The Association of Business Executives

QCF

Strategic Business
Management and Planning
Examiners Report and Suggested Answers

Unit Title:

Strategic Business Management and Planning

Unit Code:

7SBMP

QCF Level:

Date of
Examination:

December 2014

Structure of paper: Answer all three sections

Section A: Answer all five questions

Q1
Q2
Q3
Q4
Q5

Section B: Answer one question

Either Q6 or Q7

Section C: Answer one question

Either Q8 or Q9

Introduction
This examination is designed to test candidates higher level understanding and application
of the Strategic Business Management and Planning syllabus. The examiner expects
candidates to be able to present answers which analyse, appraise and evaluate a range of
information provided in the short scenarios within Section A questions. Candidates are
expected to demonstrate high level application and evaluation skills in all questions
attempted.
It is important that candidates understand that they must NOT merely re-write pre-learned
models and theories from the SBMP syllabus. Very few marks are available within the SBMP
examination for demonstration of basic theoretical knowledge. Most of the marks available
are awarded for clear demonstration of the ability to apply the syllabus models and theories
to a given scenario or question and to discuss and evaluate their use.
In addition, it is most unlikely that candidates can adequately address the verbs used within
the syllabus and the examination requirements, such as analyse, discuss or evaluate by
means of unexplained and undeveloped answers for example, using bullet point lists.
Candidates and tutors must ensure that they fully understand and appreciate the verbs that
are likely to be used in this examination, as these provide clear guidance as to the expected
level and depth of application required of candidate answers in the SBMP examination.
The SBMP examination requires candidates to answer questions from across every area of
the syllabus and therefore is a designed to be a thorough test of both breadth and depth of
knowledge of the syllabus. Therefore, candidates are reminded that they must ensure that
they learn and revise the whole syllabus, as questions will be asked from all areas.
Candidate performance in the December 2014 examination yet again showed encouraging
signs of improvement on previous diets and in a number of areas candidates demonstrated
sound and relevant application and a good depth of syllabus knowledge. Many answers to
the short scenario based questions in Section A were well applied. However, in some
questions (which will be discussed in more depth later in this report) candidate performance
was weak and there was evidence of poor knowledge of some syllabus areas.
There was evidence that a number of candidates were clearly unprepared for this
examination and it was sometimes disappointing to see that candidates were unable to
provide an adequate depth of response to many of the questions they attempted, largely due
to a lack of syllabus knowledge and understanding.
The main weaknesses identified from this session were as follows:

Some candidates lacked sufficient theoretical underpinning and knowledge of strategic

business management and planning models, theories and concepts. For example, an
obvious weakness was poor application of the value chain model in Question 2. Many
answers were descriptive rather than directly applied to the scenario information
provided. Similarly, in Question 1, some candidates could describe Porters generic
strategies but could not apply these directly to the business units described in the
question. Very few candidates had a sound grasp of the concept of a Learning
Organisation which was the focus of compulsory Question 4.
Insufficient depth of answers with limited application. A number of answers were very
superficial and not well explained. For example, in Question 5, most candidates merely
very briefly described a mission statement , organisational values and organisational
objectives in no more than one or two sentences. This is clearly not enough to be
awarded a pass grade as the requirement clearly asked for an explanation of the nature
and purpose. Some candidates failed to do this adequately.

 Not answering the question that was set by the examiner. For example, in Question 7
candidates were clearly asked to discuss the three levels of strategy in an organisation.
However, many candidates again merely described these levels very briefly and failed to
discuss at all the relevance of the integration of these levels of strategy.
Some examination scripts were incomplete. This would appear to be as a result of a lack
of both depth and breadth of syllabus knowledge. There were large numbers of scripts
where candidates answered only 3 or 4 of the compulsory Section A questions. It is very
difficult to pass the examination paper if a large proportion of the examination paper is
unanswered. Candidates must make sure that they have a good knowledge of the full
breadth of the syllabus.

Section A
Question 1
Learning Outcome 5: Understand the key forces that represent both opportunities and
threats to organisations whether for profit or not for profit.
B is a retailer in a European country. Its sales consist mainly of food and household
items. B wishes to develop different competitive strategies to fit the characteristics of
its three sectors.

Sector

B's Brand
Characteristics

Customer
Product
Characteristic Characteristic Pricing
s
s

Many well sited

Live locally.
1.
supermarkets
which
Value 24 hour
Supermarkets

Wide variety of
food and
operate with a very opening. Middle household
economical cost
income.
goods.
structure.

No clear identity.
2.
Convenience Some stores are
market leaders;
Stores:

others are market

laggards.

Live locally. Mid Low value items.

and upper
Shops sell small
income groups. groceries, and
toiletries.

Price
sensitive

Customers
pay a
premium
price if
location
convenient.

Competition

B's
Market
Share

Two well-established
national chains each
with 10% market
share. Their
supermarkets are
often in inconvenient
locations.
One national chain
which has 65% of the
market. Remaining is
fragmented.

30%

10%

(a) Explain Porters three generic competitive strategies.

