DO NOT OPEN THIS QUESTION PAPER UNTIL YOU ARE TOLD TO DO SO

Enterprise Pillar
E3 – Enterprise Strategy
18 November 2014 - Tuesday Morning Session
Instructions to candidates

E3 – Enterprise Strategy
You are allowed three hours to answer this question paper.

You are allowed 20 minutes reading time before the examination begins
during which you should read the question paper and, if you wish, highlight
and/or make notes on the question paper. However, you will not be allowed,
under any circumstances, to open the answer book and start writing or use
your calculator during this reading time.

You are strongly advised to carefully read ALL the question requirements
before attempting the question concerned (that is all parts and/or sub-
questions).

ALL answers must be written in the answer book. Answers written on the
question paper will not be submitted for marking.

You should show all workings as marks are available for the method you use.

The pre-seen case study material is included in this question paper on pages
2 to 6. The unseen case study material, specific to this examination, is
provided on pages 8 to 10.

Answer the compulsory questions in Section A on page 11. This page is

detachable for ease of reference.

Answer TWO of the three questions in Section B on pages 14 to 19.

Maths tables and formulae are provided on pages 21 and 22.

The list of verbs as published in the syllabus is given for reference on

page 23.

Write your candidate number, the paper number and examination subject title
in the spaces provided on the front of the answer book. Also write your
contact ID and name in the space provided in the right hand margin and seal
to close.

Tick the appropriate boxes on the front of the answer book to indicate the
questions you have answered.
126493

TURN OVER

© The Chartered Institute of Management Accountants 2014

Pre-seen case study

Introduction
Y was formed in 1900. It manufactures and sells top quality confectionery. For many years, Y
has been recognised as a successful company and has become a household name particularly
throughout Europe. Its fame is built on the very high quality confectionery products it sells
through its own high street stores (some of which it owns and some which it leases). Y has just
over 3,500 employees.

All of Y’s products are manufactured in its factory in the European country in which it is based
(which is in the eurozone). The products are distributed through a multi-channel network
comprising of Y’s own stores and ‘online’ business, franchises and retail partners. In addition, Y
has now started to supply confectionery to large retail stores and supermarkets on a contract
basis. These stores sell Y’s products and also ‘own brand label’ confectionery that Y
manufactures for them.

Y’s product range includes a wide variety of milk, white, plain and diabetic chocolate products.
Previously Y’s main sales had been chocolate products but now the company has expanded
into producing other forms of confectionery which do not contain chocolate in any form, for
example cakes and other sweets (candies). Y’s customers continue to have strong regard for
the quality of its products.

Although Y exports its products throughout the world, its largest market is within Europe. Y’s
customers vary from individuals to corporate clients which purchase Y’s products to present to
their own clients as corporate gifts. Although individual customers buy from Y’s stores,
franchises or online, corporate clients purchase goods directly from Y on a contract basis.

Business structure
Y has a simple business structure. It has a head office (which includes its corporate treasury
function) and two divisions: Direct Customer Sales (DCS), and Manufacturing and Commercial
(MC). The activities of each division are as follows:

DCS
DCS has the following sales outlets:
• Y’s own stores
• Franchises
• Online sales

MC
MC undertakes all purchasing of ingredients and manufacturing of Y’s products. It then supplies
these products
internally to:
• DCS for its sales through its own outlets
externally to:
• Corporate clients
• External retail stores and supermarkets which sell Y’s products under Y’s own label and
also under the stores’ own labels.

Both divisions are investment centres but have limited capital investment authority, for
expenditure up to EUR 10,000 per item. Major capital investments, above EUR 10,000 per item,
have to be authorised by head office.

DCS does not allow any of its outlets to make any capital investment at all without its prior
approval. Each of DCS’s sales outlets is regarded as a profit centre, including online sales
which is a single profit centre in its own right. Brand development is carried out by both of the
divisions. Any brand development costs, such as promotion, above EUR 10,000 must be
approved at head office.

