking premises. HH would
receive a fixed annual payment and 15% of the revenue generated. The restaurant operators would need
to guarantee appropriate opening hours, menus and standards of service.
Proposal 2 Sale and manage-back. Under this arrangement HH would sell its hotels to a property
company and manage them of its behalf under a long-term contract in return for a percentage of the
profits generated. The funds raised by this arrangement could then be used to lease new hotels and
develop existing hotels.
Requirements
(a)
Use the company and industry data provided, along with any other available information to evaluate:
(i)
The strategic market position of HH; and
(ii)
The performance of HH.
In so doing, identify any additional data that you would require, and which would reasonably be
available. Explain how this data would assist in making a more complete evaluation.
Ignore the two proposed strategies.
(b) (i)
(ii)
(11 marks)
So far as the information permits, evaluate the extent to which HH has been able to achieve a
sustainable competitive advantage.
Explain whether the two proposed strategies for HH may help it better exploit the company's
core competences.
(10 marks)
(21 marks)
660
20
Trend Electricals Ltd
14
(Sample paper)
Trend Electricals (TE) has made significant progress since it opened its first factory in Ishwarganj in 1951.
It is now a major listed company that manufactures household electrical goods, which it sells throughout
the world, generating annual revenues of about CU4.75 billion.
Company history up to 2002
TE initially manufactured low cost electric lighting but, as it grew, it developed a wide product range of
household electrical appliances including fridges, cookers, televisions, DVD systems, and personal
computers. All of these have a reputation for giving good value as basic, low-priced products.
Prior to 1995, TE had ten manufacturing sites, all located in Bangladesh. However, from 1995 to 2002 four
of these Bangladesh sites were closed and two new manufacturing sites were opened: one in SE Asia and
one in South America. This transfer of manufacturing capacity enabled lower production costs and also
greater proximity to TE's growing markets in South East Asia and South America. By the end of 2002, TE
had the following annual geographical distribution of sales by location of: (i) markets; and (ii) original
production (all at sales values).
Sales by
market
CUm
1,000
2,500
1,000
500
Bangladesh
Europe
SE Asia
South America
Sales by
location of
production
CUm
3,000
1,000
1,000
The company has had a centralised organisational structure with the group head office maintaining close
operational and financial control over operating divisions. In order to control costs in very competitive
markets, tight budgets were set by group head office and regular cost control programmes were
implemented. Divisional performance was judged against achievement of detailed budget targets.
There was a separate division for each type of product, but head office also exercised functional control.
Thus, for example, the financial controller of a division reported to the divisional head, but was also
closely monitored by the group finance director. There was a poor relationship between divisional heads
and group head office management.
A dispute over organisational structure in 2003
In recent years there have been difficult trading conditions with cheap imports undercutting many of TE's
products on price in a number of its markets around the world. As a result of falling profits and a falling
share price, the board of TE has been forced to reconsider its strategy. One of the key conclusions was
that any new strategy, if indeed a new strategy would be appropriate, should be devised at local level by
individual divisions not centrally by head office. As a consequence, the board has been willing to rethink
its organisational structure.
The chairman argued: 'We need to change the way we work. Centralisation is just too slow. We are
not adapting quickly enough to changes in technology and market conditions decision-making needs to
be closer to the customer. By the time a division has put forward a proposal for strategic change to head
office and we have approved it, our competitors have implemented similar changes and moved further on.
We are always one step behind'.
The chief executive disagreed. 'We are a low cost producer and that means controlling costs and coordinating activities. This is best done centrally'.
The majority of the board supported the chairman. In January 2004, TE therefore made the following
fundamental changes to its group structure.
All manufacturing sites were to become separate divisions, which were to be run as subsidiary
companies.
Each subsidiary was to become a strategic business unit (SBU) and to be operated as an investment
centre.
661
Business strategy
Services such as marketing, R&D and administration would continue to be acquired centrally from
group head office at full cost, or they could be purchased from outside the group.
Finance would only be raised by divisions from group head office at an annual interest rate of 10%,
which was intended to reflect risk.
The performance of divisions was to be measured by a combination of: (i) profit after interest
charges on capital (ii) sales growth; and (iii) average production cost per unit of output.
2004
During 2004 several problems became apparent with the new organisational structure. Some divisional
heads made several obvious strategic errors, but the group board was reluctant to intervene as they
considered it might damage the new culture of divisional autonomy.
Most divisions made very few purchases of central services from the group and, as a result, there were
significant redundancies at head office. Most divisions took on additional administrative staff to assist in the
new divisional management procedures, instead of purchasing head office services.
Of even more concern to the group board, was that there was little investment in fixed assets or in R&D
by divisions. While 'profit after interest charges on capital' had improved in most divisions, there was a
feeling amongst the group board that this was a short-term, tactical outcome and there was insufficient
long-term divisional planning and investment in the new regime.
2005
In order to encourage greater long-term investment, head office services would be offered to divisions at
variable cost, which was a very significant reduction from the full cost transfer pricing policy applied in
2004. Also, cash could now be borrowed by divisions from external sources, but they would also be
offered finance from the group at 5% per annum.
Many of the divisional heads retired or were removed during 2005.
2006
The low cost of head office services meant that demand for these services increased significantly such
that, towards the end of the year, head office staff numbers exceeded their pre-2004 level and head office
was being operated at a significant deficit.
Some views:
The group finance director summed up her view of the changes:
'This change in structure has been a disaster for us. We may have quicker decisions based on local
knowledge, but there is no central co-ordination and, quite frankly, head office management were better
strategic decision-makers than the divisional heads will ever be'.
The group marketing director agreed:
'There is now no co-ordination of marketing. We sell and produce worldwide and we need to coordinate our production and markets to a greater extent. Decentralisation has problems in delivering this
global co-ordination'.
Note: By the end of 2006 TE had the following annual geographical distribution of sales by location of
markets and by location of production (all at sales values).
Bangladesh
Europe
SE Asia
South America
662
Sales by
market
CUm
700
1,900
1,350
800
Sales by
location of
production
CUm
2,550
1,100
1,100
14
Requirements
(a)
Explain the strategic benefits and problems which are likely to have arisen from the process of
internationalising production in the period from 1995 to 2002. In so doing, highlight any additional
information that might be needed for a more complete analysis of this decision.
(Ignore the changes in organisational structure for this purpose).
(12 marks)
(b) Write a memorandum to the board of TE which, so far as the information permits, critically
evaluates the changes made by TE under each of the following headings.
The advantages and disadvantages to TE of centralisation and decentralisation in its

organisational structure
Measuring the financial and strategic performance of the divisions
Assessment of how the change process was managed in 2004
Pricing head office services
(23 marks)
(35 marks)
Now go back to the Learning Objectives in the Introduction. If you are satisfied you have achieved these
objectives, please tick them off.
663
Business strategy
Answers to Self-test
1
Individual; organisation structure and systems; organisation climate and interpersonal style.
FALSE. Organisations should embrace change, and not wait until the obsolescence of their current
practices leads to crisis.
Unfreeze, change (or move) and refreeze.
The final stage of the Lewin/Schein three-stage approach in which the desired new behaviour is
consolidated.
Underestimating resistance; not coercing hard enough or long enough; failure to ensure implementation.
Attitudes, beliefs, loyalties, habits and norms, politics.
Lewin's analysis of the driving and restraining forces which underlie any group or organisational
equilibrium.
Commitment, co-ordination and communication.
Reinforcement both positive and negative.
10
Four of:
11
Leadership
Team building
Organisation
Communication
Technical expertise
Personal qualities.
Revolutionary change
Approach emergent, i.e. flexibility is essential.
12
Structural inertia systems and procedures are likely to have been in place for many years.
Group inertia production and marketing departments, for example, may resist change (probably used to
doing things in the same way for many years).
Power structures lack of pressure to change in the past may have resulted in clear lines of decision
making authority and/or control over resources.
13
F Steel
(a)
Forces for change internal
Forceful new CEO

Poor operational performance
High costs
Low productivity
Forces for change external
High export demand

Only steady domestic demand for steel
Customer complaints
Forces resisting change internal
664
Long-serving managers' complacency

