ACFI 312 Business Strategy MAY EXAMINATIONS 2023

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ACFI 312 

MAY EXAMINATIONS 2023 

Business Strategy

Question 1

Background - WPA

The Wildlife Protection Agency (WPA) is a not-for-profit charitable organisation. It was founded 50 years ago by a group of wealthy philanthropists, with a passion for wildlife protection.

They set up the WPA wildlife park in Central England and, since it was founded, the wildlife park has provided intensive hands-on management of some of the world’s most threatened animals. In the wildlife park, animals breed and increase in number while the keepers and wildlife experts study them to learn more about what they need to thrive in the wild again, before releasing them back to their natural habitats. This aim to release animals back to the wild is one of two core aims of the WPA, the other is a commitment to educate the public about the key threats to wildlife around the globe resulting from human actions.

The WPA also operates 20 ‘in the field’ animal protection programmes (that is, animal welfare and management activities occurring in the animals’ natural habitats) in 15 countries worldwide. The WPA employs teams of locally-based wildlife experts and volunteers to manage and protect some of the most endangered animals in the world.

Much of the WPA’s income comes from donations from the public and from corporate donors. England, as with many other developed economies around the world, has struggled with low economic growth for several years and many charitable organisations have struggled to survive in such difficult economic times. However, the WPA has managed to maintain its position as a world-leading charity in wildlife protection by implementing programmes of cost cutting, rationalisation, and more targeted and active promotion of its activities.

Extract from the 2022 Chief Executive report

Our financial position continues to be challenging. Operating a world-class wildlife park and global animal protection programmes is costly, hence our need for a range of income streams. This year, we reluctantly raised the price of admission to the wildlife park for the first time in five years. Our wildlife park facilities continue to be popular, resulting in increased revenues from our on-site shop and café.

We sold one of our properties in the last year and two more will be sold next year to fund the extension of the visitor centre, which we hope will contribute to our core objective of educating and connecting people with nature. The government has announced new funding from 2023 onwards to support community education projects, as an organisation we are well placed to access this funding and are already in advanced discussions with the relevant authorities to ensure we meet the criteria.

Investment in information technology is a key aim for long term growth, with a drive to streamline the business and to educate and communicate more effectively with our stakeholders. We will be launching a re-designed website in 2023 and are looking for new opportunities to use e-business technologies more effectively in areas such as online education, digital marketing and social media.

Exhibit: A summary of the income and expenditure of the WPA for the last two financial years (2022 and 2021), including a summary of its KPIs.

Challenging environment – charity report extract

Many government-funded grant awarding bodies and corporate supporters of charities have reluctantly had to reduce their support for charities both financially and in terms of volunteering, as they have seen their own incomes reduced by the weak economic environment.

However, public expectations of the work done by charities are still high, and many have found themselves at risk of being unable to meet expectations. For example, many global nature and animal protection charities have seen demand for their support increase dramatically, as habitats around the world are being increasingly destroyed by human activities. However, year-on-year these charities struggle to maintain stable funding levels.

Some of the decrease in charitable income has been caused by ‘donor fatigue’, as people have become over-exposed to charitable requests and therefore stop donating. Some charities have been accused of ‘hard-selling’ their services, by bombarding donors with requests by post, email and on the streets. Charities have no doubt become more aggressive in trying to win donor support, resulting in some local authorities banning street donations to stop aggressive donor collection tactics. This also impacts on the reputation and perception of the sector. New legislation is expected to stop the use of ‘hard-sell’ marketing tactics used by some charities.

A younger generation of donors has also been brought up in a time of austerity and is less likely to donate to charitable causes. Some charities have recognised the younger generation as a potential source of donations and have used new forms of technology, such as social media platforms and mobile technologies, to effectively engage with this segment. However, some charities have been slow to protect and nurture the customers and donors they already have, missing the opportunity to build better relationships with them to encourage retention through the use of intelligent customer relationship management systems (CRM). These systems include e-marketing and communication strategies. A failure to update organisational systems to match the needs of modern society may be a major downfall for many charitable organisations.

Requirements

a) Analyse the performance of the WPA both financially and non-financially, providing reasons for and discussing the implications of the results.  (14 marks)

b) Evaluate the extent to which external environmental factors are impacting the operations and future viability of the WPA. You may use a model such as PESTEL to structure your discussion. (17 marks)

c) Discuss the potential benefits and risks to the WPA of investing in a new intelligent Customer Relationship Management (CRM) system.   (9 marks)

Total for question 40 marks

Question 2

Background - UKCA

The UK Car Association (UKCA) was established seventy years ago to offer breakdown assistance to motorists. Members pay an annual fee and are then able to phone for immediate assistance if their vehicle breaks down anywhere in the country. Assistance is provided by ‘service patrol engineers’ located throughout the country, they are specialists in vehicle repair and maintenance. If they cannot fix the problem, the vehicle (and its occupants) are transported by a UKCA recovery vehicle to the member’s home address free of charge. This breakdown cover remains the core activity of the UKCA and is central to the public recognition on the UKCA brand.