November 2014 2 Enterprise Strategy

The decline of high street sales has led Y to reduce the number of its stores and expand other
sales outlets. This has resulted in some staff being re-trained and re-deployed. Y currently has
just over 300 of its own stores and fewer than 200 franchises. It also has developed its own
website. This has been very popular and has enabled its international business to grow. In
addition, as internet shopping has become more popular, Y has been able to develop its online
sales business and has introduced ‘click and collect’ services using its stores and franchise
businesses as the collection points.

Mission, Aim and Objectives

Y’s mission statement, agreed by the Board of Directors last year is:

“To delight customers by providing luxurious products which strengthen the brand.”

Y’s overall aim is to increase shareholder value by improving profit margins through increased
sales and reduced costs. Despite the difficult economic conditions in Europe, the chocolate
market has continued to grow in the last five years. Y’s customers engage particularly with
chocolate products in response to austere economic conditions seeing them as an affordable
alternative to higher priced gifts. Y is now placing greater emphasis on trying to ‘de-seasonalise’
its sales by not being reliant on the seasonal peak sales periods. Y is encouraging customers to
buy its products throughout the year through all of its sales channels. This demands a strong
focus on developing brand awareness.

Y intends to achieve the continued development and growth of its business by meeting two
strategic objectives which are to:

1. Engage with the widest range of customers through the development of Y’s markets
and products through a wide variety of sales channels. The focus of this is on the
delivery of products the customer demands, where they are required and when they are
wanted.
2. Enhance the customer experience through strong and effective customer relationship
management. The focus of this is on clear and consistent branding and marketing to
encourage customer retention and loyalty all the year round.

Y’s Board and Divisional Management

The Board comprises a non-executive Chairman, a newly appointed Chief Executive, the
Managing Directors of the two divisions, the Finance Director and three non-executive directors.
The company applies good corporate governance principles and practice and the Board has a
committee structure which includes an Audit Committee.

The divisional structures reflect their different activities. The Managing Director of each division
has a team comprising three divisional directors covering the functions of Finance, Human
Resources and Information Technology. In addition, the DCS division has three divisional
directors, one each responsible for Y’s stores, franchises and online sales. In addition to the
divisional directors for Finance, Human Resources and IT, the MC division has three divisional
directors, one responsible for procurement, one for manufacturing and one for commercial
clients, retail stores and supermarkets. The structure for Y’s Board and its divisions is presented
at Appendix 1.

Financial overview
Extracts from the statement of profit or loss for the year ended 31 December 2013 and
statement of financial position as at 31 December 2013 are shown in Appendix 2. They show
that in the last financial year, Y achieved an operating profit margin of 12% and profit after tax of
7.7%.

Despite its best efforts in heavily re-investing in the business, Y’s bottom-line profit has
stagnated. The Board is concerned that the expected actual profit for the year ended 31
December 2014, when compared with the forecast, is not looking as promising as was first
thought. The Board is also mindful that some of Y’s borrowings are due for re-payment in 2015.

Enterprise Strategy 3 November 2014

In response to these concerns, the Board of Directors has determined the following financial
objectives for Y:

• That it should operate on a sound financial basis in order to increase profit and
shareholder value.
• That it should pay a regular and consistent dividend each year.

Environmental and Corporate Social Responsibility

Y aims to carry out its business with as little damage to the environment as possible and to
operate in a fair manner with regard to all its stakeholders. It is keen to ensure that each of its
suppliers adheres to high ethical and environmental standards with regard to sources of
materials and treatment of employees.

Y imports cocoa from Africa and Indonesia. Y has initiated schemes to encourage sustainable
farming of cocoa and farmers are being trained in effective agricultural methods. The
introduction of an industry approved certification programme has enabled farmers to achieve
higher levels of income from increased production and to access additional training directed at
improving their production yields. All raw materials sourced from Africa and Indonesia are priced
in US Dollars (USD).