The trade union's attitude
14
Force resisting change external
High import duties in some export markets
(b) Lewin suggests that after the forces for and against change have been established, effort should be
put not only into breaking down those opposing it (which is a natural management response), but
also into building up the influence of those supporting it.
This process is the first or 'unfreeze' phase of the Lewin/Schein change model. The CEO will have to
set up both a programme of education and support for the complacent managers and enter into
forceful negotiations with the trade union. The basic aim is to frighten both parties with evidence of
looming disaster. This is clear enough from the company's competitive situation.
The second phase of the Lewin/Schein change model requires action to change behaviour, laying
down new patterns and reinforcing them. Residual resistance should be confronted with free
circulation of information about plans for the future and why they are required. Individuals must be
helped to change their attitudes and behaviours. An extensive programme of organisational
development is probably required for the F Steel Company. There should be proper application of
positive and negative reinforcement in the shape of rewards and sanctions.
The final phase of the model is 'refreeze'. This prevents the staff from slipping back into their old
ways and attitudes by a combination of exhortation, reward for good performance and sanctions
against the backsliders.
External forces are less susceptible to this treatment than internal ones. In the case of the F Steel
Company, representations could be made to government about both the exchange rate and the
unfair competition, perhaps through a trade association or other umbrella body. However, it is
necessary to recognise that even if action is forthcoming, it is unlikely to be prompt.
14
Plant Ltd
The change could be categorised as reconstruction it affects the entire organisation, but does not
appear to require a paradigm shift.
A post-project audit would be required. It would be carried out by an independent team who would
review all elements of the project process in detail to identify why the problems arose.
15
Burgermania Ltd
(a)
Type of change
Burgermania is undertaking a change in the business that would be deemed revolutionary in terms of
impact on the business. Both the process and the underlying paradigm of the company will have to
change. The retraining and re-branding of the business suggests a low degree of predictability, as it
will be difficult to anticipate the reaction of stakeholders, especially customers, to the proposed
changes.
(b) Barriers to change

Franchisees
Franchisees will fear that new system is too radical and may have detrimental impact on
revenues of restaurants.
They may fear that costs of changing name and livery of the restaurants will be recovered by
Burgermania in the form of higher franchise fees.
Franchisees will be reluctant to change to a new system of delivering food if they are happy
with current products and procedures.
They may lack initiative when it comes to introducing new products that they can add to the
menu.
665
Business strategy
Restaurant staff
Staff in fast food restaurants tend to be poorly paid and have short periods of employment.
Therefore they may be reluctant to be retrained or adopt a pro-active policy with customers in
terms of promoting the new healthier food lines.
Staff may feel that if Burgermania is suffering then jobs may be lost likely to cause
demotivation.
Staff may fear that management will use the change as a means of introducing new working
practices that could reduce income, overtime, bonuses etc.
Staff may lack the skills to adapt to the new nature of the business.
The decision is likely to be enforced by coercion if necessary due to Burgermania's poor recent
results, potential for conflict and resentment by staff.
Customers
(c)
Customers are more concerned with being fed quickly than with the quality of what they eat,
so may choose to go elsewhere. Many people have conservative tastes and so will be reluctant
to try the new products on offer.
They may feel that the new products are being forced on them and again vote with their feet by
eating at other fast food restaurants.
Draft blueprint
To
Board of directors, Burgermania Ltd
From
B. Cowie, consultant
Date
Today
Subject Blueprint for menu and name changes

Action required
Introduction of healthier menus and local autonomy

Launch of new name/brand for the company
Purpose
The objective of the changes is as follows.
To reverse the decline in the company's performance.

To adapt to changes in consumer demands and tastes.
To promote the company as a family-friendly and healthy eating place.
Timing of changes
Given the nature of the company's products and positioning in the market, a national change
will have to be launched if it wants to maximise publicity for the changes. The company could
try introducing the new menus on a trial basis in selected restaurants.
The transformation will be very time-consuming given the global nature of the company and its
products.
Responsibilities
A committee needs to be formed to co-ordinate the changes, headed by a senior

manager/director.
Evaluation
666
Market research needs to be undertaken to establish public reaction to both the menu and
name changes.
Performance data can be produced to determine the popularity of the new food products on a
trial basis in selected stores.
14
(d) Communication of changes
16
Franchisees could be invited to a conference to see the new 'Eatwise' logos and product range.
A major PR campaign, with TV, radio and press adverts should take place to coincide with the
changes to advise customers. Perhaps special promotions relating to the new products could be
used to encourage customers to try them out.
Shareholders could be briefed via e-mail and the company's website, together with press
releases in the financial media.
Timbermate Ltd
(a)
Forces for and against change

Forces for change
The forces for change in Timbermate appear to be both external and internal.
External factors would include:
Overseas competitors: Current suppliers may be able to undercut Timbermate if they set up
their own operations in Bangladesh. It will be essential for them to bring down their own cost
base to survive.
Exchange rates: Weakening sterling will make imports more expensive, putting up
Timbermate's costs still further.
Growth in plastic alternatives may reduce demand in a number of key areas. Unless they can
fight back, share will be lost, reducing economies of scale and brand strength.
Internal factors would include:
Brian Parsons' determination to make the changes needed.
Customers: Increasing dissatisfaction with the current standard of service has already given rise
to complaint and may, if not addressed, lead to loss of current customers and brand image.
Shareholders: A period of poor results cannot have been satisfactory for the shareholders
which is presumably why they have appointed Parsons.
Forces against change
Attitude of managers: The managers lack a sense of urgency and are therefore likely to resist
any major change programme as unnecessarily disruptive.
Attitude of staff: It is likely that the laid back culture permeates the whole organisation and staff
may not understand the need for change. They will undoubtedly also be fearful for their jobs.
Unions have already expressed their intention to resist any changes to wages or working
conditions. This could lead to walk-outs and strikes.
(b) Managing change

A useful method of managing change was proposed by Lewin. This divides the process of change into
three stages, unfreezing, changing and refreezing.
Unfreezing
The forces for change must be used to encourage the change, and the forces against it must be
weakened. Methods might include:
Carrying out a PEST analysis to identify the exact nature of the threats from the outside
environment (issues such as deforestation may also have potential impact and have been
overlooked).
These issues and their consequences should then be stressed to the managers. Forecasts of market
performance (and its impact on bonuses) if no change is made should be communicated. Workshops
to involve senior managers in the process may help them to appreciate the urgency of the situation.
667
Business strategy
Consultation and negotiation with the unions will have to be entered into. They will need to be
persuaded of the importance of change now to protect jobs in the future.
Change
The new information system must be introduced. Training in all aspects will be required not just in
how to use the system, but in its potential benefits, so that staff start to identify ways in which it
could further improve business.
New working practices will need to be introduced. Some processes may need re-engineering.
Greater collaboration between different divisions needs to be encouraged.
Efforts must be made to change the culture of the organisation. Stories about problems being caused
by economic cycles that can be ignored, rituals such as leaving work on the dot, and an organisation
structure so rigid that there is little or no horizontal communication suggests a 'jobs worth'
paradigm where bureaucracy has taken on all its worst characteristics. Whilst education may start
the process, it may be necessary to remove those managers who are unwilling or unable to change.
Refreezing
This is the process of trying to ensure planned changes become the norm.
Reward systems should be developed to focus on issues such as cost management, customer
satisfaction, productivity and innovation.
Continual training: The staff should be given regular training updates to deepen their understanding
of the new system.
Communication: Interdivisional meetings should be scheduled on a monthly basis. The agenda should
be shared problem solving and sharing of best practice. It may be that major customers should be
provided with a single point of contact, who will then liaise with all divisions on their behalf (a matrix
structure within the divisional one).
(c)
Managing the project