Suggested answer:
Cost Leadership
This strategy involves the firm winning market share by appealing to cost-conscious or
price-sensitive customers. This is achieved by having the lowest prices in the target market
segment, or at least the lowest price to value ratio (price compared to what customers
receive). To succeed at offering the lowest price while still achieving profitability and a high
return on investment, the firm must be able to operate at a lower cost than its rivals.
Differentiation strategy
This strategy involves organisations differentiating their products in some way in order to
compete successfully. Examples of the successful use of a differentiation strategy are Nike
athletic shoes, BMW Group Automobiles, Apple Computer, and Mercedes-Benz
automobiles.
A differentiation strategy is appropriate where the target customer segment is not pricesensitive, the market is competitive or saturated, customers have very specific needs which
are possibly under-served, and the firm has unique resources and capabilities which enable
it to satisfy these needs in ways that are difficult to copy. These could include patents or
other Intellectual Property (IP), unique technical expertise (e.g. Apple's design skills or
Pixar's animation prowess), talented personnel (e.g. a sports team's star players or a
brokerage firm's star traders), or innovative processes.
Focus strategy
This dimension is not a separate strategy per se, but describes the scope over which the

company should compete based on cost leadership or differentiation. The firm can choose
to compete in the mass market (like Wal-Mart) with a broad scope, or in a defined, focused
market segment with a narrow scope. In either case, the basis of competition will still be
either cost leadership or differentiation.
In adopting a narrow focus, the company ideally focuses on a few target markets (also
called a segmentation strategy or niche strategy). These should be distinct groups with
specialised needs. The choice of offering low prices or differentiated products/services
should depend on the needs of the selected segment and the resources and capabilities of
the firm. It is hoped that by focusing your marketing efforts on one or two narrow market
segments and tailoring your marketing mix to these specialised markets, you can better
meet the needs of that target market. The firm typically looks to gain a competitive
advantage through product innovation and/or brand marketing rather than efficiency. It is
most suitable for relatively small firms but can be used by any company. A focused strategy
should target market segments that are less vulnerable to substitutes or where a
competition is weakest to earn above-average return on investment.
(b) Recommend which of Porters generic competitive strategies B should follow in
each of its business sectors. Justify your answer.
Suggested answer:
Supermarkets
This sector has a very economical cost structure. Therefore, it is reasonable to infer that B
could attain a competitive advantage by following a Cost Leadership strategy: that is, it will
thrive whilst charging industry average prices because of its reduced costs. It also has the
option of trying to increase its market share by undercutting its two rivals prices but still
make a reasonable profit because of its cost structure. This option could be successful for B
because the sector is price sensitive. However, this option has the danger that it could
provoke retaliatory action from the two rivals and lead to a price war which could prove to be
disadvantageous to all three market participants. However, the Supermarkets very
economical cost structure should enable it to withstand a price war better than many of its
competitors.
Recommendation
The supermarkets sector should follow a strategy of Cost Leadership.
Hypermarkets
Bs brand is highly regarded with a high reputation for quality. B currently has 85% of this
market. The sectors customers are affluent and willing to travel a considerable distance in
order to buy high value, up market branded items some of which are exclusive to B. The
sectors customers value quality and are willing to pay a premium for it. B is already
pursuing a strategy of Differentiation whether by design or by accident: that is, it is offering
its customers products/services that are different from, or more attractive than, its
competitors. B is in a powerful position because its offerings coincide with its customers
preferences.
Recommendation
This sector should follow a strategy of Differentiation.
Convenience stores
B has no clear identity, some of its convenience stores are leaders and others are laggards.
This market segment in dominated by one national chain which with 65% of the market is
dominant. B with a market share of 10% will find it difficult against this chain. However, the

remainder of the market, 25%, is fragmented and this could be most rewarding area for B in
which to compete. Thus, B is probably constrained into adopting a Differentiation Focus
strategy because it:
has no cost advantages;
is unlikely to be successful competing nationally against the market leader; and
has some local dominances
Recommendation
B's Convenience Stores should follow a strategy of Differentiation Focus.
Examiners comments:
Part (a) of this question was well answered by those candidates who clearly had revised
Porters generic strategies model. Most candidates made a good attempt at this part of the
question.
Part (b) was generally well answered. Most candidates did make a reasonable attempt at
this question with most being able to identify and explain an appropriate strategy for the two
business units of the organisation described. The main weakness of candidates answers
was a lack of depth in the explanation of their recommendations.

Question 2
Learning Outcome 6: Understand the strategy process for an organisation to achieve
competitive advantage.
Q is a fashion retailer with a chain of 20 shops. Q has trained all its staff in customer
care and only employs staff who have worked for other fashion retailers. As a large
proportion of Qs clothes only remain fashionable for a short period, it is important
that good inventory control is maintained. Q has recently invested in a robotic system
to improve materials handling in its warehouse.
Q delivers direct to customers homes, within 24 hours of purchase. Qs competitors
do not offer such a service. Q knows that its customers appreciate the after-sales
service which Q offers. If a customer has any dissatisfaction with a purchase, Q will
refund their money.
Q frequently sends customers special offers and invites them to fashion shows held
in its shops.
Qs head office is organised into departments responsible for the procurement of
products, human resource management, investigating innovations in fashion
retailing, and corporate administration. Q has recently invested in high-tech Smart
Tills which provide real-time sales analysis and stock level information to the Head
Office for each shop. Real time information allows Q to accurately manage stock
levels and optimise its sales. This helps to control wastage and improve accuracy in
its stock management.
Required:
Produce a value chain for Q, using Porters value chain model and explain how the
features of each activity will enhance the competitive advantage of Q.
Suggested answer:

Qs activities are categorised as follows:

Primary Activities: consisting of
Inbound logistics: Q has invested in a robotic system to improve its material handling.
This should reduce wastage and contribute to a greater margin. Q should be able to

improve its service to its customers which will contribute to competitive advantage.
Operations: Q has trained all its staff in customer care and prefers to employ staff with
experience gained from other fashion retailers. This ensures that in this aspect of its
operations Q is at least as good as its competitors and possibly better.
Outbound logistics: Q offers its customers the service that it will deliver their purchases
to their home within 24 hours. Not all customers will take advantage of this but some will
and it provides a distinguishing feature of Qs retail experience.
Marketing and sales: Q sends its regular customers special offers and invitations to
fashion shows. In this way it keeps its customers informed about Qs business which
should enhance its competitiveness.
Service: Q will refund, without question, a customers money. This aspect of their after
sales service should placate any dissatisfaction from their customers and contribute to
competitiveness.
Support activities consisting of
Firm infrastructure: for Q these consist of general corporate administration, management
accounting and their management structure. All these aspects need to be in place and
successful for the primary activities to be successful. If Q is able to organise any aspects
of its infrastructure better than its competitors then it will have a potential source of
competitive advantage.
Human resource management: these are Qs personnel policies and training
programme. If these are successful Qs staff will offer their customers a good retail
experience which will help Q to outperform its competitors.
Technology development: Q carries out investigations of innovations which is important
in fashion retailing as retailing technology and customers preferences are quick to
change. One result of these investigations has been the potential acquisition of Smart
Tills which should enhance Qs overall performance and competitiveness.
Procurement: Q believes it can best compete by offering a wide selection of high quality
products. It is essential that Qs procurement activity can acquire the products that Qs
customers will buy. Successfully procurement is a vital part of competitive advantage.
Within the Value Chain categories Q could identify which of its activities are most important
in adding value and it can then endeavour to enhance and protect these key areas. Thus,
for example, if Qs customers particularly value the Qs home delivery this could be
enhanced to same-day delivery.
Q will also gain an understanding of activities which do not add value and it can work to
either improve or eliminate these. In the case of the support activity, Technology, Q appears
to be late in its adoption of Smart Tills technology. This implies that Q has been slow to
adopt new technology. Technology is an activity performed at Qs head office which is
responsible for innovations in fashion retailing. Therefore, Q should consider enhancing this
support activity to, at the least, achieve parity with its competitors.
Examiners comments:

This question was answered well by some candidates. Some candidates showed a sound
understanding of the value chain and applied it well to the scenario information. However,
those candidates who performed badly on this question largely did so because they either
provided largely descriptive answers or they failed to apply their answers directly to the
information provided in the scenario.

Question 3
Learning Outcome 7: Understand the future challenges affecting strategic business
management and planning.
GGT is an international express mail delivery company. It was founded in 1970 in the
USA, transporting documents between four major cities. Over the next ten years it
expanded rapidly across the USA, the Far East and the Pacific Rim.
By 1990, following expansion into Europe, GGT was so large that it was restructured
into regions, linked by a telecommunications network and was the first mail delivery
company to use state-of-the art computer systems to track packages.
International expansion brought with it increased levels of competition for GGT.
Throughout the 1990s GGT introduced new standards of excellence in customer
service to help improve its competitive advantage. In 2000 GGT introduced Easymail,
an information system to allow customers to prepare and track shipments, all from
their own computer. In the last ten years GGT has also set up its several Express
Logistics Centres around the world to service its customers requirements, 24 hours a
day.
Required:
Analyse the following for GGT in the current global economic environment:
(i) The business opportunities
(ii) The business risks
Suggested answer:
The world is growing closer and closer together. Political and ideological borders are
disappearing. Trade barriers are being dismantled and customs duties are being eliminated.
At the same time, innovative information and communication technologies are creating new,
far-reaching possibilities. As a result of this dynamic development, the demand for GGTs
delivery services is likely to grow. Logistics has become a critical factor in the success of
modern companies because customer and supply networks can be extended around the
world. At the same time, though, intensifying global competition is developing. The result:
Globalisation is creating new challenges to go along with its sweeping opportunities.
(i) The new opportunities of globalisation
In the past 20 years, the conditions for global trade and business have improved
tremendously. Many political, ideological and customs-related borders between countries
and regions of the world have been dismantled. This will have allowed GGT the
opportunity to move to diverse regions of the world to offer its services.
The integration of Europe has created the European Union. Similar developments have
occurred in other regions, including South America (MERCOSUR), North America
(NAFTA) and the Pacific region (ASEAN). In addition, worldwide efforts to remove trade
barriers are progressing slowly but surely. These include the Global Agreement on Tariffs
and Trade (GATT) and the Organization for Economic Cooperation and Development
Organization for Economic Cooperation and Development (OECD). These offer
significant opportunities for GGT.
A driving force of these improvements has been the enormous advances made in
information and communications technology since the 1990s, as can be seen in the
continual development of GGTs systems. This development is the result of both the
World Wide Web and globally accepted PC systems which GGT has been able to take
advantage of.