All of Y’s products contain only the ingredients listed on the packaging. The packaging also
shows nutritional content and gives advice on recommended volumes of consumption. Y tries to
ensure that the packaging used for its products is recyclable and kept as minimal as possible to
balance concerns over material usage with commercial marketing requirements.

Environmentally friendly lighting has been introduced in Y’s factory which has reduced
consumption of electricity and emission of carbon dioxide.

Y has introduced annual independent health and safety audits in its factory and retail outlets. All
factory staff have undertaken food safety and health and safety in the workplace training at the
required industry standard level. Workplace benefits, such as life and medical insurance, staff
discounts and membership of local gymnasia, as well as competitive salaries and wages are
offered to all of Y’s employees.

Strategic developments
In order to achieve its overall mission, aim and objectives, Y intends to expand its online
channel to increase its sales to corporate clients and external retail stores and supermarkets.
These sales yield a higher margin than that achieved through sales in Y’s own high street
stores. The Board also intends to further rationalise the number of its high street stores.

November 2014 4 Enterprise Strategy

 Appendix 1

STRUCTURE CHART FOR Y

Board of Directors

Non-Executive Chair
Chief Executive
Finance Director
Managing Director (DCS)
Managing Director (MC)
3 Non-executive directors

Direct Customer Sales Division Manufacturing and Commercial

Division

Managing Director DCS Managing Director MC

Divisional Directors of: Divisional Directors of:
Finance Finance
Human Resources Human Resources
Information Technology Information Technology
Y’s Stores Procurement
Franchises Manufacturing
Y’s Online Sales Corporate clients, external
retail stores and supermarkets

Enterprise Strategy 5 November 2014

 Appendix 2

Y's statement of profit or loss and statement of financial position

Statement of profit or loss for the year ended 31 December 2013

EUR 000
Revenue 248,589
Cost of sales (128,523)
Gross profit 120,066
Operating costs (90,239)
Operating profit 29,827
Finance income 120
Finance costs (5,008)
Profit before tax 24,939
Tax (5,736)
PROFIT FOR THE YEAR 19,203

Statement of financial position as at 31 December 2013

EUR 000
ASSETS
Non-current assets
Intangible assets: goodwill 2,407
Property, plant and equipment 158,822
Total non-current assets 161,229
Current assets
Inventories 44,856
Trade and other receivables 21,348
Cash and cash equivalents 12,368
Total current assets 78,572
Total assets 239,801

EQUITY AND LIABILITIES

Equity
Share capital (EUR 0.5 shares) 31,122
Share premium 12,120
Retained earnings 42,101
Total equity 85,343

Non-current liabilities
Borrowings 116,484
Provisions for liabilities 2,294
Total non-current liabilities 118,778
Current liabilities
Trade and other payables 33,936
Provisions for liabilities 1,744
Total current liabilities 35,680
Total liabilities 154,458
Total equity and liabilities 239,801

End of pre-seen material

The unseen material starts on page 8

November 2014 6 Enterprise Strategy

 This page is blank

Enterprise Strategy 7 November 2014

SECTION A – 50 MARKS
[You are advised to spend no longer than 90 minutes on this question]
ANSWER THIS QUESTION

Question One
Unseen case material
Y intends to continue to develop through the delivery of the two strategic objectives (pre-seen
page 3) to ensure the continued growth of the business. The two strategic objectives are:

• Strategic objective 1 (SO1): To engage with the widest range of customers through the
development of Y's markets and products through a wide variety of sales channels. The
focus of this is on the delivery of products the customer demands, where they are
required and when they are wanted.

• Strategic objective 2 (SO2): To enhance the customer experience through strong and
effective customer relationship management. The focus of this is on clear and consistent
branding and marketing to encourage customer retention and loyalty all the year round.