Objectives
One of the first things the project team will need to establish is the scope (what exactly the system
is expected to do), the deadlines (when it is intended to be fully operational and which areas are to
be given priority) and the budget available.
Tools
Once they have a clear set of objectives, the team can use tools such as network or critical path
analysis to establish the order in which the various parts of the project (stock, production and
accounting) should be carried out, and whether the objectives can be achieved.
Given the current problems, Parsons will no doubt be very keen to see a speedy implementation,
but since the budget is undoubtedly tight and the scope is extremely ambitious it is unlikely that all
the objectives can be achieved at once. A key stage review meeting will then be required with all the
senior managers to adjust scope, deadlines or budget to ensure the project plan is realistic.
Gantt charts to track project progress and resource histograms to monitor manpower usage will
help to keep the project on target.
Reporting
Regular project reporting will then keep key stakeholders up-to-date. The e-procurement project
will need significant liaison with the overseas suppliers and may involve overseas visits to ensure the
project is fully co-ordinated. Project reports in this area will therefore need to be more frequent
than those to shareholders for example.
668
17
(a)
14
C Hospital
Introduction
In general the work which organisations undertake may be classified as either 'business as usual' or
projects. Whether an activity is classified as a project is important as projects should be managed
using project management techniques.
A project has a number of attributes that distinguish it from 'business as usual'. Projects may be
perceived as having a life cycle. This is commonly seen as commencing with the identification of a
need and progressing through the development of a solution, implementation and closure.
Project attributes
Projects have a defined beginning and end, have resources allocated specifically to them,
although often on a shared basis and follow a plan towards a clear intended end-result. They
are intended to be done only once and often cut across organisational and functional lines.
These distinctive attributes are reflected in C Hospital's project. It has a defined life of 12 months, a
project manager and project team are to be appointed to carry out the project and they have a clear
objective of designing and implementing a new pay and reward system within that period.
The project is clearly a 'one off' activity and the HR Director is adamant that the project team will
be cross functional rather than being drawn solely from his staff. It would seem sensible for the
team to include staff from the key areas involved: nursing, physiotherapy, radiography, technical and
support staff.
(b) The life cycle of the project to design and implement a new pay and reward system for C Hospital
will include the following four main phases:
Identification of a need
Projects start when someone becomes aware of the need for one. This can occur at any level and in
any context, though more formal business projects of management significance will normally be
originated within the area of responsibility of the sponsoring manager.
At C Hospital the need has arisen as a result of the need to respond to government requirements to
reform reward systems. A key first step is to identify the goals and objectives of the project
why we are doing it and what we are seeking to achieve. At this early stage one of the most
important things to get under control is the scope of the project; that is, just what is included and
what is not. A firm grasp of the agreed scope of the project must be maintained throughout its life.
Government requirements in relation to reward systems will play a major role in shaping the scope
of the project.
The project team will also be assembled at this stage and should include representatives from HR,
Finance and those who can speak on behalf of each of the employee groups affected. The project
manager will take ultimate responsibility for ensuring the desired result is achieved on time and
within budget. A person should only take on the role of project manager if they have the time
available to do the job effectively. Since that person is to be held responsible for the project, they
must be given the resources and authority to complete project tasks.
Development of a solution
Planning is a key duty of the project manager and the initial outline planning will include:
Developing project targets such as overall costs or timescales.
Dividing the project into activities and placing these activities into the right sequence.
Developing a framework for procedures and structures needed to manage the project this
could include weekly team meetings, performance reviews and so on.
Detailed planning may include use of techniques such as work breakdown structure and network
analysis in order to produce a schedule of activities to be undertaken.
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Business strategy
Implementation
This is the operational phase of the project. Planning will continue as required to in order to
control agreed changes and to deal with unforeseen circumstances, but the main emphasis is on
getting the work done.
There are several important aspects to this phase. Management and leadership assume a greater
importance as the size of the project work force increases. Time, cost and quality must be kept
under control, as must the tendency for changes to proliferate.
Problems are bound to arise and must be solved sensibly and expeditiously. At C Hospital the
objective of the project, pay harmonisation, is potentially extremely contentious and it will be very
important to resolve employee concerns quickly without imposing an ongoing insupportable financial
burden upon the hospital.
Completion
The final phase of the project is completion and review. This phase involves a number of
important but often neglected activities.
Completion itself is often neglected. All activities must be properly and promptly finished and
documentation must be completed. This is particularly important on a payroll project where
accuracy and timeliness of payment are of crucial importance.
At some point the HR department must formally accept that the project is complete and take
responsibility for any future action that is required in relation to the new pay system, such as the
maintenance of the system. The HR department will want to ensure that the project being handed
over conforms to the latest requirements definition and project specification.
Completion will involve the disbandment of the project team. It is important for future projects
that before the team members return to their previous roles there is a formal process that gathers
the lessons learned so that they are available to future project teams and help those projects to
avoid any mistakes or difficulties encountered whilst developing the payment system.
Examiner's commentary relating to questions 18, 19 and 20
Good candidates would be expected to identify most of the points listed in the marking plan. Markers are
always encouraged to use discretion and to award partial marks where a point is either not explained fully
or made by implication. More marks are available than could be awarded for each requirement. This
allowed credit to be given for a variety of valid points made by candidates.
18
Wholesome Drinks Ltd
(Sample paper)
General comments
This question examines a company operating in the competitive fruit drinks market that, due to its unique
positioning, has been successful in building sales and market share to date. Unlike other corporates they
are taking a long-term view in their desire to be ethical /sustainable which translates into a short-term
profit/cash problem but has allowed them to create a niche market. They are proposing further rapid
expansion in their existing Bangladesh market in the short term and at the same time trying to make a
longer-term decision about their future direction.
670
(a)
14
Five forces analysis

(i)
Buyers
Demand for WD's product by the supermarkets, sandwich shops etc will be derived from
the demand by the end consumer.
Individual consumers in a retail market will have low buying power/ influence in relation to
the size of the industry and brand loyalty seems high.
WD's corporate buyers will have more power:
Large supermarkets will have greater power and more stringent requirements than
small independents.
With large supermarkets who are both buyers and competitors for own-brand
products there is a danger that they may choose to promote own-brand products
rather than Wholesome's, e.g. by giving own-brand products more prominent shelf
display.
Implications for WD
WD has become increasingly reliant on large supermarkets, which now contribute 60% revenue
and are the sole stockists for the one-litre take home market. As a result it will be important to
foster good relations with these buyers.
WD could strengthen the relationship and reduce the risk by agreeing to produce own-brand
smoothies for one of the supermarkets' premium ranges. Consideration however needs to be
given to the lower profit margin on own brand products and to the competition from existing
suppliers of own-brands to supermarkets.
In addition, it will be important for WD to continue to look after the smaller, independent
shops which were their initial buyers. It would be easy to start neglecting these because of the
relatively small proportion of turnover they account for individually but the collective value to
the business is still around CU2.7m at 40% of revenue.
(ii)
Suppliers
Distribution: As the sole distributor, Chiller Solutions currently have considerable

power and influence.
Implications for WD
WD is currently very reliant on Chiller Solutions. One way to reduce this reliance would be to
investigate alternative distribution channels and the switching costs that would be involved in
changing this supplier. Alternatively, WD need to continue to build their relationship with CS as
one of partnership, rather than that of a traditional supplier.
Suppliers of fruit: There seem to be plenty of suppliers, spread across the world, many
of whom are likely to be small with limited power. There is no information to suggest that
fruit is a scarce resource. Fruit also is largely homogeneous, commodity type, product
(other than variations in quality) so switching costs are likely to be small.
The suppliers may be more likely to support WD rather than sell to alternative drink
producers due to their desire to be sustainable and because of the possibility of receiving
charitable funding.
As a result their overall power is likely to be low.
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Business strategy
Implications for WD
As Wholesome wants to produce a premium product they need to ensure they are getting the
pick of the crop.
They would be advised to source supplies from a number of different countries so they reduce
the risk of being affected by poor weather/harvest in one particular location.
Suppliers of labour: Wholesome currently operate with a small team who is treated as
part of the family. Individually the staff are unlikely to wield much power.
Implications for WD
WD rely on staff for new recipe ideas and will need to continue to develop and encourage that
creativity. Given the open and informal way that the business is run they would not want to
lose staff to a competitor. However, WD's attitude to staff as demonstrated by the investment
in their welfare should mean they do not have a retention problem.
(iii) Competitors
As the smoothie market is currently growing, there are sales available to all. Once market
growth slows, rivalry is likely to increase.
Power relies on the ability to promote the brand to consumers.
Currently no competitor is producing an identical product to Wholesome's smoothies,

