(ii) Evaluate the relative advantages and disadvantages of Chen’s risk management committee beingnon-executive rather than executive in nature. (7 marks)

正确答案：
(b) Divestment of products or parts of the business is one of the most difficult strategic decisions. As apparent in Bonar Paint a
reduction in the products and customers served by the firm is likely to cause significant changes to the firm’s value chain and
system. Currently Bonar Paint supplies its customers, regardless of size, directly and this inevitably means that their
distribution costs are increased. The reduction in products and customers may allow a choice to be made about the costs of
supplying customers directly as against using distributors to handle the smaller customers.
In using the value chain one is looking to identify the significant cost activities and how those costs behave. Some costs may
be affected by the overall size of the firm e.g. advertising while others affected by the batch size being processed. The changeto fewer products will lead to a bigger batch size and a number of positive consequences for costs. The value chain’s major
benefit is in identifying and quantifying the links that exist between various activities within the firm and between the firm
and its customers and suppliers. In Bonar Paint’s case does a reduction in product range lead to less product failures and
consequent warranty claims? Does simplifying the product range lead to shorter lead times and better delivery time
performance for its customers? Above all, a good understanding of its value chain will let it know if it changes an activity what
are the consequences for other parts of the system.
In terms of reducing the product range, before such a decision is taken Bonar Paint must carry out a thorough analysis of the
pattern of customer demand for each paint type. In all probability it will find that 80% of its sales come from 20% of its
product range. Having given this qualification, reducing the product range can have a number of beneficial results on other
parts of the value chain. The immediate effect is likely to be that Bonar Paint produces fewer batches over a given time period
but produces them in larger quantities. This will bring cost savings but the impact on other parts of the value chain is equally
important. The beneficial effects are:
– With a smaller product range the control of raw materials and finished inventory will be simplified affecting inbound and
outbound logistics. This will improve the inventory turn and make for better product availability.
– With an improved inventory turn this will reduce the firm’s working capital needs and release significant amounts of
cash.
– A simpler operations process should facilitate staff savings and support more automation.
– Warranty claims and support costs could be reduced.
– Bonar Paint will be purchasing fewer raw materials but in greater volume and on a more regular basis. This will lead to
improved price and delivery terms from its suppliers.
– Bonar Paint can offer improved product reliability and better delivery to its customers and should improve its market
share.
In terms of operational disadvantages, these therefore are largely in terms of the impact on customer service levels seen in
terms of product range availability. Once again it is important to have accurate information on the sales and profitability of
each product so informed divestment decisions could be taken. Care must be taken to identify any paints, which though
ordered infrequently, and in small quantities are a pre-cursor for customers ordering other paints. Some important customers
may require that the full range of their paint needs are met in order to continue buying from Bonar Paint.
Reduction of the product range and customer base is an important strategic decision. Eliminating non-contributors or ‘dog’
products both in terms of paints and customers is a key part of managing the product portfolio. However, inertia both in terms
of products and customers is a real strategic weakness. In terms of the three tests of suitability, acceptability and feasibility
the analysis suggests that only acceptability is likely to be an issue. Tony Edmunds needs to be convinced that it is an
appropriate strategy to adopt. It is the lack of accurate sales analysis that lies at the heart of the problem and that is his areaof responsibility!