 The standards help business partners to be located more quickly and cost effectively,
and make the processes used in the everyday business world considerably more efficient
than it was in the 1980s. These strides have been complemented by progressive
standardisation in packaging and containers led by the International Standards
Organization (ISO).
For GGT, the possibility of extending the networks of their suppliers and customers
farther and farther internationally has become much more appealing. They can search for
materials, employees, know-how and the conditions for their activities in countries and
regions that offer them the best cost-performance ratio.
Customs regulations and document processing have been greatly simplified.
Communications and transport options have become significantly faster, more cost
effective and more reliable. The lower transport costs arising from these changes are the
reason that more and more companies are deciding to extend their value-creation
processes around the world.
(ii) Risks of globalisation
Globalisation is not just a world of new opportunities for companies. It also poses certain
risks. In many sectors, more intense, global commercial competition has arisen. Even in
their home markets, companies are facing new competitors from around the world.
Overseas competitors frequently enjoy massive cost advantages generated by such
factors as lower production expenses and lower labour costs.
As a result of this development, the demand for transport, storage, trans-shipping,
communications, planning and control services is continuously growing. At the same
time, pressure to optimise the quality and costs of services is growing on companies.
Logistics has become one of the most important levers that companies can use to
survive and succeed in global competition.
Examiners comments:
This question was not well answered by the majority of candidates. Most candidates
provided very superficial answers to this question, demonstrating limited understanding of
the potential opportunities for the organisation within the current global economic
environment. Most answers covered the potential threats in better depth, but overall answers
were weak.

Question 4
Learning Outcome 2: Understand a range of classical and contemporary models, concepts
and tools in business strategy and planning.
Discuss the contribution of the concept of a Learning Organisation to creating
competitive advantage.
Suggested answer:
Learning organisation is the term given to a company that facilitates the learning of its
members and continuously transforms itself. Learning organisations develop as a result of
the pressures facing modern organisations and enables them to remain competitive in the
business environment. A learning organisation has five main features; systems thinking,
personal mastery, mental models, shared vision and team learning. The Learning
organisation concept was coined through the work and research of Peter Senge and his
colleagues It encourages organisations to shift to a more interconnected way of thinking.
Organisations should become more like communities that employees can feel a
commitment to. They will work harder for an organisation they are committed to.
According to Peter Senge, a learning organisation exhibits five main characteristics:
systems thinking, personal mastery, mental models, a shared vision, and team learning.
Systems thinking. The idea of the learning organisation developed from a body of work
called systems thinking. This is a conceptual framework that allows people to study
businesses as bounded objects. Learning organisations use this method of thinking when
assessing their company and have information systems that measure the performance of
the organisation as a whole and of its various components. Systems thinking states that all
the characteristics must be apparent at once in an organisation for it to be a learning
organisation. If some of these characteristics are missing then the organisation will fall short
of its goal.
Personal mastery. The commitment by an individual to the process of learning is known as
personal mastery. There is a competitive advantage for an organisation whose workforce
can learn more quickly than the workforce of other organisations. Individual learning is
acquired through staff training and development, however learning cannot be forced upon
an individual who is not receptive to learning. Research shows that most learning in the
workplace is incidental, rather than the product of formal training, therefore it is important to
develop a culture where personal mastery is practiced in daily life.
Mental models. The assumptions held by individuals and organisations are called mental
models. To become a learning organisation, these models must be challenged. Individuals
tend to espouse theories, which are what they intend to follow, and theories-in-use, which
are what they actually do. Similarly, organisations tend to have memories which preserve
certain behaviours, norms and values. In creating a learning environment it is important to
replace confrontational attitudes with an open culture that promotes inquiry and trust. To
achieve this, the learning organisation needs mechanisms for locating and assessing
organisational theories of action.
Shared vision. The development of a shared vision is important in motivating the staff to
learn, as it creates a common identity that provides focus and energy for learning. The most
successful visions build on the individual visions of the employees at all levels of the
organisation, thus the creation of a shared vision can be hindered by traditional structures
where the company vision is imposed from above. Therefore, learning organisations tend to

have flat, decentralised organisational structures. The shared vision is often to succeed
against a competitor.
Team learning. The accumulation of individual learning constitutes Team learning. The
benefit of team or shared learning is that staff grow more quickly and the problem solving
capacity of the organisation is improved through better access to knowledge and expertise.
Learning organisations have structures that facilitate team learning with features such as
boundary crossing and openness. Team learning requires individuals to engage in dialogue
and discussion; therefore team members must develop open communication, shared
meaning, and shared understanding. Learning organisations typically have excellent
knowledge management structures, allowing creation, acquisition, dissemination, and
implementation of this knowledge in the organisation.
Examiners comments:
Answers to this question were very poor. Very few candidates made a reasonable attempt at
this question. This was seemingly due to lack of appropriate syllabus knowledge. This is
clearly an area which candidates and tutors must concentrate on in future.