due to their 100% pure stance.
The major competitor (Frooty Tooty) currently has a 27% market share. Their product is
similar to WD's, but retails at around 40p cheaper as it includes juice from concentrate.
There is a danger that Frooty Tooty or another smaller competitor gets taken over by a
larger food and drinks business they may get greater backing/ resources etc, e.g.
PJ Smoothies is now owned by PEPSI.
The other key players in industry are the supermarkets who collectively have a 29% share
with their own brands. They will have much larger resources and marketing power etc,
which would allow them to bring out a 100% pure own brand product and promote it at
the expense of Wholesome's product.
Implications for WD
They are operating in a very competitive market and need to protect their competitive
advantage by continuing to innovate.
Diversification of the product range may lead to increased product awareness and reach a
wider range of customers.
They could also make more use of point of sale advertising to promote brand loyalty.
WD would be advised to monitor market activity on a regular basis, especially that of their
closest competitor.
(b) Ethics
The ethical stance of WD can be looked at on both an individual and a corporate level.
Individual concerns Spike's and Jemma's actions in managing the business
Corporate looks at the extent to which WD have gone beyond the minimum legal and
corporate governance obligations.
On an individual level, Spike and Jemma want to work for themselves rather than for a large
corporate because their primary concern is that they are able to do something 'they enjoy and
believe in'. As such they are looking to earn a comfortable living from the business rather than to
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14
maximise short-term profits. This is also evidenced by their commitment to the long term and the
absence of plans for an exit route.
This individual integrity and moral stance then influences the mission and objectives of the business,
which reflect the beliefs and values of the founders who want 'to operate as an informal, open and
ethical company'.
WD's mission statement is 'to make juices that are healthy and that people will enjoy drinking. They
will be produced in as socially and environmentally friendly a way as possible'.
This mission reflects the desire of the two founders to make a difference to people like themselves
by delivering a convenient, healthy product. It also demonstrates the fact that they are attempting to
include the wider interests of stakeholders by taking account of the impact WD's actions have on
the society around it.
This is evidenced in Bangladesh by giving away drinks to the homeless and by their support for
holiday programmes and outside Bangladesh by the 10% of profits donated to fund projects in
developing countries. As a result, WD's approach to creating a sustainable business can be seen to
take account not just of the expectations of the Bangladesh Government and society but also the
other countries affected by their operations.
Company's mission and objectives
Products
The stated aim is to produce a 100% pure product with no additives or preservatives, which is
healthy for consumers.
Staff
The founders want Wholesome 'to be a fun place to work' and promote teamwork as one of the
key values. The sabbaticals, awards etc suggest that they treat employees like 'one of the family'.
Environment
The company objective is 'to minimise any negative impact on the environment'.
This has led to the company investing in technology to produce bottles and cartons that are 40%
recycled plastic. They promote recycling via their cartons and website and they take an
environmentally friendly approach to energy consumption: the company car is electric and they use a
100% renewable energy supplier.
Marketing
The smoothies market is a small market segment within the soft drinks industry. Wholesome Drinks
are the only company currently producing a 100% pure fruit product. Their product has a relatively
higher selling price than competitors and is placed at the premium end of the market. As a result
Wholesome Drinks could be said to be operating a differentiation strategy in a niche market.
WD's ethical stance has given them a unique position in the market place.
This competitive advantage can be seen in their rapidly growing revenue and market share. Revenue
has grown more than tenfold in two years (6,864/624) and market share has increased from 4.2 % to
24.5%, despite WD's product being the most expensive on the market. They now hold the second
largest share of any individual business.
Production and costs
The ethical approach is likely to have had short term impact in terms of higher costs:
More expensive cost of sales
Shorter shelf life and therefore higher wastage
Technological investment required to develop recyclable packaging
To make a further analysis it would be necessary to have information about the competitor's cost
structures. It is unclear whether WD are able to pass all the extra costs on to the wholesalers/
consumer although we are told that the recommended retail price is 40p dearer than Tooty Frooty's
product.
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Business strategy
WD's profits are also reduced by the higher staff costs although their human resource policy is likely
to enable them to attract and keep the best staff, which will help them with innovation and product
development.
After a sizeable loss in the first year, WD has become profitable, albeit the rapid growth has placed a
strain on cash flow, despite the introduction of the further CU100,000 loan by Spike in 20X5. The
bank overdraft at the end of each of 20X4 and 20X5 at around CU94,000 is close to the CU100,000
overdraft facility although there is a significant improvement in 20X6.
The donation of profits will reduce cash and available reserves but will help maintain their reputation
and visibly position them as an ethical company.
Summary
The company's desire to be sustainable seems to have had short-term costs in terms of profitability
and cash flow but has paid off in strategic position and market growth. Their start up is well timed as
it coincides with increased consumer interest in healthy eating and concern for food safety and the
environment. WD should see long term benefits provided that they are able to sustain their
competitive advantage. Future success will continue to depend on their reputation, which is linked to
their ability to innovate.
(c)
Expansion issues
There are a number of general issues that Spike and Jemma should consider if they are to expand the
business:
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As the business gets bigger it will become more difficult to control.
Retention of an open and informal structure is important to them. As a larger business they
may lose the feeling of a small family team and inevitably have to become more corporate in
outlook.
Any change will have an impact on the staff. Given the importance they place on the team,
Spike and Jemma should ensure that the change is carefully communicated and managed.
Expansion is likely to require a further injection of finance. This could come from savings, new
borrowings or new investment. As the owners have already injected their spare capital and
given personal guarantees it may be difficult for them to provide more finance.
Any new investment e.g. by a business angel would reduce their control and may end up
introducing a stakeholder with different or conflicting objectives e.g. with regard to exit.
New borrowings would require security and evidence of a business plan, taking into account
the need to repay the existing and new finance.
Expansion may place a strain on the IT, communication and management information systems.
The business has done well so far because the timing suits the general trend in society for
health and fits with various government initiatives in this area. Wholesome produce a premium
product and may suffer if there is a downturn in the economy or if consumers tire of their
currently fashionable product.
Future success depends on their ability to sustain a competitive advantage. It would not be
difficult for competitors to follow suit and copy Wholesome's ethical approach.
The Boston Consulting Group matrix could be used to analyse Wholesome's position in terms
of market attractiveness and market strength:
Market attractiveness: The smoothie market has been experiencing high growth and is
forecast to grow by a further 51% in 20X7. This is likely to attract new entrants.
Market strength can be measured by Wholesome's market share relative to the market
leader. In 20X6 Wholesome had 24.5% of the market, relative to Frooty Tooty's 27% but
is forecast to overtake Frooty Tooty in 20X7 with a share of 38.2%.
This would suggest that Wholesome smoothies are set to become a 'star' and that WD
will need to invest heavily to hold this position/ build upon it.
There are few barriers to entry so an existing large soft drinks manufacturer with economies of
scale could easily develop a product and compete away excess profits.
Wholesome could go for organic growth but should also consider the possibility of entering
into corporate arrangements that may reduce the risks of expansion.
14
(d) Report to the Directors of Wholesome Drinks Ltd

To
Spike Jones and Jemma Sharratt
From
A N Accountant
Date
Today
Re Strategic plans for Wholesome Drinks
Since it incorporated in 20X4, Wholesome Drinks has enjoyed rapid growth in sales and market
share. This report considers the future direction of the company and in particular the specific plans
put forward by the directors.
1.
Juice bars
This strategy is one of market diversification by downstream vertical expansion.
Suitability
In keeping with current trends for health and fitness e.g. people trying to reduce caffeine
consumption and increase daily fruit and vegetables.
This would benefit the brand by making it more widely available and better known on the
high street.
There is already strong competition from lots of other delis, sandwich shops and coffee
bars.
This strategy is likely to require an amendment to the mission statement that currently
focuses on the production of smoothies.
Acceptability
A chain of juice bars would require quite a high investment in terms of premises etc so
risks are quite high e.g. there might be penalty clauses for withdrawing from leases.
Demand for juice in a high street bar may be seasonal which would increase the risk
attached to Wholesome's cash flows.
There is a possible risk of health and safety issues due to contamination that may damage
Wholesome's reputation.
Jemma is likely to be resistant to this option due to her attitude to risk.
Feasibility
Wholesome already know that their product is in demand.
Management lack expertise of running such an establishment and would need to hire staff.
Does Wholesome have any core competences in retailing management even is staff are
hired in?
Wholesome would need to locate (and probably lease) suitable premises.
The cash flow required for a chain of juice bars would be significant.
675
Business strategy
2.
Wider product range

Using the Ansoff matrix, this strategy is one of product development selling new products to
existing markets.
Suitability
This strategy is consistent with Wholesome's current mission, objectives and brand image.
It strengthens Wholesome's reputation for innovation / creativity.
It fits in with government campaigns targeting obesity in the general population and in
children.
Suggested products are consistent with the existing acceptance criteria for 100% pure
ingredients and a healthy product, although the health drinks may not be simple and great
tasting.
The children's range is likely to address increasing parental concerns re additives etc.
Organic products are consistent with Wholesome's desire to avoid a negative impact on
the environment.
Acceptability
This strategy is probably the lowest risk as it makes use of Wholesome's existing
resources and core competences.
This is likely to meet with least resistance from the various stakeholders i.e. staff,
stockists, Chiller Solutions.
There is a risk that some consumers may switch from existing Wholesome smoothies to
the new brands and that some sales may be replacement rather than incremental.
There is a risk that competitors may copy these products or alternatively that they may
introduce them first if Wholesome does not.
Feasibility
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Wholesome will be able to use their existing distributor and stockists.
They will require increased spending on product development and marketing.
The suggested products may involve more regulations and therefore be more costly due
to screening requirements.
Wholesome may need to take on staff with medical / nutritional expertise.
The timing of the launch will be important e.g. launching the health drinks in January would
fit with the general increase in people 'detoxing' at this time of year.
Market research is required to establish the size and nature of the market for the new
products.
Competitor analysis will be needed to ascertain the incumbent suppliers in these markets.
Does Wholesome have any particular core competences in producing and selling these
products compared to those companies already doing so?
3.
14
European sales expansion

