Cima E2 Exam Question No 68

Question No 68:

C is planning to set up a dry cleaning and laundry business which will be a new venture for her. She has identified suitable premises which are located in the commercial centre of S City. This could be viewed as a high risk strategy since it would be the only business of its type in the commercial centre. 

However, C's view is that there is significant potential to provide dry cleaning and laundry services to customers who commute to the city from where they live and where dry cleaning and laundry businesses already exist.

C now needs to determine on what basis her new dry cleaning and laundry business could gain sustainable competitive advantage.

Required:
(a) Describe the different ways in which C's dry cleaning and laundry business could seek to gain competitive advantage.

(b) Explain the factors C should consider when deciding on the basis for her business's competitive strategy.

 
Answer:
Requirement (a)
According to Porter, there are three possible ways through which C could develop her business to achieve competitive advantage over rival businesses. Firstly, she could decide to compete on the basis of cost (cost leadership). By offering the laundry and dry cleaning services at significantly lower prices than her competitors, C could attract price conscious customers. However, to sustain its advantage C would need to ensure that customers are satisfied with the quality of service provided in order that they keep returning to her business.

A second option for C would be to offer potential customers something unique that they value in terms of the services her business could provide that competitors might not easily copy or imitate (differentiation), such as excellent customer service.

Finally, C could decide to concentrate her business on just a small part of the potential market by offering a specialised laundry and cleaning service tailored to the needs of a particular market segment rather than trying to cater for the mass market. This approach to achieving competitive advantage is called focused differentiation

Requirement (b)
In deciding the basis for her business's competitive strategy, C will need to consider which strategy best positions her business relative to potential rivals, in the light of the threats and opportunities posed within the market and also the general environment.

This will involve C analysing the environment in which her business will operate to assess likely strengths and weaknesses when compared to rival businesses.

Cost leadership may prove a difficult route for C's business due to the potentially high costs normally associated with operating in a city centre location. However, the location C is considering for her dry cleaning and laundry business could prove to be its greatest strength of all despite the fact that its potential customers do not live nearby.

C could exploit this by offering commuters a high quality and convenient service together with a fast turnaround, then price may not be as crucial a factor. This would use differentiation as the basis of the business's competitive strategy.

Whilst C's business may be unlikely to compete with dry cleaners located in the commuter towns in terms of the range and diversity of items cleaned, e.g. curtains and bed linen as well as clothes, it could focus on business suits and other garments dropped off/picked up by office workers on their way to and from work.

She could even target commercial premises themselves and have a pick up and drop off service for laundry, which could present a distinct advantage over rival businesses.

Cima E2 Exam Question No 67

Question No 67:

What is Network organisations?
Network organisations are more flexible than traditional organisations as it is easy to increase or reduce capacity through using the outsource company or the alliance.

Cima E2 Exam Question No 66

Question No 66:

What is Virtual organisations?

Virtual organisations are a type of network organisation with a focus on the use of IT as the communication tool between its employees and also between employees and contractors. 
This enables everyone to be located in geographically disperse locations yet still work together to produce the end product.

Cima E2 Exam Question No 65

Question No 65:

Network organisations and transaction cost theory
A network organisation depends to a large extent on relationships it builds with other parties. Indeed the term "network" derives from the dependency of the firm on the networks it builds with others.

The organisation itself typically aims to keep the number of directly employed staff to a minimum and as far as is possible its activities be outsourced to an external provider with the role ofthe organisation to co-ordinate the outsourced activities.

The organisation will tend to keep "in-house" the key drivers of its ability to compete. They may also rely on strategic alliances with other firms in order for the organisation to be a success. Examples include the Research and Development of joint products, or agreements to on-sell work to each other.

Cima E2 Exam Question No 64

Question No 64:

Matrix Structure for flexibility
A matrix structure aims to combine the benefits of having the expertise associated with business functions with the product or customer focus of divisions. Each member of staff will be a member of a business function such as marketing or finance, while also being assigned to a product, customer or project group. Each product, customer or project group has its own manager responsible for the objectives of that product area and managing the staff assigned to them from each of the other business functions. This structure is common in project based organisations

Cima E2 Exam Question No 63

Question No 63:

 Define Financial flexibility?

Financial flexibility allows the cost of labour to reflect market conditions, for example through flexible pay that can fluctuate according to market rates, or through performance related pay schemes.

Cima E2 Exam Question No 62

Question No 62:

What is Numerical flexibility?
Numerical flexibility allows the number of staff to be increased or reduced as needed in the business. This can be achieved by using short term employment contracts, part-time employment, job sharing, self employment, contracting out, homework, franchising,and agency temps.

Cima E2 Exam Question No 61

Question No 61:

Define Functional flexibility?
Workers are not restricted to one work role, but have a wide range of skills, and flexible working hours to be able to meet changing needs as they happen. In a hotel for instance, a member of the bar team may have skills to help out reception if when a coach party arrives with many guests all needing to be booked in at the same time.

Cima E2 Exam Question No 60

Question No 60:

Define Workforce flexibility?
One key element of flexibility is the flexibility of staff. According to Atkinson there are three forms of workforce flexibility: Functional flexibility ; Numerical flexibility; Financial flexibility

Cima E2 Exam Question No 59

Question No 59:

Blame problems on the incompetent people below
This will quickly undermine subordinates and reduce confidence to put new ideas forward.

Cima E2 Exam Question No 58

Question No 58:

What is Punish failure?
Practice public humiliation, making object lessons out of those who fail to meet expectations. Everyone will soon know that risk-taking is bad.

Cima E2 Exam Question No 57

Question No 57:

Strategies and plans are made by a small group
This discourages a range of new and innovative ideas and keeps the status quo.