Y’s sales development strategies

Y currently operates its own retail stores and a number of franchise outlets on the high streets of
towns and cities throughout Europe. Due to the continued challenges to the European economy,
Y’s sales on the high street have been reducing annually for the last 5 years. Despite this, Y
believes that its retail stores are a vital sales channel. Therefore, Y has decided that investment
in its retail stores and employees must be made to improve the customer experience and the
brand image. This will be achieved through engaging better with customers in the retail stores
and providing a wide range of high quality products. Y is proposing to close 30 to 40 of its own
retail stores during the course of the 2015 financial year and focusing upon ensuring that the
remaining stores are in the best locations to attract customers.

In the last two years, Y has seen a growth in the sales of its own label products to supermarkets.
It is predicted that sales of Y’s own label products in supermarkets will have grown by 10% by
the end of 2014, as a result of Y increasing its distribution network to a wider range of
supermarket chains and through supplying a greater variety of its year-round products. Y
anticipates further growth in its sales to supermarkets and intends to continue to invest in
improving its expertise in managing its supermarket customer accounts.

Y operates a website, through which it sells a wide range of products. This has proved to be a
very successful sales channel since its launch in 2012. Y is keen to develop its e-business sales
channel and is considering using the website to sell an even wider product range including gift
hampers. Y considers that its website will play an important role in the development of its
international sales to individual customers.

Y’s international sales are anticipated to grow strongly in the next 2 years. Y aims to invest in a
structured country-by-country approach and learn from its experience as it progresses. Over the
past year, Y has been encouraged by the number of sales achieved in international markets,
particularly from international supermarket sales.

In the last year, Y has started to manufacture luxury hand-made products for other external retail
stores, some of which sell these products under their 'own brand' labels. This is an opportunity
for Y to create innovative products but the Board realises that this is likely to require investment
in staff training and facilities.

Y is planning to open 6 ‘Y Cafes’ in city centre locations within its home country within the first 3
months of 2015 with plans for further expansion later in the year. These will sell a range of Y’s
products as well as offering food and refreshments and other gift items.

November 2014 8 Enterprise Strategy

Potential orders from new customer Z and customer Q

New customer Z
Y is currently in discussions with Z, an exclusive and world famous department store, located in
the capital city of its home country. Z has built its reputation on selling only the highest quality
products to its customers. Z is considering purchasing from Y, 3,000 boxes per month for the
next 3 months of each of three types of luxury hand-made chocolate products. All three product
types would not be sold under Y’s own label but would be sold as Z’s ‘own brand’ chocolates.
The Divisional Director for corporate clients, retail stores and supermarkets within the MC
Division, believes this to be an excellent opportunity to supply products to a highly prestigious
corporate customer. Z has stated that it will consider purchasing more luxury hand-made
chocolate products from Y in the future but it would be unlikely that these would be the same
products as the three currently being considered.

Customer Q
Y is also currently in discussions with Q, the leading supermarket chain based in its home
country, to supply the same three types of luxury hand-made chocolate products for the next 6
months. These would be sold in Q’s supermarkets under Y’s own label. Y already sells a range
of its boxed chocolates to Q. This would be the first time Y has been asked to supply luxury
hand-made products to Q. Y has a very good relationship with Q, having supplied it with a wide
range of products for the last 3 years.

Q predicts that it could sell 6,000 boxes per month for the next 6 months of each of the three
products. Initially, these would be sold in only a few of its largest supermarkets. Q is confident
that these products will prove to be successful in the first 6 months, and expects that the
products would then be rolled out to more of its supermarkets across Y’s home country as
demand increases.

Details of the three types of luxury hand-made chocolate products are as follows:

Product 1 2 3
EUR/box EUR/box EUR/box

Selling price 26.00 32.00 37.00

Direct labour (EUR 8/hour) 12.00 14.00 14.00

Material A (EUR 3/kg) 0.75 0.75 1.50
Material B (EUR 6/kg) 3.00 3.00 3.00
Material C (EUR 10/kg) 1.00 3.00 5.00
Variable overhead (EUR 2/hour) 3.00 3.50 3.50
Apportioned fixed overhead 1.00 1.00 1.00
20.75 25.25 28.00
Operating profit 5.25 6.75 9.00

Temporary shortage of Material C

The management of Y is aware that there will be a temporary shortage of Material C for the next
3 months, and that a maximum of 5,500 kgs will be available in each month. Material C is
sourced from a South American country which has experienced adverse weather conditions
recently and this has limited the amount of Material C available. There are no suitable alternative
materials which could replace Material C in the next 3 months. Y does not hold inventories of
raw materials A, B or C or the final product due to their perishable nature.

