ACFI 312 Business Strategy MAY EXAMINATIONS 2022

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ACFI 312 

MAY EXAMINATIONS 2022 

Business Strategy

(Duration: 3 hours)

Question 1

The Renew Group has a portfolio of companies that specialise in renewable energy supply and associated products and services. It grew out of Volto, a pioneer in the solar power industry. The profits generated by Volto funded the initial development of the Renew Group, which now comprises 8 companies. Three of the group companies are considered below:

Volto

Volto was one of the first companies to realise the potential of solar powered energy solutions and it pioneered the use of the technology, particularly in government and city council (public sector) buildings. From 2005 to 2016 its net profit regularly exceeded 15%. Recent results for Volto and the industry are shown in Figure 1.

All figures in £m	2021	2020	2019	2018
Industry sales revenue	357.00	357.00	356.00	355.00
Volto sales revenue	107.10	100.00	96.10	88.80
Volto net profit	8.72	8.20	8.70	9.80
Largest rival - sales revenue	82.00	81.50	83.00	83.50

Figure 1.

Although Volto was the main source of the profits which drove the expansion of the Renew Group, many employees within Volto feel that Volto is now neglected by the group management. Consumer surveys suggest that the brand is not as well recognised as it once was and respondents who did recognise it saw it as a tired and traditional brand. Many of Volto’s most gifted managers have been promoted into the Renew Group central management or other companies within the Group. It was expected that their expertise, would help improve the performance of acquired companies. Despite this loss of valuable human resource, Volto still has recognised expertise and many valuable contacts and contracts in the public sector which the Renew Group has been able to exploit. These contracts have allowed the company to retain a significant presence in the solar powered energy market at a time when competitors have either withdrawn from, or scaled down, their operations.

Waferglass

The Renew Group acquired Waferglass in 2015. Waferglass are a manufacturer of high-quality industrial glass products. One such product Raysar glass is a vital component in the solar panels manufactured by Volto. The importance of this component led to a close relationship being established between the two companies. Unfortunately, many of the other glass products Waferglass produce have not been as commercially successful as Raysar glass and the business was facing closure in late 2014.

Renew Group therefore acquired Waferglass to secure the supply of Raysar glass for use in Volto’s solar panels. Significant financial and management resources have been invested in Waferglass to try and improve market share and profitability. Some of Renew Group’s best managers have been transferred to the company but they have found the core operations and the customers of Waferglass to be fundamentally different from the rest of the Renew Group companies.

Sheen Co, the largest company in the industrial glass industry have recently launched a comparable product to Raysar glass that would be a viable alternative for use in Volto’s solar panels.

Again, recent results for Waferglass and the industry are provided. Figure 2.

All figures in £m	2021	2020	2019	2018
Industry sales revenue	88.20	89.00	89.50	90.00
Waferglass sales revenue	6.94	7.01	7.16	7.10
Waferglass net profit	0.40	0.41	0.43	0.45
Largest rival sales revenue	12.10	12.05	12.00	12.20

Figure 2.

Smartar

In 2017, Renew Group saw that renewable energy sources other than solar power were becoming increasingly important. Customers began requesting a solution that enabled a mix of these power sources to be used which would both minimise costs and carbon emissions.

In response to this demand a company called Smartar developed ‘intelligent’ control systems which enabled users to automatically switch power sources to select the most suitable combination available.

Renew Group decided to acquire Smartar, who were acknowledged as a technical leader in this new industry but had little marketing expertise and few large contracts in the public sector. Smartar’s control systems have sophisticated mathematical algorithms which are now used in many private sector applications, the company has an excellent record in profitable delivery.

Government and public opinion regarding global warming and carbon emissions has led to growing pressure on organisations to increase their use of renewable energy sources and to cut energy waste.

Recent results for Smartar and the industry provided. Figure 3.

All figures in £m	2021	2020	2019	2018
Industry sales revenue	88.00	79.00	71.50	70.00
Smartar sales revenue	24.00	20.10	14.30	13.30
Net profit	3.12	2.59	1.85	1.65
Largest rival sales revenue	13.50	12.76	11.21	9.80

Figure 3.

Human Resources (HR)

The Renew Group HR function is operated as a central function in its divisionalised structure. As a result of the number of acquisitions the Renew Group has made over the years, staff are employed on a wide variety of contracts with significant differences in key areas of terms and conditions such as pay, holidays, and notice periods.

Additionally, the HR function operates several different information systems that are incompatible with each other. This leads to significant duplication of effort, excessive data entry, poor management information and frequent payroll errors.

The HR director has contacted a specialist HR consultancy for advice, the initial key report comments are as follows:

- Standardising the contract terms and conditions across the group companies is a complex process and would be a significant undertaking. Any errors could lead to significant legal claims.

- The current HR information systems are outdated and not fit for purpose. They are the main cause of the inefficiencies and errors occurring.