Using the Ansoff matrix, selling WD's existing product, smoothies, in the South-East Asia
market would constitute market development.
Suitability
This strategy is consistent with Wholesome's current mission and objectives.
It capitalises on Wholesome's currently successful product/ brand.
The South-East Asian lifestyle and climate is very different from that of Bangladesh.
Consumers tend to prefer fresh produce not commercially packaged and there is plenty of
fruit available for people to make their own juice/smoothies. The success of the product
will depend on to what extent convenience is valued.
Acceptability
There is a cultural risk that the product may not work due to the different climate and
lifestyle. Certain flavours/recipes may be less popular and there may be problems with
brand names in certain languages.
Transporting the product overseas increases the risk of perishability and wastage.
This strategy will expose Wholesome to exchange risk that will need managing.
Feasibility
4.
The Wholesome brand name is currently unknown in Europe.
It is unclear whether the existing production facility has the capacity to supply the
European market.
Wholesome may need to consider moving production overseas due to the product's
short shelf life.
There is not the same emphasis on supermarket shopping and the absence of large
supermarkets and out of town stores may cause a problem.
Wholesome will need to establish a new distribution network.
This strategy is likely to require marketing spend.
Conclusion and recommendations

Before any decision is made, forecasts need to be prepared to assess the returns and risks from
the various strategies. The strategies suggested are not mutually exclusive, although are likely to
require additional management expertise as managing the growing Bangladesh business will
probably take all the current time available.
The least risky option is to expand the product range as this uses Wholesome's existing
resources and competences. If Wholesome decides to expand into Europe, it would be best to
undertake this gradually and concentrate in the first instance on countries closest to Bangladesh
where the culture is similar e.g. Ireland. The juice bar strategy would be more sensible if
undertaken as a joint venture with an existing chain of coffee bars/ deli that wants to add juices
and smoothies as an extra product line.
All the strategies need to be seen against a background of rapid expansion in the company's
existing markets for 20X7 (market penetration in the Ansoff matrix). Any of the proposals may
therefore lead to excessive expansion or overtrading if not appropriately resourced. Thus a
strategy may be desirable, however for a small and young company, with inexperienced
management and rapid growth in its current markets, caution is necessary in assessing whether
a good strategy could be successfully implemented.
677
Business strategy
19
Harburry Hotels Ltd
(Sample paper)
General comments
This question examines a scenario in the hotel industry where there is a start-up as an offshoot from a
large listed leisure group. The question includes a data analysis requirement which requires the use of
quantitative data to interpret the strategic position and performance of the business. The data needs to be
used alongside the other information provided in the question to build up the most complete picture
possible.
The question also requires an examination of the extent to which the company has been able to achieve a
sustainable competitive advantage and an assessment of two proposed strategies in the context of its core
competences.
(a)
(i)
Strategic position in the industry

HH has a small share of the Bangladesh hotels market at around 1.6% market share
CU191m/CU12,000m). However, in assessing the company's competitive position this figure is
not particularly relevant as it seems unlikely that 2-star, 3-star and 4-star hotels are direct
competitors to HH in most cases, given the price difference. Thus, any comparison of HH's
prices with the average of CU95 per night for the entire industry is likely to have little meaning.
The focus of any comparisons should therefore be on competitors and prices in HH's market
niche.
The key competitors are therefore other 5-star hotels, but even in this case there is probably
a limited subset of this market that may be considered active competitors. For example, the
small boutique hotel market may be different in characteristics, if not in price, from larger
5-star hotels.
Any comparison to the industry leader using models such as the BCG matrix would only be
relevant if the industry leader was a major operator in the 5-star sector. A more valid
comparison might be with the sectoral leader in the 5-star hotels grouping generally, and
boutique 5-star hotels specifically. Additional financial and operating data relating to sectoral
leaders may be useful to assess HH's competitive position against the sectoral market leader.
However, to the extent that HH regards itself as part of the '5-star' market, then it would
appear that it is attempting, on the basis of pricing, to position itself toward the top of this
market. In 20X4 HH was charging a price premium of 4% above the sector average but this had
risen to 11.1% by 20X6. This appears to be at the upper limit, however, further information is
needed on the prices being charged by HH's direct competitors for a fuller analysis as:
Boutique hotels may all be at a premium above the 5-star sector average.
The mix of HH's hotels may be weighted in high value geographical sectors (e.g. London)
where the prices may be set close to those of geographically proximate rivals.
It is clear that occupancy levels have fallen. This is considered in more detail below under
performance but more information is needed as to whether this decline is due to the increase
in price (movement along the demand schedule) or due to decline in the sector (a movement
of the demand schedule).
For example, if there is decline in the general economy, the higher price hotels sector may
suffer unduly. As it stands, there has been an increase in the total sales of the industry (of just
over 2% per year) but it does not follow from this that all sectors have improved. More
information is needed specifically about the 5-star sector. For example:
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Average occupancy rates

Sectoral sales and growth
New capacity in the sector
(ii)
14
Performance
HH's profit has fallen over the period 20X4-20X6, while revenue has risen. The data provides
some explanation of why this might be the case.
HH's revenue rose by 12.4% in 20X5 and by zero percent in 20X6.
In terms of performance this might be of concern, as the overall increase in revenue can be
analysed into:
Effect of price change

Effect of occupancy/volume change
Increased capacity in term of new hotels
A brief summary would be:

Price change
Volume utilisation change
Capacity change
Total revenue change
20X5
7.7%
(8.8%)
14.3%
12.4%
20X6
7.1%
(9.6%)
3.1%
0
In terms of volume of activity:

20X4
28 hotels 80 bedrooms 365 days 80% utilisation = 654,080 room nights sold
20X5
(i.e. + 4.3%)
20X6
(i.e. - 6.8%)
Thus, the volume of activity has increased in 20X5 in terms of the number of bedroom nights
but this increase in activity was not as great as the increase in capacity thus utilisation has fallen.
In 20X6 the volume of activity fell and was lower than in 20X4.
Also, despite the investment in new hotels, profit has declined in both years. An analysis of
costs is needed to make a fuller evaluation of the impact of the strategy on profit. This would
include direct costs to establish changes in margins, but also movements in fixed costs.
Activity performance
A more detailed measure of financial performance would be to determine the separate
profitability of each of the four activities: bedrooms, conferences, banquet and restaurants.
Whilst separate accounting records need to be kept for control purposes their usefulness in
determining performance is questionable as:
There is significant interdependency of revenues between the activities. For example, if

the rooms are not filled by the hotel accommodation manager, then the restaurant is also
likely to be empty.
There is likely to be significant interdependency of costs between the activities at each

hotel. Issues such as overhead allocations of floor space, usage of staff time, usage of
jointly used assets are all likely to give problems of jointness and thus cost allocation
between the activities.
There is likely to be significant interdependency of central costs for each type of activity
between each of the hotels. Thus, for instance, the costs of head office administration of
restaurant activities (such as central food purchasing) would be difficult to allocate
between the restaurants of each of the hotels.
679
Business strategy
Thus, while more information about the costs and revenues of each activity may be available, its
usefulness in assessing the separate performance of each of the activities is likely to be limited.
Benchmarks
Performance can be assessed by comparison to benchmarks. There is little information here to
assess appropriate benchmarks but with additional information comparisons might be:
Internal benchmarks comparisons of utilisation, revenue growth and profit compared

to the best performing hotel in HH. The problem with this measure is that the
performance of any hotel might be as much a function of its location, as its management
and this probably cannot be replicated. Thus, a hotel in the countryside might find it
difficult to replicate the performance of a Dhaka Hotel. Nevertheless, perhaps some
lessons could be learned.
External/competitive benchmarks compares to the industry leader in the sector