Question 5
Learning Outcome 3: Understand the processes by which organisations identify and develop
their goals and values.
Explain the nature and purpose of the following:
(i) A mission statement
(ii) The organisations values
(iii) The organisations objectives
Suggested answer:
(i)

The organisations mission statement

A mission statement is a statement of the purpose of a company, organisation or person, its

reason for existing. The mission statement should guide the actions of the organisation,
spell out its overall goal, provide a path, and guide decision-making. It provides "the
framework or context within which the company's strategies are formulated."
Effective mission statements start by articulating the organisation's purpose of existence.
Mission statements often include the following information:
Aim(s) of the organisation.
The organisation's primary stakeholders: clients/customers, shareholders, staff etc.
How the organisation provides value to these stakeholders, for example by offering
specific types of products and/or services.
A declaration of an organisation's sole core purpose. A mission statement answers
the question, "Why do we exist?"
A mission statement should:
Define what the company is.
Be broad enough to allow for creative growth.
Distinguish the company from all others.
Serve as framework to evaluate current activities.
Be stated clearly so that it is understood by all.
For example:
McDonald's - "To provide the fast food customer food prepared in the same high-quality
manner world-wide that has consistent taste, serving time, and price in a low-key dcor and
friendly atmosphere."
The mission statement can be used to resolve trade-offs between different business
stakeholders. Stakeholders include: managers and executives, non-management
employees, shareholders, board of directors, customers, suppliers, distributors,
creditors/bankers, governments (local, state, federal, etc.), labour unions, competitors,
NGOs, and the community or general public. By definition, stakeholders affect or are
affected by the organisation's decisions and activities.
(ii)
Organisations values
Increasingly organisations have been keen to develop and communicate their corporate
values that are designed to define the way that the organisation operates. Core values are
known as the underlying principles that guide an organisation. For example, schools and
universities will have an overriding commitment to the life-long educational achievements of
their pupils. Private sector organisations may focus their core values in delivering optimum
services to their customers or to operate in the most socially and environmentally

responsible way to ensure long-term sustainability of the planet. The purpose of

organisational values is that it communicates to all stakeholders what can be expected and
the standards that should be expected from the organisation.
The risk with public statements of organisational core values are that if an organisation fails
to live up to these values then it can severely damage reputation of the organisation. Often
there can be a degree of cynicism surrounding core values unless organisations make it
clear as to whether the values are expected or aspirational.
(iii)
Organisations objectives
Objectives are statements of specific outcomes that are to be achieved. Objectives are
often expressed in either quantitative or financial terms. They can be expressed in terms of
profit levels, market share, repeat business or rates of growth in areas such as sales or
dividends.
Objectives are typically quantified, i.e. they are measurable.
Examiners comments:
This question was well answered by many candidates. Most had a sound knowledge and
understanding of mission statement and organisational values and objectives. However, the
main weakness of answers to this question was that many candidates provided very brief
answers which did not adequately cover all aspects of the question requirement, i.e. to
explain their nature and purpose. Candidates must make sure that they understand what is
being asked in the question requirement and that they answer the question that has been
set.

Section B
Question 6
Learning Outcome 1: Understand the nature, scope and need for strategic business
management and planning in international profit and not-for-profit organisations.
Appraise the challenges faced by multinational corporations when operating in
several international locations. Illustrate your answer with relevant examples of
multinational corporations.
Suggested answer:
A multinational corporation (MNC) or multinational enterprise (MNE) is a corporation that is
registered in more than one country or that has operations in more than one country. It is a
large corporation which both produces and sells goods or services in various countries. It
can also be referred to as an international corporation. MNCs play an important role in
globalisation. A corporation may choose to locate in a special economic zone, which is a
geographical region that has economic and other laws that are more free-market-oriented
than a country's typical or national laws.
International business arrangements have led to the formation of MNCs, which have a
worldwide approach to markets and production or have operations in more than one
country. Well known MNCs include fast food companies such as McDonald's, General
Motors, Toyota, Samsung, LG and Sony, and energy companies such as ExxonMobil, Shell
and BP.
These international business transactions involve economic resources such as capital,
natural and human resources used for international production of physical goods and
services such as finance, banking, insurance, construction and other productive activities.
For MNCs they face the challenge of co-ordinating their business operations across these
multiple locations and across multiple business dimensions, i.e. sourcing of finance, the
management of human resources and the managements of facilities all has to be carried
out within different countries, all with different and sometimes conflicting environmental
conditions.
Most of the largest corporations operate in multiple national markets. Businesses generally
argue that the main challenge is survival in the new global marketplace and this requires
companies to source goods, services, labour and materials overseas to continuously
upgrade their products and technology in order to survive increased competition.
Industrialisation, advanced transportation, outsourcing and of course, the development of
multinational corporations all have a major impact on world trade. The growth of
international trade is a fundamental component of globalisation. Often, countrys
governments actively encourage the activity of MNCs in order to increase foreign direct
investment by foreign investors within their home countries. This has been developed
through the use of trade blocs and fee trade areas in recent years. A free trade area is a
trade bloc whose member countries have signed a free-trade agreement, which eliminates
tariffs, import quotas, and preferences on most (if not all) goods and services traded
between them. The European Union, for example, a confederation of 28 member states,
provides both a free trade area and an open border. The ASEAN Free Trade Area is a trade
bloc agreement by the Association of Southeast Asian Nations supporting local
manufacturing in all ASEAN countries.