正确答案：

(c) Within the strategy clock, ONA might consider both differentiation and focus. A differentiation strategy seeks to provide
products or services that offer different benefits from those offered by competitors. These benefits are valued by customers
and so can lead to increased market share and, in the context of ONA, higher seat utilisation. Differentiation is particularly
attractive when it provides the opportunity of providing a price premium. In other words, margins are enhanced through
differentiation. Air travellers may be willing to pay more to travel with an airline that offers seat allocation and free in-flight
food and drinks.
However, such a broad-based differentiation strategy may be inappropriate for ONA because of the need to service both
business and leisure travellers. Consequently, the potential strategy also has to be considered in the context of the two sectors
that the company perceives that it services. In the regional sector a focused differentiation strategy looks particularly attractive.
Here, the strategy focuses on a selected niche or market segment. The most obvious focus is on business travel and building
the company’s strengths in this sector. This focus on the business traveller might be achieved through:
– Ensuring that flight times are appropriate for the business working day. This is already a perceived strength of the
company. This needs to be built on.
– Providing more space in the aircraft by changing the seating configuration – and the balance between business and
standard class. ONA currently has a low seat occupancy rate and a reduction in seat capacity could be borne.
– Fewer passengers in the aircraft may also lead to improved throughput times. Loading and unloading aircraft is quicker,
minimising the delays encountered by the traveller.
– Providing supporting business services – lounges with fax and internet facilities.
– Speeding the process of booking and embarkation (through electronic check-in), so making the process of booking and
embarkation easier and faster.
– Providing loyalty schemes that are aimed at the business traveller.
Although this focused differentiation is aimed at the business customer it is also likely that particular aspects of it will be
valued by certain leisure travellers. Given the strong regional brand (people from Oceania are likely to travel ONA) and the
nature of the leisure travel in this sector (families visiting relatives) it seems unlikely that there will be a significant fall off in
leisure travel in the regional sector.
In the international sector, the strategic customer is less clear. This sector is serving both the leisure and business market and
is also competing with strong ‘no frills’ competitors. The nature of customer and competition is different. A strategy of
differentiation could still be pursued, although perhaps general differentiation (without a price premium) may be more effective
with the aim of increasing seat occupancy rate. This sector would also benefit from most of the suggested improvements of
the regional sector – providing more space in aircraft, faster passenger throughput, electronic check-in etc. However, these
small changes will not address the relatively low flight frequency in this sector. This could be addressed through seeking
alliances with established airlines in the continental countries that it services. Simple code share agreements could double
ONA’s frequencies overnight. Obviously, ONA would be seeking a good cultural fit – the ‘no frills’ low-cost budget airlineswould not be candidates for code shares.

ONA’s perception of market segmentation, reflected in splitting regional from international travel and distinguishing leisure
from business appears to be a sensible understanding of the marketplace. However, it might also be useful for them to
consider on-line customers and commission customers (travel agents) as different segments. Perceiving travel agents as the
strategic customer would lead to a different strategic focus, one in which the amount and structure of commission played an
important part.
Finally, whichever strategy ONA adopts, it must continue to review its operational efficiency. An important strategic capability
in any organisation is to ensure that attention is paid to cost-efficiency. It can be argued that a continual reduction in costs
is necessary for any organisation in a competitive market. Management of costs is a threshold competence for survival. ONA
needs to address some of the weaknesses identified earlier in the question. Specific points, not covered elsewhere, include:
– Improved employee productivity to address the downward decline in efficiency ratios.
– Progressive standardisation of the fleet to produce economies of scale in maintenance and training. This should reduce
the cost base.
– Careful monitoring of expenditure, particularly on wages and salaries, to ensure that these do not exceed revenue
increases.
Candidates may address this question in a number of ways. In the model answer given above, the strategy clock is used –
as it uses the term ‘no frills’ in its definition and so it seems appropriate to look at other options within this structure. However,
answers that use other frameworks (such as Ansoff’s product/market matrix) are perfectly acceptable. Furthermore, answerswhich focus on the suitability, acceptability and feasibility of certain options are also acceptable.