and the locality. Information might be hard to come by for a specific hotel. However,
indicators are: prices charged (e.g. list prices, frequency of discounts offered, special rates),
and utilisation (e.g. availability of all types of rooms at all time of year).
Activity benchmarks are best practice in whatever industry it is found. Most obviously
a comparison of the hotels' food provision against highly rated restaurants.
Generic benchmarks are against conceptually similar processes (e.g. dealing with VIP
guests' at a prestigious event) but this is a much looser comparison.
Future performance
The data relates to historic performance, but this is a new company attempting to develop a
new brand and strategy in a difficult market. In this context, a short series of financial results
may be atypical of the underlying strategy. Heavy advertising may be part of the explanation for
the reduced profit, but this might be part of the strategy of developing the brand into a well
known name in accordance with the mission statement.
Useful additional information in this respect would be budgets for the available forthcoming
periods and, in particular, the assumptions on which the budgets are based.
Similarly, other projections (e.g. costs, revenue, CAPEX) would be useful. Market research
could indicate whether the data that is available for past periods can be projected into the
future with any reasonable degree of reliability.
Profit achieved
While profit has declined in the period 20X4-20X6, a profit has been achieved by a new
company in a difficult market. The profit before tax as a percentage of revenue is:
20X4
20X5
20X6
10%
8.4%
7.9%
Additional information to determine the return on assets would be useful although this might
be affected according to whether all the hotels are all still owned or whether some will now be
leased. This in turn will depend on whether the leases are finance leases or off-balance sheet
operating leases.
The decline in occupancy rates is of concern. In particular, hotels have high fixed costs and thus
high operating gearing. As a result any decline in sales volumes is likely to affect profit
disproportionately, through the leveraging effect.
As already noted, the increases in prices (and more particularly the increase in prices relative to
competition) may have had a significant effect on occupancy rates. More market research is
needed, however, to establish the extent to which the decline in utilisation has arisen as a
result of price changes.
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14
Further information on prices and sales volumes would include:
(b) (i)
Individual bedroom sales prices are provided in the data but this only 'generates about
50% of total revenue'. We need to know whether HH's prices for other facilities have
risen pro rata and how competitors have changed their prices for other facilities.
The data only provides average prices, but we are told that in the business sector 'prices
tend to be higher'. We therefore need to know not just the average price but how the
pricing structure may have changed for HH and its competitors. Market segmentation
would allow HH to take advantage of price discrimination (e.g. business markets v private
markets; winter v summer pricing).
Analysing the existing sustainable competitive advantage

A sustainable competitive advantage can be achieved where there is the ability to outperform
direct competitors in the long term. In this context, the term 'competitors' is likely to be
defined in terms of the boutique or 5-star sector, rather than the industry generally given the
niche nature of the market.
The 'advantage' element can take a number of forms including cost advantage and
differentiation. The ways these are achieved may be different in different industries. In terms of
HH, it appears to be a differentiator on the basis of the services and the facilities it provides.
A sustainable competitive advantage is created where the unique resources and core
competencies attained by a company are difficult for competitors to obtain or copy.
Competitors are thus unable to compete away any strategic advantage and thereby reduce
profit. This can be achieved by developing critical success factors (CSFs) which can be defined
as:
'Those components of strategy where the organisation must excel to outperform competition.
These are underpinned by competencies that ensure this success.'
CSFs therefore concern, not only the resources of the firm, but also the competitive
environment in which it operates.
The ability to compete in a market depends upon the possession of threshold competences and
threshold resources, which are necessary to carry out the basic activities and processes to stay
in business (e.g. to provide and service hotel bedrooms). These will be possessed by all industry
participants and do not give a competitive advantage.
Unique resources are those that can give a firm a sustainable competitive advantage (SCA) over
its competitors, enabling it to meet its CSFs.
Thus, core competences are the critical activities and processes that enable the firm to meet
CSFs and therefore achieve SCA.
Given that HH is a newcomer to the industry it is difficult to achieve an immediate competitive
advantage. However, HH does appear to have successfully penetrated the industry and it is
achieving profits. Moreover, the review carried out appears to place HH towards the top of the
industry in terms of reputation.
A possible source of competitive advantage is, however, that HH is a niche player in the hotels
market as it only operates in the 5-star boutique sector. As a result, its brand name can
become more readily associated with quality than large hotel operators which tend to operate
across the spectrum of hotel sizes and quality.
There is however a downside:
If demand in the long term is strong in the boutique sector, then there appears to be few
barriers to entry into this market to prevent new entrants eroding the competitive
advantage by copying the concept. This is indicated by the fact that some recent new
entrants to the boutique sector are 'beginning to offer similar standards at prices that are
lower than HH's'.
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Business strategy
(b) (ii)
The total industry size of the boutique 5-star sector is constrained as, in the at least,
there is only a limited capacity at the top end of the market for people being willing to
spend CU150 per room per night.
There do not appear to be particular service skills which could be regarded as core
competences that could not be copied by competitors in providing a similar service.
Proposal 1 Outsourcing of the restaurants

Outsourcing involves buying in a service from external suppliers, rather than trying to create
the service internally.
The key question is whether HH has a core competence in operating hotel restaurants, perhaps
compared to the best restaurants (see activity benchmarking above).
The question here is not whether the HH's restaurants are a core activity. They clearly are.
The question is whether they are a core competence.
The survey by Zodiac would imply that high standards are being attained by HH in other areas
of its activity but not, for its sector of the market, in the restaurants. This would imply that
restaurants are not a core competence.
Prior to deciding whether to outsource restaurants, however, a number of factors need to be
considered by HH:
Can restaurants improve in future to become a core competence internally e.g. with more
resources, better management, organisational learning?
By outsourcing, HH management loses direct control over a key area of activity.

Contractual control would therefore be needed as a replacement for managerial control
in order to maintain and improve quality.
Outsourcing companies would need to supply a similar, or improved, service and still
make a profit. Their core competencies in this activity therefore need to be significantly
greater than those of HH.
The benefits of any outsourcing scheme will depend upon the terms of the contract that
can be negotiated. This will be a function, not just of the level of service that the
outsourcing company can provide, but also the amount the outsourcing company is willing
to pay to use the hotel facilities.
It will also be necessary to consider the financial risk of the contract terms (e.g. the
mixture of fixed fee and revenue dependent fee). Similarly a service level agreement will
be needed in the contract as the wider strategic requirements of the hotels (e.g. breakfast,
long opening hours) may be contrary to the interests of the outsourcing company.
With the financial support of the parent company, International Leisure Ltd, the operating
strategy has been backed by a financial strategy to expand the asset base of hotel properties
through direct purchase.
The acquisition of International Leisure Ltd, by Zodiac Inc, has meant a change in the financial
resources available to HH. In this respect, the new financial strategy may require changes in
elements of the business strategy.
In terms of core competences, however, the management of HH is more likely to possess core
competences in hotel management than in property management. In this respect, it can
continue to expand the business by expanding, and profiting from, the number of hotels being
operated in the chain, even though the number of hotels owned may actually be reduced.
The terms of sale and manage-back are that hotels will be sold in return for a long term
contract to manage the hotels on behalf of the new owners and in return for a fee based on
performance achieved. The funds liberated by sale could be used to provide additional facilities
in existing hotels and to establish new hotels under a similar management contact.
682
14
Potential issues include:
20
The benefits of the scheme are dependent of how favourable the terms are that can be
negotiated.
Due diligence will be necessary to establish to both parties the likely future profits that
can be achieved from each hotel.
At the end of the sale and manage-back contract, HH is in a much less favourable
negotiating position as it will have lost control of its major assets and may need to
competitively tender to manage-back the hotels it previously owned.
Alternatives such as sale and lease-back may be preferable as they would give more
control over the benefits generated from operating the hotels.
Trend Electricals
(Sample paper)
General comments
This question examines the scenario where a company initially manufactured low cost electric lighting but,
as it grew, it expanded into a wide product range of household electrical appliances. After a period of
internationalising production, the company changed its centralised structure into a decentralised structure
but incurred problems in the application of the new control systems.
The topics covered by the question include: the inter-relationship between corporate strategy and
organisational structure. It also covers issues of centralisation, performance measurement, and change
management.
(a)
Introduction
TE is pursuing a strategy of overall cost leadership according to Porter's generic strategy approach.
That is, the production of basic, no frills products, aimed to be delivered to the market at a lower
cost than competitors. The internationalisation of production therefore needs to be seen in the
context of this central strategy.
Benefits of internationalising production
The movement of manufacturing capacity overseas has enabled lower manufacturing costs to be
achieved. This may have included lower labour costs but also other internal costs. Cost savings
may also have arisen through increased operating efficiency.
It should be noted that cost savings may arise not just within the organisation, but also
throughout the supply chain. Thus, external costs such as materials, power and other
overheads may also be reduced by shifting operations to a different geographical market.
Access to specialist knowledge and labour because a particular country/economy specialises in