Over the last twenty years UKCA has rapidly expanded its services. It now offers vehicle insurance, vehicle history checks (to check for previous accident damage or theft) as well as offering a comprehensive advice centre where trained staff answer a wide range of vehicle related queries. It also provides traffic reports, endorses hotels by giving them a UKCA starred rating and lobbies the government on issues such as taxation, vehicle emissions and toll road charging. All of these services are provided by permanent UKCA employees and all growth has been organic culminating in a listing on the UK’s stock exchange three years ago. However, since its stock market listing, the company has posted disappointing results and a falling share price has spurred managers to review internal processes and functions.

Strategic review

A strategy team, comprised of senior managers supported by external consultants, have been tasked with comprehensively reviewing the scope of the company’s business activities to ensure the business is focusing on the key areas and activities that drive success.

One of the main undertakings is to examine the complexity and strategic importance of certain activities, before making recommendations on how these activities should be run going forward to ensure an appropriate balance between quality and cost efficiency is achieved. A key element of this review is to consider whether activities should continue to be run by UKCA employed staff (’in-house’) or be outsourced to third parties. For any activities planned to remain in-house, the strategy team must also identify technological implications and opportunities arising.  

First phase

The UKCA conducted a first phase review, this included an assessment of the supply and maintenance of UKCA’s company vehicles. UKCA has always purchased its own fleet of vehicles and maintained them in a centrally located garage. When a vehicle needed servicing or maintenance it was returned to this central garage.

Last year, UKCA had seven hundred vehicles (breakdown recovery vehicles, service patrol engineer vans, company cars for senior staff etc.) all maintained by thirty staff permanently employed in this garage. A further three permanent employees were employed at the garage site with responsibility for the purchasing and disposal of vehicles. The garage was in a residential area of a major town, with major parking problems and no room for expansion.

The UKCA concluded that the garage was of low strategic importance to the company and, although most of the processes it involved were straightforward, its remoteness from the home base of some vehicles made undertaking such processes unnecessarily complicated. Consequently, it recommended outsourcing vehicle acquisition, disposal and maintenance to a specialist company.

Three months ago, UKCA’s existing vehicle fleet was acquired by FleetAuto. FleetAuto are a company with service and repair centres nationwide, which currently supplies 45,000 vehicles to companies throughout the country. It now leases vehicles back to UKCA for a monthly set payment. In the next ten years (the duration of the contract) all vehicles will be leased from FleetAuto on a full maintenance basis that includes the replacement of tyres and exhausts. UKCA’s garage is now surplus to requirements and all the employees that worked there have been made redundant, except for one employee who has been retained to manage the relationship with FleetAuto.

The redundancies came as a surprise to workers across UKCA’s operations, the organisation has long benefitted from a strong positive organisational culture with high levels of staff motivation and commitment. There have been expressions of disappointment and concern across the workforce and the senior management of UKCA are concerned of the potential impact of any further changes. To try and mitigate the impact they would look to appoint a change agent to lead any future change processes.

Second phase

The strategy team has now been asked to look at the following activities and their supporting processes. All of these are currently performed in‐house by permanent UKCA employees.

· Attendance of repair staff at breakdowns – Currently undertaken by permanent ‘skilled service patrol engineers’ employed at locations throughout the country from where they attend local breakdowns.

· Membership renewal – Members must renew every year. Currently renewals are sent out by staff using a bespoke computer system. Receipts are processed when members confirm that they will be renewing for a further year.

· Vehicle insurance services - Providing a full range of motor insurance to drivers. Motor insurance is a legal requirement for all drivers in the UK and is a highly regulated industry.

· Membership queries - Handled by a call‐centre. Members can use the service for a wide range of vehicle‐related problems and issues, and for any membership related queries.

· Vehicle history checks - These are used to provide ‘peace of mind’ to a potential purchaser of a used vehicle. Call handlers check the vehicle against a number of national databases to see if it has ever been in an accident or if it has been stolen. The check also makes sure that the car is not currently part of a loan agreement.

Requirements

a) The UKCA strategy team has asked you as an external consultant to make recommendations on the operation of a range of business activities going forward. You should consider how the activities should be sourced (in-house or outsourced) and suggest any technological implications or opportunities for the following activities:                         

(i) Attendance of repair staff at breakdowns

(ii) Membership renewal

(iii) Vehicle insurance services

(iv) Membership queries; and

(v) Vehicle history checks.