Y’s customer relationship management

Customer retention and loyalty are critical to Y. The Board recognises that one of the most
important determinants of its future growth is encouraging customers to buy more frequently and
to buy its products all year round. It believes that the best way to achieve this is through strong
and effective Customer Relationship Management (CRM), as it has set out in Y’s Strategic
Objective 2 (SO2).

TURN OVER

Enterprise Strategy 9 November 2014

Y considers that a key factor in building and managing strong customer relationships will be the
continued development and use of Y’s website. Y strongly believes that e-business will be a key
feature of strengthening and building strong customer relationships, ensuring customer retention
and strengthening its reputation as a year-round confectionery retailer.

End of unseen material

The requirement for Question One is on the opposite page

November 2014 10 Enterprise Strategy

 Required

(a) Evaluate, using Ansoff's product / market directional growth matrix, the extent to which
Y's sales development strategies could assist in achieving its two strategic objectives.
(18 marks)

(b) (i) Calculate:

• the optimum production mix and resulting contribution for the next 3 months,
assuming that Z and Q both place orders with Y, but priority is given to fulfil
Z's order in full.

• the optimum production mix and resulting contribution for the next 3 months,
assuming that Z does NOT place an order with Y, allowing Y to manufacture
Q's order only.
(12 marks)

(ii) Evaluate the operational and strategic implications for Y of

• fulfilling an order to supply Z in full.
• fulfilling an order to only supply Q.
(14 marks)

(c) Recommend, with reasons, TWO functions that should be included in Y's website to help
Y to build and manage its relationship with its online customers.
(6 marks)

(Total marks for Question One = 50 marks)

(Total for Section A = 50 marks)

End of Section A
Section B starts on page 14

TURN OVER

Enterprise Strategy 11 November 2014

 This page is blank

November 2014 12 Enterprise Strategy

 This page is blank

TURN OVER

Enterprise Strategy 13 November 2014

SECTION B – 50 MARKS
[You are advised to spend no longer than 45 minutes on each question in this section]

ANSWER TWO OF THE THREE QUESTIONS – 25 MARKS EACH

Question Two
P is an IT consultancy business based in Country M’s capital city. P specialises in consultancy
activities relating principally to database management and IT security. Since its formation in
2004, P has grown organically and has built a strong reputation within its two areas of
specialisation. Competition is strong in the IT consultancy industry and P faces competition from
a number of local and international IT consultancy businesses operating throughout Country M.

P employs highly qualified and skilled IT staff, whose time is charged out to clients on an hourly
basis. P’s clients expect high quality service delivery and many also require P to be available to
respond 24 hours a day, 7 days a week. P has been highly innovative in the last few years, with
a number of its IT staff building upon their areas of expertise and knowledge to develop new
opportunities in P’s IT consultancy portfolio. These new consultancy activities are in the areas of
big data and cyber security.

P’s five senior partners hold monthly meetings in which they discuss performance. At these
meetings, the five senior partners mainly focus upon comparing actual performance versus
budgeted performance for the revenues and profit generated by P. The partners also review the
latest market share and client feedback information, based upon client surveys carried out each
month.

P’s IT staff are paid an annual salary and individual bonuses are also paid, based upon a team
manager's assessment of each individual’s performance and achievement of targets throughout
the year. It is rare that bonuses are not paid and most IT staff are not consulted directly by their
team manager regarding their targets. The five senior partners receive a fixed salary and a
bonus based upon the overall annual business profits.