This type of trading arrangement offers great advantages for MNCs as they encourage the
development of their businesses in many different countries throughout the world without
being hindered by political and economic barriers in each different country in which they
wish to operate. However, MNCs are likely to face heavy investment costs and increased
costs of product and service development in order to adapt their products and services to
the variety of locations in which they operate.
For MNCs, political risk is an obvious threat. Political risk refers to the risk that a host
country will make political decisions that will prove to have adverse effects on the
multinational's profits and/or goals. Adverse political actions can range from such as
widespread destruction due to revolution or regime change, to those of a more financial
nature, such as the creation of laws that prevent the movement of capital.
In order to minimise political risk, the MNC should conduct research on the riskiness of a
country, either by paying for reports from consultants that specialise in making these
assessments or doing research itself, using the many free sources available on the internet
(such as the U.S. Department of State's background notes).
Examiners comments:
Few candidates attempted this question, though those that did attempted it reasonably well.
Most candidates discussed a range of relevant advantages of operating as a MNC but few
answers adequately discussed the challenges faced. However, overall answers to this
question showed a reasonable level of understanding of multi-national business operations.

Question 7
Learning Outcome 1: Understand the nature, scope and need for strategic business
management and planning in international profit and not-for-profit organisations.
Discuss the three levels of strategy within an organisation. In your discussion include
the importance of integrating the functional level of strategy with the other two levels.
Suggested answer:
Corporate level strategy
The top level of strategy within an organisation is called corporate level strategy. This is
concerned with the overall scope of the organisation and how value can be added to the
different parts (strategic business units) of the organisation. This is likely to include the
range of products/ services offered, the geographical location of its operations and how
resources should be allocated between the different parts of the organisation. Often
corporate level strategy is driven by the expectation of the owners or shareholders and may
also be driven by the overriding mission and values of the business. Corporate level
strategy plays an important role in the strategic business management and planning
process as it sets out the overarching direction of the organisation and provides a long-term
view of the business and its structure.
Business level strategy
The second level of strategy is called business level strategy, which is concerned with the
various businesses included in the corporate strategy and how these should compete in
their particular markets. Whereas corporate level strategy was concerned with decisions
relating to the organisation as a whole, business level strategy focuses upon the strategic
decisions which relate to particular strategic business units (SBUs) operating within the
organisation. A strategic business unit is a part of an organisation for which there is a
distinct external market for goods or services that is different from another SBU. Often
business level strategies are referred to as competitive strategy as it is largely concerned
with how the SBUs should compete in their market. Therefore these strategies often relate
to pricing, innovation, quality and distribution.
Clearly the business level strategies should support the overall corporate strategy, in
achieving the overall long-term goals and mission set at this level. SBUs have to make sure
that their business level strategies do not damage the corporate whole or other SBUs in the
organisation.
Functional level strategy
The third level of strategy is called functional level and focuses upon the operational end of
the organisation. Functional level strategies are concerned with how the component parts of
an organisation deliver effectively the corporate and business level strategies in terms of
resources, processes and people. At the functional level, each department or function will
have their own strategies which will focus upon the optimisation of the day to day activities
and resources allocation to ensure that the SBU achieves its overall strategies.
The role of the functional level strategy
In most modern businesses, it is at this level that organisations must focus their strategic
business management activities, as successful business strategies depend to a great extent
upon the decisions which are taken or the activities which take place at the functional level.
In the current dynamic global business environment, it is often the case that the staff at this
level of the organisation have a much greater awareness of the business and the needs of
the customers and users. Innovation and development largely is stimulated at this level of

the organisation and if organisations are to survive in this dynamic business environment,
then it is likely to be driven by the activities and processes that are occurring at the
functional level of the organisation. Therefore it is critical that there is a keen awareness of
business unit managers and corporate level planners of the activities and strategies
occurring at this level of the organisation. It is likely, that as organisations become more
dynamic and innovative, that corporate level strategy will be driven by the functional level
strategy, using a bottom up approach rather than the traditional corporate led, top down
approach to strategic business management.
Examiners comments:
This question was generally well answered by candidates although very few answered the
whole requirement. Most demonstrated a good understanding of the three levels of strategy.
However, very few answers then went on to discuss the importance of integrating the
functional level strategy within the other two levels. This was a weakness of most answers,
as they were considered to be incomplete.