production of a particular product.
There may have been a capital gain from the sale of the old site (e.g. on land) if the cost of the
new site is lower.
The new sites are larger than the existing plants. (In 2002 average production, at sales value,
generated in Bangladesh is CU500m per plant. The overseas plants generate average production
of CU1,000m.) This may generate greater economies of scale. However, it might be that there
is no necessary causal link here with international diversification in that manufacturing capacity
could have been moved within Bangladesh to larger sites.
There are significant markets for TE in SE Asia and South America. Manufacturing locally may
make supply to customers more reliable and at lower cost.
To the extent that revenues from SE Asia and South America are matched against costs
incurred in the same currency, then exchange rate risk is reduced through natural hedging.
(This may not be the case, however, if manufacturing occurs in one country in the region and
revenues occur in another neighbouring country, where the macro economies are not
correlated.)
683
Business strategy
Problems of internationalising production
Currency risk may be an issue to the extent that matching of currencies in terms of revenues and
costs is not improved by the relocation of manufacturing.
Relocating supply has transitional problems of redundancy and other realisation costs in
Bangladesh. There are also start-up costs in the overseas plants.
To the extent that there are interdependencies between production plants then the
geographical remoteness of the overseas plants may reduce this synergy.
There may have been poor publicity from Bangladesh closures, which could have affected
reputation and employee morale.
In South America the value of production, at CU1 billion, was twice that of sales in the region
in 2002. As a consequence, the excess production of CU500 million would need to be
transported to other markets in Europe where sales exceeded production. Due to sales growth
in South America this problem had been reduced by 2006 with the excess production
decreasing to only CU300million, but nevertheless this is a significant issue in terms of risk (e.g.
exchange rates) and transport costs.
In SE Asia, production matched sales in 2002, but by 2006 sales were CU250 million in excess
of production. There is thus a mismatch between production and sales (but in the opposite
direction to South America). If the SE Asia site is at full capacity then this relocation of
manufacturing capacity only partially solved the problem of matching local sales with local
production. The shortfall causes additional transport costs and seems likely to be supplied by
South America (where there is excess product), assuming the appropriate types of goods are
being manufactured there to match demand in SE Asia.
Domestic inflation or exchange rate changes may change any cost advantage at home or
abroad.
The overseas operations may be harder to control due to geographic distance.
Possible exposure to political risk due to more unstable governments or economies. There are
different regulations regarding HRM, tax regimes health and safety.
There may be national cultural differences between Bangladesh and the new sites which may
have implications for performance, control and motivation.
Additional information
684
Information regarding the sourcing of raw materials is important. This will affect exchange rate
risk but also transport costs and risks relating to supply chains.
Costs of production and transport at each site are important to decide where marginal
production is most efficient
Information on future likely sales in each market is needed, as the figures given are short term,
whereas the decision to locate abroad is long term.
The data given only relates to total revenue, but the demand for each type of goods needs to
match its supply. For example, there may be an excess supply of DVDs in SE Asia but a
shortage of PCs. An analysis of production and sales for each type of product is therefore
needed.
14
(b) Memorandum
To
From
Date
Subject
The TE Board
A. Candidate
XX/XX/XXXX
TE The Impact of Organisational Change
The advantages and disadvantages of centralisation and decentralisation to TE

Centralisation/decentralisation refers to how much authority/decision-making ability is diffused
throughout the organisation.
In centralised structures the upper levels, such as the group board, retain authority to make key
strategic decisions. In TE prior to 2002, this was shown as it had a centralised organisational
structure with the group head office maintaining close operational and financial control over
operating divisions.
In decentralised structures the ability to make decisions (i.e. commit people, money and
resources) is passed down to lower levels of the hierarchy such as divisions. From 2004 TE moved
towards this organisational form as each subsidiary became a strategic business unit (SBU) to be
operated, reasonably autonomously, as an investment centre.
Factors affecting the degree of centralisation in TE
Strategy: A key factor is that the structure should be appropriate to the strategy. Whilst TE has
adopted a low cost strategy, there are many other aspects to the corporate strategy and the
environment of the company that should be considered in adopting an appropriate organisational
structure.
Management style: This was initially authoritarian before 2004 with tight budgetary controls. This
lends itself to the centralised structure in place in this period, which focuses control at the top of the
organisation.
Size of organisation: As size increases, decentralisation tends to increase. In the case of TE,
however, it had grown from modest beginnings to a large organisation while appearing to maintain
its centralised structure.
Extent of activity diversification: The more diversified, the more the tendency towards
decentralisation. All TE's products are in a similar market of consumer electrical goods, which would
tend towards enabling centralisation, given the degree of similarity.
A counter argument would be, however, that these markets are in fact different (e.g. PCs and
cookers) with different consumer pressures and different competitors. They may also be regarded as
being in different industries (as opposed to different markets) which require different production
skills.
Effectiveness of communication: Centralisation will not work if information is not
communicated downwards. With TE, the major means of achieving this communication appears to
be through the budgetary system.
Ability of management: The more competent the divisional managers are, the better
decentralisation tends to work. However, in the case of TE the managers may have been competent
within the old regime of implementing a strategy dictated by head office, but this does not mean they
can devise appropriate strategies
Speed of technological advancement: Lower managers likely to be more familiar with changing
technology, therefore decentralisation can mean more informed and quicker decision-making.
Geographical diversification: If locations are spread then decentralisation is normally more
appropriate, as knowledge of local conditions becomes more important and direct control from the
centre becomes more difficult. In the case of TE, however, production has become more dispersed
since 1995 thus centralisation has become more difficult, with more remote communications, a
range of cultures and reduced knowledge of local manufacturing conditions. In addition, TE's markets
are world-wide and overseas markets are growing.
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Business strategy
Advantages of decentralisation
Senior management of TE are more free to concentrate on group-wide strategy as day to day
decisions are delegated to lower levels of management.
Motivation for lower managers arises from increased delegation/responsibility.
Local expertise of managers improves decisions based on local knowledge.
There are quicker and more effective responses to local conditions.
Career paths for managers/employees are enhanced by greater early responsibility and greater
exposure to autonomous decision making in local markets.
Disadvantages of decentralisation
It may be more difficult to co-ordinate the TE organisation, as many managers are making
separate operating and marketing decisions rather then just a few centralised decisions.
Incongruent decisions i.e. different levels of management may pursue different objectives.
This may be a problem for TE where they are selling different products into the same market
or even the same customer.
Loss of control by senior management whose experience in strategic decision making is no

longer directly applied.
Complicated structures may be necessary across the globe to implement, enforce and control
operating decisions.
Problems with transfer prices (see below).
Evaluating divisional performance becomes difficult (see below).
Duplication of some roles (e.g. administration).
In pursuing a low cost strategy there may be significant economies of scale from centralised and
collective activity (e.g. in sourcing some common raw materials in bulk from suppliers) and
economies of scope (e.g. in common distribution systems of electrical goods from different divisions
to similar regions or even the same customer). These may be lost with decentralisation.
Measuring the financial and strategic performance of divisions
Pre 2004
Hopwood considered the way in which budgetary systems are used to assess divisions and their
managers. Three distinct styles are identified:
Budget constrained style: The primary emphasis is on a manager's ability to meet the budget in
the short term.
Profit conscious style: Performance is measured in terms of overall ability to improve long-term
effectiveness and profitability of an area of responsibility.
Non-accounting style: Performance is measured in ways other than financial budgets.
Pre 2004, the company appeared to have adopted a budget constrained style, whereas after 2004 it
seemed to change to something like a profit conscious style.
The effects of the two styles according to Hopwood are as follows
Budget constrained
Profit conscious
Involvement with costs
High
Medium
Job related tension
High
Medium
Manipulation of data
Significant
Some
Poor
Reasonable
Relationships with superiors
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14
Contingency theory however argues that the budgetary style should be appropriate to the
circumstances of the company. Thus, in a dynamic market such as consumer electrics a budget
conscious style may be inappropriate as the underlying assumptions of the budget may be rendered
invalid by rapid market and technology changes. This may lead to tensions.
Thus appraisal according to strict budgets may have seemed appropriate to TE initially, due to the
low cost strategy. However, this has become less valid due to rapid changes in markets and
technology and had been causing tension. As such, by 2004 this approach was no longer working for
TE and was likely to be causing an increase in costs, albeit indirectly.
Post 2004
After 2004 divisions were measured on the basis of a mixture of financial measures:
(i) Profit after interest charges
(ii) Revenue growth and
(iii) Average production cost per unit of output.
The use of profit after interest charges is consistent with the adoption of divisions as investment
centres as it requires divisional managers to take investment decisions but charges them for capital
used.
However, one needs to be careful to charge interest on a comparable basis for externally raised
finance and for head office finance, as one is an actual interest charge while the other is an imputed
charge.
Profit after interest charges
This suffers many of the same problems as accounting profit:
Valuing assets at historic cost or current value