Cima E2 Exam Question No 56

Question No 56:

Stress predictability above all
Count everything, favour precise planning, don't reward performing above the norm andinsist that all procedures be followed.    
 

Cima E2 Exam Question No 55

Question No 55:

Encourage cut-throat competition
Get groups to critique and challenge each other's proposals, preferably in public forums, and then declare winners and losers. As typically there need to be many bad ideas put forward for every one strong one you end up with lots of losers and people soon stop putting ideas forward at all.

Cima E2 Exam Question No 54

Question No 54:

Kanter's 9 rules for stifling innovation   

1. Managers are suspicious of any new idea from below
2. Invoke history. Whenever a new idea arises, people find a similar previous idea that did not work to justify which this one will not work either.
3. Keep people really busy
4. Encourage cut-throat competition
5. Stress predictability above all
6. Strategies and plans are made by a small group.
7. Punish failure.
8. Blame problems on the incompetent people below
9. Never forget that we got to the top because we already know everything there is to know about this business.

Cima E2 Exam Question No 53

Question No 53:

What is Innovation?
Innovation means to do something differently from the way it was done in the past. In business this can often be linked to: •New products or services •New procedures •Use of new technology •Using new methodologies Innovation is particularly important to companies who tend to be on the leading edge of their field of expertise as that innovation can lead to a competitive advantages. Note though that innovation is not just about better products, quality or service, a new process could help to create efficiencies or cut costs, so cost leaders also need to be innovative to succeed. Innovation differs from invention in that innovation refers to the use of a better and, as a result, novel idea or method, whereas invention refers more directly to the creation of the idea or method itself. Innovation differs from improvement in that innovation refers to the notion of doing something different rather than doing the same thing better.   

Cima E2 Exam Question No 52

Question No 52:

Long-term and Short-term Time Orientation?
This relates to the extent that a society demonstrates a future versus a historically based perspective of time. China has a high score in this respect, meaning its people focus on the long term. The UK has a more short-termist approach in its culture.

Cima E2 Exam Question No 51

Question No 51:

What is Masculinity/femininity (MAS)?
Masculinity relates to assertiveness, competitiveness and acquisitiveness as opposed to more feminine values of compromise, caring and collaboration. Masculinity is very high in Japan where they perceived achievement to be the result of individual ability, determination and hard work. It is very low in Sweden.

Cima E2 Exam Question No 50

Question No 50:

What is Uncertainty Avoidance?
Uncertainty Avoidance is the extent to which a culture will accept uncertainty and risk. People in cultures with high uncertainty avoidance such as Belgium try to minimise the occurrence of unknown and unusual circumstances and to proceed with careful changes step by step planning and by implementing rules, laws and regulations. In contrast, low uncertainty avoidance cultures, such as Denmark accept and feel comfortable in unstructured situations or changeable environments and try to have as few rules as possible.

Cima E2 Exam Question No 49

Question No 49:

What is Power-distance?
This is the extent to which people of lower social status accept that power is distributed unequally amongst individuals in society. National cultures that are rated high on power-distance such as many African countries have high levels of formality and hierarchy in society. Countries such as Austria and Denmark are low on this score, suggesting less formality and hierarchy in their society.

Cima E2 Exam Question No 48

Question No 48:

What is Uncertainty Avoidance?

Uncertainty Avoidance is the extent to which a culture will accept uncertainty and risk. People in cultures with high uncertainty avoidance such as Belgium try to minimise the occurrence of unknown and unusual circumstances and to proceed with careful changes step by step planning and by implementing rules, laws and regulations. In contrast, low uncertainty avoidance cultures, such as Denmark accept and feel comfortable in unstructured situations or changeable environments and try to have as few rules as possible.

Cima E2 Exam Question No 47

Question No 47:

Porter's Generic Strategies - Focus

Porter also noted that both cost leadership and differentiation strategies could be followed with narrow or wide market focus. Broad focus - the organisation sells a product range which will appeal to a wide group of customers. Narrow focus - the organisation focuses effort and resources on a narrow, defined segment of a market. This strategy is often used by smaller firms who can not afford to target the market as a whole

Cima E2 Exam Question No 46

Question No 46:

Porter's Generic Strategies - Differentiation

A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition.
 
The value added by the uniqueness of the product may allow the firm to charge a premium price for it.
 
The firm hopes that the higher price will more than cover the extra costs incurred in offering the unique product.  Ways in which differentiation can be achieved include:

• Better quality product
• Better customer service
• Better brand image
• Different features from the competition
• Better after-sales service. 

Cima E2 Exam Question No 45

Question No 45:

Porter's Generic Strategies - Cost Leadership   

Cost Leadership This means being the lowest cost producer in the market. For similar products selling at the market price the cost leader will generate higher profits. They can alternatively sell at lower prices and generate market share. In times of falling prices, the cost leader is able to sustain profitability for longer and survive where other companies may fail. Cost advantages can be achieved by minimising costs throughout the value chain. For example through:

• Making a significant investment in efficient production machinery. 
• Designing products for efficient manufacturing 
• Using efficient distribution channels, minimising sales and distribution costs. 
• Sourcing low cost supplies. •Generating economies of scale through mass production.

Cima E2 Exam Question No 44

Question No 44:

Porter's Generic Strategies - Competitive Advantage?

Competitive Advantage is where one business entity has an advantage over its rivals when competing with them in the marketplace. In order to be successful each business must have a source of competitive advantage or in the long term its competitors will attract more customers and ultimately the firm will go out of business. Michael Porter identified two basic types of competitive advantage cost leadership and differentiation.