At a recent monthly meeting, the five senior partners discussed performance targets for P for
2015. One of the founding partners, who had recently returned from a conference attended by a
range of consultancy businesses, expressed concern that P’s existing performance information
is not focussed on the key activities of P’s business. He believes that as a service business, P
must focus upon a wider range of dimensions beyond just market share and financial
performance.

The requirement for Question Two is on the opposite page

November 2014 14 Enterprise Strategy

 Required
(a) Explain FOUR characteristics of a service business, using P to illustrate your
answer.
(8 marks)

(b) Evaluate the current process used by the five senior partners when reviewing P's
performance and the current process used to set targets.
You should use Fitzgerald and Moon's 'Building Block Model' to assist in
structuring your answer.
(11 marks)

(c) Recommend, with reasons, TWO suitable performance measures which could be
used to assist P in measuring those areas of its business in which it must succeed,
in order to remain competitive.
(6 marks)

(Total for Question Two = 25 marks)

Section B continues on page 16

TURN OVER

Enterprise Strategy 15 November 2014

Question Three
M is a retailer of children’s games and toys, with stores located in many cities throughout the
world. The games and toys which M sells are sourced from hundreds of suppliers from around
the world. M works closely with its supply chain to ensure that all of its suppliers of games and
toys understand and adhere to M’s high ethical standards.

All of M’s suppliers are monitored regularly to verify their compliance in areas such as fair and
proper treatment of employees. These include fair wage payments and adherence to local
working hours laws, health and safety training and non-discrimination activities. M also has strict
policies that suppliers are prohibited from offering bribes, gifts, or favours to gain a competitive
advantage with M.

M is currently in discussions with B, a family run business in Eastern Europe to supply a range of
traditional wooden toys including rocking horses and dolls' houses. This order would provide B
with guaranteed work over the next two years for its current 100 factory employees. B has a
reputation for high quality products and has made toys for a number of other retailers throughout
Europe. It is owned and run by Mr Fox, the son of the original founder of the business. Mr Fox
has worked for B for 35 years. He has a very strong belief in the family traditions of the business
and although B has a senior management team, Mr Fox makes most of the key business
decisions himself, with limited consultation with the senior managers. Most of B’s current senior
management team have worked at B for fewer than five years.

In the recent economic recession, over 50 employees were made redundant by B. The
remaining 100 factory employees have not received a pay rise for the last three years and most
are paid at the national minimum wage rate. A large proportion of B’s employees have worked
for B for many years and are highly skilled. Over 70% of B’s factory employees are over the age
of 50. B’s employees sometimes work overtime for no additional payment and most fear that if
they don’t do unpaid overtime they would lose their jobs. Investment in staff training, in particular
in health and safety procedures, has reduced dramatically in the last three years and few staff
have any formal qualifications. Unemployment levels in the country within which B is located are
currently very high. Mr Fox frequently reminds staff, in the monthly news bulletin posted on
notice boards throughout the factory, that they are lucky to work for such a prestigious and long-
standing family-run business.

M’s supplier inspection team undertakes a factory visit prior to placing an order with any new
supplier. Prior to a planned visit to B, Mr Fox called all of B’s employees to a meeting in which
he informed them that if M were to place an order with B, then this will save the business from
closure. B’s employees were instructed not to discuss with M’s inspection team the overtime
they regularly worked and many of B’s employees felt threatened that they would lose their jobs
if they did so.

During the visit by M’s supplier inspection team to B’s factory a few days later, Mr Fox offered to
pay for trips to expensive and exclusive restaurants and attractions for M’s inspection team,
whilst they were visiting the country.

M’s inspectors were highly impressed by the quality of the output produced by B and by the
loyalty and commitment demonstrated by B’s staff. However, they had a number of serious
concerns with B’s company culture and its ability to comply with M’s ethical standards. Before
any decision is made about selecting B and placing an initial order, M’s inspection team must
consider a range of ways in which it could help B to meet M’s ethical standards.