- The overall HR requirement for the organisation is quite complex and leaves the business exposed to significant risk.

- The operation of an effective HR function is of low strategic importance to the business’s day to day operations.

The HR consultant has proposed that outsourcing the HR function would be the most suitable course of action.

Requirements

(a) Using the BCG matrix and any necessary supporting calculations, classify the three group companies within Renew Group’s portfolio. (13 marks)

(b) Discuss the performance, strategic fit and future prospects of each of the three group companies. (14 marks)

(c) With reference to Harmon’s process strategy matrix highlight why the HR consultant has recommended outsourcing the HR function   (5 marks)

(d) Outline some of the key advantages and disadvantages to Renew group of outsourcing the HR function  (8 marks) 

Total for question 40 marks

Question 2

Valyou is a large chain of discount stores based in France and with stores in several European countries. Its stores offer ambient goods (goods that require no cold storage and can be kept at room temperature, such as cleaning products, stationery, biscuits, and plastic storage units) at the lowest prices in the market. Discount chains focus on selling unbranded basic goods which they buy from a number of small suppliers for which the discount stores are the most significant customers. Profit margins on the products they sell are low and overheads are kept to a minimum. The products tend to be functional, standardised and undifferentiated.

UK market

Valyou has observed the long-term economic stagnation in the neighbouring country of the UK. A prolonged period of economic uncertainty and a decline in the traditional high street has driven the growth of discount stores in the UK. They operate the same business model as Valyou.

Three significant discount store chains have developed in the UK: Bargainhaus, RockBottom and Discounta (see Figure One). The shops of these three chains are typically found on the high streets of towns and cities where there has been a significant decline in traditional high street retailers as well as low wage growth for many years. Many of these towns and cities have empty stores which are cheap to rent. Furthermore, property owners who once required high rents and long leases are increasingly willing to rent these stores on short fixed-term lease.

The discount chains in the UK advertise extensively and continually stress their expansion plans. Few weeks go by without one of the chains announcing plans for a considerable number of new shops throughout the country.

Valyou has recognised the significant growth of discount retailers in the UK and is considering entering the market. Valyou recently commissioned a brand awareness survey in the UK. The survey results showed that Valyou was well-known by respondents who work in the consumer goods retail market. Most of these respondents correctly identified the company as a discount retailer with a significant presence in Europe. However, amongst general consumers, only 5% of the respondents had heard of Valyou. In contrast, the three main discount chains in the UK were recognised by more than 90% of the respondents.

Valyou strengths

Valyou itself has revenue of over £11 Billion per year (2021). The company has substantial cash reserves which could allow it to lease a substantial number of shops in the UK and establish a credible market presence very quickly. Valyou has recognised competencies in effective supplier selection and management, supported by a sophisticated ERP system which facilitates effective procurement and logistics. These areas are both considered to be core strengths of the company. The system utilises big data through advanced data collection and analysis software which collects huge volumes of live data from a wide range of both internal and external sources. The innovative analysis of data provides many efficiency and cost savings for Valyou.

The UK market also has a very developed conventional supermarket sector with several major chains operating in a highly competitive marketplace. The largest of these has annual revenue of £44 billion. Supermarkets in the UK tend to increasingly favour out-of-town sites which allow the stores to stock a wide range and quantity of products. Customer car parking is plentiful, and the sites are easily accessed by supplying vehicles. The supermarkets stock primarily non-ambient goods (chilled food and drinks etc.), but most supermarkets do also stock a very wide range of ambient goods, often with competing brands on offer. However, prices for such goods vary and no supermarkets have yet adopted a business model to compete with the discount chains in this area. 

In general, the large supermarket chains compete with each other and pay little attention to the discount chains. Many supermarkets also have internet-based home ordering systems, offering (usually for a fee of £5) deliveries to customers who are unable or unwilling to visit the supermarket.

	2023 (£million)	2022 (£million)	2021 (£million)
Bargainhaus	325	301	276
RockBottom	305	275	249
Discounta	297	245	202
Total	927	821	727

  Figure One: Revenue of the three big discount chains in the UK.

Proposal 

Valyou’s marketing director wishes to expand the data analysis capabilities further by establishing customer profiles. Valyou is considering the use of facial recognition technology. The technology will create an anonymised profile for every customer visiting a Valyou store and will estimate with a 98% accuracy, the age and gender of a customer. The system then records the contents of every basket of shopping, along with the browsing time, route through the store and more routine data such as day, time, and duration of visit. This data would then be analysed with the aim enhancing revenue generation through the identification of trends, smarter stock management and store layouts.

The marketing director is confident that to comply with the local data protection legislation Valyou will simply need to display signs at the entrance to stores informing customers that facial recognition technology is in place and informing them how they can find out further information about the use of their data and exercising their rights under the data protection legislation.

Several other directors have expressed concern about the proposals and are specifically worried about the ethical implications of using the technology.