Section C
Question 8
Learning Outcome 4: Understand the impact of political, economic, social, technological,
environmental and legal factors on an organisation.
(a) Evaluate the impact of the dynamic global business environment upon the
usefulness of environmental analysis tools such as PESTEL.
Suggested answer:
The PESTEL framework for environmental analysis provides a comprehensive list of
influences on the possible success or failure of particular strategies. For managers it is
critically important to evaluate how the PESTEL factors are changing now and how they are
likely to change in the future. Significantly for organisations, the dynamic nature of the
global business environment has placed a greater emphasis upon environmental
awareness of organisations, as those who do not keep pace with the changes happening
with their business environment are likely to get left behind very quickly. Therefore the
dynamic global business environment has had a significant effect upon the importance of
regular and thorough environmental analysis.
Political Analysis
The political aspects of the environment will consider issues such as government stability,
taxation policies, legislation, political union and political unrest. Changes in this aspect of
the environment can have far reaching implications on the organisation and can seriously
damage an organisation if it is caught unaware by political changes. For example, recent
political uprising in the Middle East and Northern Africa will have had serious consequences
on many organisations operating within these countries. Changes in government can result
in higher taxes or breakdown of legal systems which could result in damaging losses for
businesses. Therefore organisations must be constantly aware of the political environments
within which they operate and that they have sufficient safeguards in place to ensure that
any wide scale political changes will not threaten their survival.
Economic Analysis
The economic aspects of the environment will consider interest and exchange rates, levels
of inflation, business cycles such as recession and evaluation of unemployment levels and
disposable incomes. Many companies may have been caught out in the last 3 or 4 years by
the depth of the current worldwide economic recession, evidenced by the number of
business failures throughout the globe. The economic downturn in many countries around
the world has had far reaching consequences upon many businesses. Although
environmental analysis would not necessarily have assisted business in preventing the
consequences of a recession, analysis of the economic environment would have helped
them to prepare more effectively and have in place plans in order to protect them more
effectively.
Social Analysis
The social aspects of the environment will consider demographics, the culture and life style
of the population, the education levels and income distribution. Society is clearly changing
and economic mobility and the freedom of movement between national borders has made
the assessment of social factors within the environment far more complex. Social movement
and the inter-related aspects of economic recession and the impact on technology on
consumers have also added to the complexity of social analysis. Therefore, this aspect of
environmental analysis has been made extremely difficult by the dynamic global business

environment. Nevertheless, the focus upon society is critical to businesses in order to

survive in a highly competitive global market and therefore remains a critical aspect of
environmental analysis.
Technological Analysis
The technological aspects of the environment will consider rate of innovation in technology,
new discoveries and rates of obsolescence. The speed of change in the technological
environment has arguably had the biggest impact upon the global business environment.
The internet and the developments in e-commerce and telecommunications technology has
revolutionised businesses, in terms of how they interact with customers, the products and
services they offer and their location. Clearly, an awareness of the technological
environment is likely to be critical to the survival of many businesses as without this
awareness they are likely to be very quickly left behind.
Ecological Analysis
The ecological aspects will consider issues relating to energy and waste management,
impact of the business on the environment and environmental protection legislation and
activities. Again, the ecological impact of the business world us coming more and more
under scrutiny and global business are increasing aware of their responsibilities to
sustaining the environment. Governments and international bodies are placing greater
emphasis on sustainable business activities and therefore organisations must consider
these when devising business strategies. Sustainable business activities are becoming a
critical success factor for many international businesses.
Legal Analysis
This will consider all legislative activities affecting businesses. Often legislative changes are
slow moving but will have far reaching consequences. Therefore organisations must be
constantly scanning the legal environment.

(b) Provide an example of an organisation operating within a dynamic global business

environment that would benefit from undertaking a PESTEL analysis and explain how
the organisation would benefit.
Suggested answer:
An organisation such as the Apple Corporation takes environmental analysis very seriously.
It operates within a highly technological environment upon a global scale and considers
regular environmental analysis of the key PESTEL factors as critical to its long-term
survival.
Examiners comments:
This question was a popular question with candidates in Section C. However, generally it
was not answered well by many candidates. This was largely due to the fact that very few
candidates actually focused upon the question that had been set. Most answers were largely
based upon a description of the PESLTE framework, rather than correctly upon how a
dynamic global business environment affects the usefulness of such models. Many
candidates missed this altogether and therefore failed this question. Candidates are
reminded that they must answer the question that has been set.

Question 9
Learning Outcome 4: Understand the impact of political, economic, social, technological,
environmental and legal factors on an organisation.
(a) Discuss the key drivers of environmental complexity and the impact that these
have on international businesses.
Suggested answer:
Complexity is today often considered the latest business buzzword it reflects a current
business reality. When globalisation entailed a far-reaching erosion of boundaries,
complexity multiplied to its current heightened level. Many types of boundaries have faded:
trade liberalisation allows for a substantially easier flow of goods, capital, people, and
knowledge around the globe.
Many companies from developed and developing economies have tried to tap the benefits
of globalisation to an unprecedented degree and therefore face as well as contribute to
the complexity of eroding boundaries. Sometimes abolishing boundaries creates new
homogeneity in a larger area (e.g. the Euro currency), but this is not always the case.
Various motives rank high on the list of possible drivers for foreign expansion, such as
learning, spreading risk, gaining access to new customers, realising economies of scale and
scope, or optimising ones value proposition with partners. Complexity is the most common
and pervasive challenge that arises. Managing complexity must become a core competency
of top executives and management.
The drivers of complexity:
There are four major sources that interact together to create todays complex business
environment. Each of these sources of complexity was created by the erosion of
boundaries, but their effects are different from each other.
Diversity:
Global organisations face a complex set of challenges characterised by diversity both inside
and outside the organisation. Inside the organisation, executives must manage and respond
to more diversity in the (internationalising) HR pool; more variety in the management
systems; more variation in the means and ends ranging from simple financial goals to a
more comprehensive view; and different business models for different types of business
units. Outside the organisation there is higher diversity: complex customer needs; differing
cultural values; a diverse range of stakeholders with different claims (investors, customers,
employees). Most firms today increasingly face each of these types of diversity. Managing
the differences is not trivial, and reducing diversity can often mean being less responsive.
Interdependence:
Companies must manage the effect of global interdependence to an unprecedented degree:
everything is related to everything else. Value webs have replaced traditional value chains.
Reputation, financial flows, value chain flows, top management and corporate governance
issues have reached advanced levels of interdependence. The less clear-cut the
boundaries of a company become, the more it is exposed to impacts on the value chain flow
through mistakes, frictions, reverse trends, or even shocks.
Interdependence creates opportunities for organisations, but taking advantage of these
opportunities raises difficult challenges.
Ambiguity:
The business world today is characterised by too much information with less and less clarity