The requirement for Question Three is on the opposite page

November 2014 16 Enterprise Strategy

 Required
(a) Discuss how the recent actions of Mr Fox would compromise M's requirement that
its suppliers act in accordance with M's high ethical standards.
(6 marks)

(b) Evaluate each of the relevant aspects of B's current cultural web and advise on the
ways in which it would need to change to enable B to meet the high ethical
standards M sets for its suppliers.
(10 marks)

(c) Recommend, with reasons, THREE ways in which M could assist Mr Fox to
improve his and B's ethical standards.
(9 marks)

(Total for Question Three = 25 marks)

Section B continues on page 18

TURN OVER

Enterprise Strategy 17 November 2014

Question Four
C is an organisation which owns and operates a world famous tourist attraction of historic
interest located in Country A. The tourist attraction is an ancient castle set within landscaped
gardens and a large area of parkland. The grounds contain a large adventure playground for
children, three cafes and a large shop in which visitors can buy a range of gifts. There is also a
large function room, where business conferences and weddings are regularly held. In the
summer of 2015, C intends to open a number of holiday lodges located within the grounds.

C has over 10,000 season ticket holders, who are customers that buy an annual pass which
allows them to enter the attraction on as many occasions as they wish throughout the year. Most
season ticket holders are local people who enjoy the peace and tranquillity of the location. Most
season tickets are purchased by retired people or by parents with young children.

C holds large pop music concerts once or twice per year which often attract thousands of young
people. It also regularly runs a variety of children’s events throughout the holiday and festive
periods.

C’s current website was set up 5 years ago. The website is informational, outlining all of C’s
facilities, opening times, contact details and C’s forthcoming events. There are currently no
online booking or contact facilities for customers on the website. Customers who wish to buy
tickets for events and concerts or book conferences must do so by telephone or through
personal visits to C.

C recently appointed a marketing manager, J, who has worked in the travel and tourism industry
for 20 years. J was surprised to find that C does not undertake any analysis of its customer
segments and that its advertising and marketing efforts are largely focused on very traditional
methods. These include advertisements in regional and national newspapers, in magazines and
on radio and through marketing leaflets and brochures.

J wishes to undertake an immediate review of C’s marketing strategy. He believes that through a
better understanding of its customer segments it could target its customers more effectively. J
also believes that C should use the Internet more effectively to engage with its customer
segments, using an e-business approach.

The requirement for Question Four is on the opposite page

November 2014 18 Enterprise Strategy

 Required
(a) Advise C of the importance of understanding its customer segments. Your answer
should include advice to C on the most appropriate ways in which C could segment
its customers.
(9 marks)

(b) Discuss the benefits for C of employing an e-business approach to engage with its
customer segments.
(10 marks)

(c) Recommend, with reasons, TWO different types of Web 2.0 technologies which
could be used by C to engage with its customers more effectively.
(6 marks)
(Total for Question Four = 25 marks)

End of Question Paper

Maths Tables and Formulae are on Pages 21 and 22

Enterprise Strategy 19 November 2014

 This page is blank

November 2014 20 Enterprise Strategy

MATHS TABLES AND FORMULAE
Present value table
Present value of $1, that is (1 + r)-n where r = interest rate; n = number of
periods until payment or receipt.

Periods Interest rates (r)

(n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909
2 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826
3 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751
4 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683
5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621
6 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564
7 0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.513
8 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.467
9 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.500 0.460 0.424
10 0.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.386
11 0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350
12 0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.319
13 0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.290
14 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.263
15 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239
16 0.853 0.728 0.623 0.534 0.458 0.394 0.339 0.292 0.252 0.218
17 0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.270 0.231 0.198
18 0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.180
19 0.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 0.194 0.164
20 0.820 0.673 0.554 0.456 0.377 0.312 0.258 0.215 0.178 0.149

Periods Interest rates (r)