正确答案：
(b) Clearly, there is a link between the ability to write a business plan and the willingness, or otherwise, of small firms to carry
out strategic planning. Whilst writing a business plan may be a necessity in order to acquire financial support, there is much
more question over the benefits to the existing small business, such as Gould and King, of carrying out strategic planning.
One of the areas of greatest debate is whether carrying out strategic planning leads to improved performance. Equally
contentious is whether the formal rational planning model is worthwhile or whether strategy is much more of an emergent
process, with the firm responding to changes in its competitive environment.
One source argues that small firms may be reluctant to create a strategic plan because of the time involved; small firms may
find day-to-day survival and crisis management prevents them having the luxury of planning where they mean to be over the
next few years. Secondly, strategic plans may also be viewed as too restricting, stopping the firm responding flexibly and
quickly to opportunities and threats. Thirdly, many small firms may feel that they lack the necessary skills to carry out strategic
planning. Strategic planning is seen as a ‘big’ firm process and inappropriate for small firms. Again, there is evidence to
suggest that owner-managers are much less aware of strategic management tools such as SWOT, PESTEL and mission
statements than their managers. Finally, owner-managers may be reluctant to involve others in the planning process, which
would necessitate giving them access to key information about the business. Here there is an issue of the lack of trust and
openness preventing the owner-manager developing and sharing a strategic plan. Many owner-managers may be quite happy
to limit the size of the business to one which they can personally control.
On the positive side there is evidence to show that a commitment to strategic planning results in speedier decision making,
a better ability to introduce change and innovation and being good at managing change. This in turn results in better
performance including higher rates of growth and profits, clear indicators of competitive advantage. If Gould and King arelooking to grow the business as suggested, this means some strategic planning will necessarily be involved

正确答案：
(c) From the information given in the scenario, DPP will face significant problems if it chooses to develop a greenfield site. The
bureaucratic planning procedures adopted by the host government can add considerable time to get an efficient plant up and
running. In some ways, such governments are in a dilemma, anxious to secure foreign direct investment, but at the same
time protect inefficient domestic manufacturers. Certainly, DPP in its own risk assessment would need to take political risk
into account. In assessing the risks of a greenfield site, Ken could use Porter’s ‘diamond’ to good effect. Factor conditions
might be seen as quite favourable, with an educated, trained, albeit low productivity, labour force. However, the lack of
demanding tough global customers, a weak and inefficient domestic industry to supply the new venture and competitors who
have been highly protected mean that DPP will have to battle to create a supportive and sustaining environment. Financial
exposure may be increased through currency risk.
Clearly, the fresh start will allow integrated information systems to be developed and the latest technology to be used.
However, the new capacity will have a significant impact on DPP’s existing plants. The extent to which expatriate
management is used is clearly an issue. The host government is likely to require some commitment to the training of local
management and the degree of autonomy given to the new plant may well be an issue. Cultural issues and sensitivities will
be significant – often shop floor workers and managers will be used to high levels of absenteeism being tolerated in
government owned and controlled firms. Also the issue of involvement and participation could be an issue – there may be a
marked reluctance on the shop floor to contribute ideas towards raising productivity and quality. DPP is part of a group that
has experience of operating abroad and there is a real need to access information on key problems in greenfield operations.
In many ways the move to a greenfield site links the macro environmental analysis generated by a SLEPT or PEST to five
forces industry analysis with its focus on customers, competitors and suppliers. Certainly, creating an integrated value chain
with DPP’s existing business will be a real challenge to the management. It also adds capacity to a European industry where
there is already a problem. Choosing between the two options to achieve the strategic goal of a lower cost base can be doneusing the tests of suitability, acceptability and feasibility. The decision will not be an easy one.