on how to interpret and apply insights. A diversity of accounting standards renders financial
figures ambiguous. Studies, scenarios, survey results, and reports become less reliable due
to an ever-increasing uncertainty. Many businesses find it more and more difficult to
discover what their clear value drivers are. Are they image, price, related services,
privileged relationships, speed, knowledge, or something else? The cause-effect
relationships become blurred.
Flux:
As if these three complexity drivers were not enough, managers have to face yet another
one; flux or change. Even if you figure out temporary solutions regarding interdependence,
diversity and ambiguity for your specific company, industry, and personal situation, the
situation can change the next day. Todays solutions may be outdated tomorrow.
What are the repercussions?
Everything is diverse, and nothing is stable, everything is in fast flux: interdependence is
flowing in changing directions. The future is no longer the prolongation of the past industry
breakpoints, fundamentally altering the value proposition in industries, occur more rapidly.
The variety of options could overwhelm traditional decision-making, as information often
lacks clarity and is ambiguous. Multiple interpretations of the same facts are possible,
depending on the perspective or cultural framework. Shared understanding cannot be
assumed per se, whether inside or outside the organisation. Thus, interdependence,
diversity and ambiguity all in flux are the building blocks of managerial complexity and
explain why global companies have often been perceived as the most complex
organisations.

(b) Provide one example of an organisation which operates within a complex business
environment. Justify your choice of example.
Suggested answer:
There are very many examples that candidates could choose. These could include:
Glaxo, BP, McDonalds, Microsoft, Apple.
Most multi-national organisations will experience some, if not all of the environmental
complexity factors described above. Candidates are expected to present an example and
then explain which factors and to what extent do they impact upon the example
organisation.
Examiners comments:
Very few candidates attempted this question. Those that did failed to do so adequately. This
was largely due to a lack of basic syllabus knowledge relating to the drivers of environmental
complexity. This should have been a fairly straightforward question directly relating to
syllabus content but this is clearly an area which most candidates have not revised.

Conclusions
Overall, candidate performance has improved in this session from previous sittings. This is
very encouraging and demonstrates that candidates are developing and improving their
syllabus knowledge and more importantly, their skills in the application of this knowledge
which is critical if candidates are to pass this examination.
However, some candidates clearly do not have an adequate depth or breadth of syllabus
knowledge to pass this strategic level examination. Some candidates still appear to be
poorly prepared to sit this paper as they do not have either the syllabus knowledge or the
skills to adequately discuss and evaluate the material presented.
Positive aspects of performance were:
Application of answers to the scenario information in Questions 1 and 2 in particular was
evident in many answers but this still needs to be improved upon. As stated many times
before, mere description or drawing of models is not sufficient to be awarded a pass mark
in these applied questions.
Candidates provide a good range of examples to support their answers which is to be
encouraged. An understanding of real life examples of strategic business management
and planning is an important aspect of developing appropriate knowledge in this subject.
Candidates must be aware that in order to pass this examination they must answer the
question that has been set and must ensure that answers are applied, wherever possible, to
the scenario organisation or to organisations with which they are familiar. As stated
previously, theoretical answers will not be awarded a pass grade.
Recommendations to students and tutors for future examinations
The key recommendations to improve future performance are as follows:
Candidates must continue to ensure that they attempt to apply their answers to the
scenario information or question context wherever required. Description of models or
theories is not sufficient to pass. In particular, when answering scenario based questions
candidates are advised to use the information within the scenario as much as possible to
help them answer the question.
Candidates must understand the verb used in each requirement to ensure that their
answer is at the appropriate level. They must evaluate or discuss if asked to do so.
Merely describing or identifying will not be sufficient to gain a pass grade.
Candidates must read each question requirement very carefully in order to ensure that
they are answering the question set. Far too many answers are not focused upon the
question set and therefore fail.
Candidates must attempt every question they are required to answer. Many papers were
incomplete, seemingly driven by insufficient syllabus knowledge. Candidates must revise
the whole of the syllabus.