Note. You may consider the use of Harmon’s process strategy matrix to support your answer   (15 marks)

b) Analyse the advantages that UKCA will gain from the decision to outsource the purchase and maintenance of its vehicles to FleetAuto.  (9 marks)

c) Outline the role a change agent could play in helping to facilitate any future changes at UKCA, noting the skills required for such a role.   (6 marks)

Total for question 30 marks

Question 3

History and developments

In the face of intense competition from established hotel chains as well as a range of emerging competitors driven by technology developments, JustRite has invested heavily in web-based technology over the last decade. Most recently developing a new customer app, designed to improve the whole customer experience. This decision was in response to the UK governments £2billion pledge to roll out 5G internet connectivity nationwide to drive economic growth. JustRite had several UK app producers to choose from, the app market has seen rapid growth in the UK due to the continued strength of the leisure and tourism industry.

The investment by JustRite appears to be working as over 75% of bookings in the 21/22 financial year were made on the JustRite website or app, an industry high according to ‘Travel UK’ a leading industry journal. The use of technology has also enabled operational efficiencies at JustRite, the hotels operate with low numbers of staff, however the staff in these hotels are highly skilled and receive regular training in order to provide excellent customer service. JustRite values its staff, and is strongly committed to staff development and retention. JustRite pays above the UK national minimum wage in order to encourage staff commitment and loyalty.

JustRite’s network has grown steadily over the last 50 years and the locations have evolved over the years to meet changes in work patterns and lifestyles in the country. The UK has a well-established transport system with an extensive network of motorways, trainlines and is well served by regional airports. The government has historically invested heavily in infrastructure to support business and tourism across. The chain now has 380 hotels nationwide offering 36,000 rooms, 365 days a year. The company website boasts this is 14% more than its nearest rival, this coverage is highly valued by customers. The scale of the operations allows for significant economies of scale to be enjoyed by JustRite, such as regional mangers responsible for a number of hotels rather than an individual manager at each hotel, this gives significant cost savings without compromising on the running of the hotels. JustRite is also able to gain below market rate prices on support services like laundry, waste and facilities management, due to the significant buying power it enjoys.

The UK government remain committed to developing infrastructure and has recently completed upgrades to the capacity of the three largest airports in the country. It is estimated this has increased passenger traffic by as much as 2 million visitors in the last year, with around 75% thought to be leisure travellers.

Extracts for ‘Travel UK’ article

As 2022 draws to a close, it looks like it will be a largely positive year for many hotels in the UK, but that does not mean businesses can become complacent due to the intense competition in the market place. Tourism has continued to thrive in the UK, despite the continued global economic uncertainty driven by a recent pandemic and geopolitical tensions. UK hotels have seen an average rise in visitors by over 8% on 2021. The UK has a highly-developed hotel and travel industry. Both online travel agents and traditional high street travel companies are thriving in the UK. Online hotel booking websites and price comparison sites are driving businesses to be more competitive and offer better and more flexible pricing options. Tourism is well served by the established service economy in the UK, with many tour operators, airport transfer companies, restaurants and leisure facilities throughout the country.

These factors have culminated in an attractive yet competitive market, with a new national chain of hotels, ‘Luxline’, opening in the main tourist centres of the country. However, the year has also seen two long-established hotel brands go out of business, ‘Travel Barn’ and ‘Bed4Nite’ had been slow to adopt new technologies and as a result saw sales decline and costs climb. The failure of such well-established brands is a stark warning for those UK hotels which do not remain competitive and customer-focused. It is clear that innovation is critical to the survival of hotel businesses, and technology continues to be a key driver in the market place. Most of the UK’s hotel chains, including JustRite, are now offering apps to enhance customer experience and drive an increase in spend per customer per night on associated services. The JustRite app has recently added a new loyalty feature allowing customers to collect points each time they stay, these points can then be used to obtain discounts or free stays at JustRite hotels, this has proved very popular and further increased customer retention in the chain.

UK’s travellers continue to be very demanding, expecting high standards but also good value for money. A recent survey of online hotel customers clearly indicated that 70% would shop around for the best deal in the best location. The hotel and travel industry was hit hard in many countries by the pandemic and a number of hotel and travel companies went out of business. However, those which survived did so by focusing on customer needs and generating operating efficiencies.

Requirements

The board of directors of JustRite are considering overseas expansion but are keen to analyse the factors that have driven the company’s success to date.

a) Identify and explain the key factors which have enabled JustRite to be successful in its home country of the UK, whilst highlighting the implications of these factors when considering overseas expansion. You may consider a model like Porter’s Diamond in your answer. (18 marks)

b) Identify and explain the importance of, two critical success factors for JustRite under each of the following areas of the balanced scorecard:

· Customer perspective

· Innovation and learning

· Internal business processes   (12 marks)

Total for question 30 marks