Requirements

(a) Use Porter’s five forces framework to assess the attractiveness to Valyou, of entering the discount retail market in the UK. (16 marks)

(b) Considering the Vs of big data discuss the main challenges Valyou face in its current and future management of big data (6 marks)

(c) Discuss the ethical and reputational considerations of the proposed use of facial recognition software. Suggest some actions the directors could take to address these issues.(8 marks)

Total for question 30 marks

Question 3

Glendale is a large estate in a rural area in the North of England. The estate covers a large area of forest, upland, and farmland. It also includes two villages, and although many of the properties in these villages have been sold off to private homeowners, the estate still owns properties which it rents out. The estate also has a large mansion house set inside a landscaped garden designed in the 19th century by the famed Vince Garner. The garden, although now overgrown and neglected, is the only surviving example of his work in the North of England. The estate was left as a gift to a charitable trust ten years ago. The trust is based at the estate. A condition of the gift to the trust was that the upland and forest should be freely accessible to visitors.

The estate has reasonable income reserves as a result of achieving an operating surplus for each of the past 8 years.

Operations

The estate has a manager, four full-time staff and 45 volunteers. These volunteers undertake most of the work on the estate, including the continuing excavation of Garner’s original garden design. They are happy, well-motivated and fully support the current manager who is due to retire in the very near future. Three of the volunteers have become acknowledged experts on land management, through their work on the estate.

Government grants for initiatives such as tree planting, protected pastureland and rural employment have been received by the estate in the past. However, a recent change in government means that this funding is unlikely to continue. This will also affect funding for the maintenance of the Glendale mansion. It was built almost 120 years ago when the climate of the area was much colder and drier. Recent warm wet winters have caused the fabric of the building to decay and increased the cost of maintaining it. The lost funding is estimated to account for around 9% of Glendale’s annual income.

The estate has appointed a new manager with a background in events planning, who is due to take over the estate when the current manager retires. The new manager has been tasked with giving Glendale a more commercial focus, improving revenue generation and identifying new revenue streams to make up for the lost government funding. The new manager oversaw a significant forced change process in her previous organisation and is keen to follow a similar coercive change process at Glendale in order to drive through some initiatives to achieve the hoped-for growth in revenue.

As a one-off project, she has commissioned a stakeholder survey which has requested information on the visitor experience to help with a planned re-design of the estate’s website. The website is generally thought to be well structured and presented, but it receives fewer visitors than might reasonably be expected. It provides mainly static information about the estate and forthcoming events but currently users cannot interact with the site in anyway.

Here are some extracts from the survey:

‘I live in one of the villages and I am angry about visitors crowding around the village attractions – the tearooms, the craft shops, the souvenir stalls. We feel that we are prisoners in our own village and the traffic is terrible.’  

Homeowner, from a village on the estate

‘We had a good day, but the weather was awful. If we had known it was going to rain all day, then we probably would have postponed the visit until a fine day. It spoilt a family day out.’

Visitor with small family

‘We were very disappointed, on arrival, to find that the family fun day was fully booked.’

Visitor who had travelled 100 kms with two small children to visit a special event

‘We all love it here, but we didn’t know you had a website!! We almost had to type in the complete website address before we found it! I am sure more people would come if they could only find the website!’

Visitor aged mid-20s

‘As usual, we had a great time here and took great photos. It would have been nice to be able to share our pleasure with other people. We would recommend it to anyone who loves the outdoors.’

Visitor – family with teenage children

‘We met the volunteers who were excavating the buildings in the landscape garden. They were so helpful and knowledgeable. They turned something that looked like a series of small walls into something so much more tangible.’

Visitor – elderly couple

‘I was disappointed that I was not allowed into the farmland with my dog. As a human being, I have the right to roam. It is a basic human right.’

Visitor – elderly female dog-walker

‘We are regular visitors and we really want to know what is going on! There are many of us who would like to really be involved with the estate and help it thrive. We need more than just occasional questionnaires.’

Visitor – hiking group

‘We came out for a nice walk and ended up dodging cyclists. Next time we will go somewhere where they are not welcome.’

Visitor – hiking group

‘As a farmer, I am appalled with the reckless attitude of some dog walkers. Last week, I lost two sheep, ravaged by dogs that should not have been off their leads.’

Farmer – estate tenant

‘I’m a volunteer and I love it here. We are a happy, social group of people. I hope the new manager is not going to change things.’

Volunteer

Requirements

(a) Evaluate the strategic position of the estate with specific reference to;

i) the expectations of different stakeholder groups

ii) the external macro level factors beyond the control of the estate

iii) the strategic capabilities, both good and bad of the estate itself (21 marks) 

(b) Discuss the suitability of the coercive change approach proposed by the new manager and consider any other change approaches that may be more appropriate for Glendale.  (9 marks)

Total for question 30 marks