(n) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694
3 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579
4 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482
5 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402
6 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335
7 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279
8 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233
9 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194
10 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162
11 0.317 0.287 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135
12 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112
13 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093
14 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099 0.088 0.078
15 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.084 0.079 0.065
16 0.188 0.163 0.141 0.123 0.107 0.093 0.081 0.071 0.062 0.054
17 0.170 0.146 0.125 0.108 0.093 0.080 0.069 0.060 0.052 0.045
18 0.153 0.130 0.111 0.095 0.081 0.069 0.059 0.051 0.044 0.038
19 0.138 0.116 0.098 0.083 0.070 0.060 0.051 0.043 0.037 0.031
20 0.124 0.104 0.087 0.073 0.061 0.051 0.043 0.037 0.031 0.026

Enterprise Strategy 21 November 2014

Cumulative present value of $1 per annum, Receivable or Payable at the end of each year for n years
1− (1+ r ) − n
r

Periods Interest rates (r)

(n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909
2 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736
3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487
4 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170
5 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791
6 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355
7 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868
8 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335
9 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759
10 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145
11 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495
12 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814
13 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103
14 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367
15 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606
16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824
17 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.022
18 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201
19 17.226 15.679 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365
20 18.046 16.351 14.878 13.590 12.462 11.470 10.594 9.818 9.129 8.514

Periods Interest rates (r)

(n) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528
3 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106
4 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589
5 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991
6 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326
7 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605
8 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837
9 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031
10 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192
11 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4.656 4.486 4.327
12 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439
13 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533
14 6.982 6.628 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611
15 7.191 6.811 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675
16 7.379 6.974 6.604 6.265 5.954 5.668 5.405 5.162 4.938 4.730
17 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775
18 7.702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812
19 7.839 7.366 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843
20 7.963 7.469 7.025 6.623 6.259 5.929 5.628 5.353 5.101 4.870

FORMULAE

Annuity
Present value of an annuity of $1 per annum, receivable or payable for n years, commencing in one year, discounted at
r% per annum:
1 1 
PV = 1 − n 
r  [1 + r ] 
Perpetuity
Present value of $1 per annum, payable or receivable in perpetuity, commencing in one year, discounted at r% per
1
annum: PV =
r

November 2014 22 Enterprise Strategy

LIST OF VERBS USED IN THE QUESTION REQUIREMENTS
A list of the learning objectives and verbs that appear in the syllabus and in the question requirements for
each question in this paper.

It is important that you answer the question according to the definition of the verb.
LEARNING OBJECTIVE VERBS USED DEFINITION

Level 1 - KNOWLEDGE
What you are expected to know. List Make a list of
State Express, fully or clearly, the details/facts of
Define Give the exact meaning of

Level 2 - COMPREHENSION
What you are expected to understand. Describe Communicate the key features
Distinguish Highlight the differences between
Explain Make clear or intelligible/State the meaning or
purpose of
Identify Recognise, establish or select after
consideration
Illustrate Use an example to describe or explain
something

Level 3 - APPLICATION
How you are expected to apply your knowledge. Apply Put to practical use
Calculate Ascertain or reckon mathematically
Demonstrate Prove with certainty or to exhibit by
practical means
Prepare Make or get ready for use
Reconcile Make or prove consistent/compatible
Solve Find an answer to
Tabulate Arrange in a table

Level 4 - ANALYSIS
How are you expected to analyse the detail of Analyse Examine in detail the structure of
what you have learned. Categorise Place into a defined class or division
Compare and contrast Show the similarities and/or differences
between
Construct Build up or compile
Discuss Examine in detail by argument
Interpret Translate into intelligible or familiar terms
Prioritise Place in order of priority or sequence for action
Produce Create or bring into existence

Level 5 - EVALUATION
How are you expected to use your learning to Advise Counsel, inform or notify
evaluate, make decisions or recommendations. Evaluate Appraise or assess the value of
Recommend Advise on a course of action

Enterprise Strategy 23 November 2014

 Enterprise Pillar

Strategic Level Paper

E3 – Enterprise Strategy

November 2014

Tuesday Morning Session

November 2014 24 Enterprise Strategy