Depreciation method may be arbitrary and based on historic cost
Which assets to include in capital employed
There may be manipulation of accounting policies
The interest rate used is difficult to determine
Revenue growth
Over-emphasis on revenue growth may lead to revenue maximisation rather than profit
maximisation (although the other two criteria are a control on this).
It may however give an indication that market share is significant and that growth and size may be
important in the long run to gain scale economies.
Average production cost per unit of output
In a low cost strategy, an emphasis on costs may be appropriate. However, where fixed costs are
high, this measure is sensitive to changes in volume of output as fixed costs per unit are likely to rise.
Evaluation
Unfortunately, use of these measures immediately post 2004 appears to have led the divisions to
focus too much on the short term, as evidenced by the lack of investment in fixed assets and R&D.
This is likely to have an impact on TE's longer-term ability to sustain its competitive advantage and
may be undesirable. TE needs to consider its strategic performance as well as its financial
performance and as a result strategic performance measures also need to be considered.
Measures of strategic performance
All the measures of performance are financial measures. A balanced scorecard approach, for
instance, may be appropriate to measure other attributes which capture wider strategic
performance. These include:
Customer perspective
Innovation and learning perspective
Internal business perspective
Financial perspective
687
Business strategy
In the same vein, the financial measures of performance are all short term, thus the concern
that arose about lack of investment and short term decision making may have as much to do
with the methods of performance measurement as the cost of capital or the central recharging
mechanism. Measuring performance over a longer period would better measure strategic
performance.
There appears to be little evidence of trading between operating divisions so transfer pricing is
not a major issue in performance measurement but organisational strategy may be an issue if
inter divisional trading becomes significant.
Managing the change process in 2004

The change was both fundamental and rapid.
It was not only a change in organisational structure in TE but also a change in culture from one of
centralised management to one of divisional autonomy.
It would seem that many of the problems arose, not from the nature of the changes, but from the
manner and speed of their implementation.
More specifically:
The management personnel in place appeared unable to fulfil their new roles and many left or
were removed in the following year. This may have been because they were the wrong people
for the new roles or it could have been a lack of investment in education and training for the
new roles.
It appears that the changes were decided at board level and thus it is not clear that there was
much participation in the decisions from the divisional heads who would be implementing the
new policy.
The changes could have been introduced piecemeal to reduce the transitional problems such
that autonomy was transferred progressively rather than suddenly.
The reversal in 2005 of some early decisions appeared to indicate that early errors were made
and the behavioural impacts of the new system were not fully anticipated.
Pricing head office services

The initial pricing of head office services appears to have been too high as few divisions chose to
purchase them and they also chose to raise finance outside the group.
The divisions were only being charged at full cost (i.e. no profit) and yet they appeared to be
acquiring the same services from outside providers (who were presumably making some profit) at
lower cost.
This may be indicative that head office had been operating inefficiently under the old regime by being
able to recover all its costs by internal charge, as the divisions then had no choice.
As a result, the pricing seemed excessive in market terms.
An alternative explanation might be behavioural in that divisional heads wanted reduced dependence
on the head office, and thus they may have wanted to reduce links by acquiring services from outside
the group.
The move to variable cost pricing appears to have swung the pendulum in the opposite direction
with excessive use of head office services using the low variable cost pricing basis.
This could have unfavourable long-term effects as it may lead to:
Unwarranted over-investment due to an excessively low cost of capital.

Excessive use of services where the cost to the group exceeds the benefit to the divisions.
Acquiring head office services is optional, thus it should not distort divisional performance adversely
(as divisional managers would purchase from outside the group if the head office attempts to charge
excessively.) It may, however, in the longer term distort performance measures favourably as
services and finance are being offered at below market rates in 2005 and after.
688
14
Summary
The change in structure for TE is not a change in strategy of itself, but a change in the means for
engaging in a strategy. Nevertheless, it involves a change in corporate culture, incentives,
performance measurement and ultimately, in all probability, a change in the strategy of many SBUs.
The results of such changes are unlikely to emerge in full within a few years and thus a longer term
assessment of the changes may be necessary. Even then, one does not have a 'counter factual' (i.e.
what would have happened if the old structure had been maintained for comparison). Indications
were, however, that there would have been increasing problems in continuing to pursue the
previous centralised policy.
689
Business strategy
Answers to Interactive questions
Answer to Interactive question 1

Ford
Forced: They are reacting to external competitive and environmental changes and the results will be a
significant change in the way Ford is structured and its overall size.
Tesco
Planned: It is proactive, aimed at seizing an opportunity, and given the size of the US and Chinese markets it
will change the character of Tesco in terms of size but also its global profile.

Reframing
The major reframing is the term 'commercial business' which implies making profits as the primary goal, or at
least providing as good a service as competitors in a de-regulated environment.
The ensuing strong emphasis on profits and termination of loss-making activities underlines this.
Management needs to consider how to make this a goal that staff will wish to support. In fact, Allan Leighton
had hoped to issue shares to all Post Office staff to give them a stake in profits but was overruled by the UK
Treasury. This was taken as a set-back for him although he is hoping to offer staff 'phantom shares', in effect
non-tradeable rights to shares of profits.
Restructuring
None obviously stated although references to automated sorting suggest there are changes here. In fact, there
has been major restructuring with closures of thousand of network post offices, integration of services, closure
of entire administrative and sorting offices.
Revitalising
'Competing successfully in an open mail market is going to be even more difficult. We've a mountain to climb
and we've only reached the base camp.'
Renewal
The statements are clearly inclusive and emphasise gaining staff commitment. There are new financial control
systems and new reward structures.

Driving forces for change:
Technological developments raising customer expectation, irritated customers,

new innovative staff member.
Restraining forces:
Partners' habits and possible fear of the unknown, possible concerns over
expense.
Eva should strengthen the driving forces by stressing to the partners the level of clients' concerns and gain the
support of the secretaries in encouraging the partners to consider the system.
The restraining forces should be weakened by producing costings, and explaining clearly how the system would
work and what benefits would arise.
690

Chap - 14 Strategies For Change

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chapter 14

Strategies for change

The need for change

Strategic change in organisations

Change and the individual

Summary and Self-test

The Institute of Chartered Accountants in England and Wales, March 2009

Describe the key stages in a change management project

Specific syllabus references for this chapter are: 3h, k, l.

Stop and think

The Institute of Chartered Accountants in England and Wales, March 2009

STRATEGIES FOR CHANGE

The Institute of Chartered Accountants in England and Wales, March 2009

1 The need for change

The sources of change are both internal and environmental.

Change must be handled carefully to avoid the organisation being overwhelmed.

The need for an organisation to change or develop

Case study: Ford Motor Company

The Institute of Chartered Accountants in England and Wales, March 2009

STRATEGIES FOR CHANGE

Case study: Tesco goes global

The Institute of Chartered Accountants in England and Wales, March 2009

Interactive question 1: Types of change

[Difficulty level: Easy]

Ford Motor Company turnaround strategy

Tesco's entry into the US and Chinese markets

See Answer at the end of this chapter.

Levels at which change efforts may focus

The Institute of Chartered Accountants in England and Wales, March 2009

STRATEGIES FOR CHANGE

2 Strategic change in organisations

Therefore most change models seek to describe stages of psychological transition.

These stages may be the focus of planned change management initiatives.

The Institute of Chartered Accountants in England and Wales, March 2009

The three-stage approach (iceberg model)

Someone to challenge and expose the existing behaviour pattern

The involvement of outsiders

Alterations to power structure

Adaptive change approach

Convince the others of the crisis and prepare preventative measures.

The Institute of Chartered Accountants in England and Wales, March 2009

STRATEGIES FOR CHANGE

Coercive change approach

Underestimation of the forces of resistance

Defining the problem

Worked example: ASDA

The Institute of Chartered Accountants in England and Wales, March 2009

Reviewing and monitoring the progress of the change

The Gemini 4Rs framework for planned strategic change

Achieve mobilisation: Create the will and desire to change.

Revitalising is the process of securing a good fit with the environment:

Achieve market focus.

Create a reward system in order to motivate.

The Institute of Chartered Accountants in England and Wales, March 2009

STRATEGIES FOR CHANGE

Worked example: UK Royal Mail

Make Royal Mail 'a great place to work',

'We're delivering on all our objectives,' said Mr Crozier.

The Institute of Chartered Accountants in England and Wales, March 2009

Interactive question 2: Transforming the Royal Mail [Difficulty level: Intermediate]

3 Change and the individual

How change affects individuals

Physiological changes: Pattern of shift-working, location of place of work