正确答案：
(c) Corporate governance provisions varying by country
There is a debate about the extent to which corporate governance provisions (in the form. of either written codes, laws or
general acceptances) should be global or whether they should vary to account for local differences. In this answer, Vincent
Viola’s view is critically evaluated.
In general terms, corporate governance provisions vary depending on such factors as local business culture, businesses’
capital structures, the extent of development of capital funding of businesses and the openness of stock markets. In Germany,
for example, companies have traditionally drawn much of their funding from banks thereby reducing their dependence on
shareholders’ equity. Stock markets in the Soviet Union are less open and less liquid than those in the West. In many
developing countries, business activity is concentrated among family-owned enterprises.
Against Vincent’s view
Although business cultures vary around the world, all business financed by private capital have private shareholders. Any
dilution of the robustness of provisions may ignore the needs of local investors to have their interests adequately represented.
This dilution, in turn, may allow bad practice, when present, to exist and proliferate.
Some countries suffer from a poor reputation in terms of endemic corruption and fraud and any reduction in the rigour with
which corporate governance provisions are implemented fail to address these shortcomings, notwithstanding the fact that they
might be culturally unexpected or difficult to implement.
In terms of the effects of macroeconomic systems, Vincent’s views ignore the need for sound governance systems to underpin
confidence in economic systems. This is especially important when inward investment needs are considered as the economic
wealth of affected countries are partly underpinned by the robustness, or not, of their corporate governance systems.
Supporting Vincent’s view
In favour of Vincent’s view are a number of arguments. Where local economies are driven more by small family businesses
and less by public companies, accountability relationships are quite different (perhaps the ‘family reasons’ referred to in the
case) and require a different type of accounting and governance.
There is a high compliance and monitoring cost to highly structured governance regimes that some developing countries may
deem unnecessary to incur.
There is, to some extent, a link between the stage of economic development and the adoption of formal governance codes.
It is generally accepted that developing countries need not necessarily observe the same levels of formality in governance as
more mature, developed economies.
Some countries’ governments may feel that they can use the laxity of their corporate governance regimes as a source of
international comparative advantage. In a ‘race to the bottom’, some international companies seeking to minimise the effects
of structured governance regimes on some parts of their operations may seek countries with less tight structures for some
operations.

正确答案：
(c) Risk committee members can be either executive on non-executive.
(i) Distinguish between executive and non-executive directors
Executive directors are full time members of staff, have management positions in the organisation, are part of the
executive structure and typically have industry or activity-relevant knowledge or expertise, which is the basis of their
value to the organisation.
Non-executive directors are engaged part time by the organisation, bring relevant independent, external input and
scrutiny to the board, and typically occupy positions in the committee structure.

正确答案：

正确答案：
(ii) Disadvantages of an EVA approach to the measurement of financial performance include:
(i) The calculation of EVA may be complicated due to the number of adjustments required.
(ii) It is difficult to use EVA for inter-firm and inter-divisional comparisons because it is not a ratio measure.
(iii) Economic depreciation is difficult to estimate and conflicts with generally accepted accounting principles.
Note: Other relevant discussion would be acceptable.

正确答案：
(b) A central feature of many performance measurement systems is the widespread use of league tables that display each
business unit’s performance relative to one another. In the case of service organisations such as TSC the use of league tables
emphasises the company’s critical success factors of profitability and quality of service by reporting results on a weekly basis
at the depot level. The fact that such league tables are used by management will actively encourage competition, in terms of
performance, among depots. The individual position of a business unit in the league table is keenly observed both by the
manager of that unit and his/her peers.
In theory, performance is transparent. In practice although each depot performs essentially the same function and is subject
to the same modes of measurement, circumstances pertaining to different business units may vary significantly. Some depots
may be situated near to the hub (main distribution centre), some may be located far away and some may be in urban zones
with well developed road networks whilst others may be in remote rural areas. Measuring performance via a league table
makes no allowance whatsoever for these relative differences, hence, inequality is built into the performance measurement
system.
Moreover, depot managers might be held responsible for areas over which they have no formal control. The network nature
of the business suggests that there will be a high degree of interdependence of depots; the depot responsible for collection
will very often not be the depot responsible for delivery. Therefore, it is frequently the case that business may be gained for
which the collecting depot receives the revenue, but for which the delivering depot bears the cost. Obviously this impacts
upon the profit statements of both depots. The formal system might not recognise such difficulties, the corporate view being
that ‘the business needs to be managed’; the depots should therefore see any such anomalies as mild constraints to work
around rather than barriers to break down. In such circumstances delivering depots and collecting depots should discuss such
problems on an informal basis. Such informal discussions are aided by close communications between depots recognising
the interdependencies of the business.

正确答案：

(a) (i) Leaving the service of a board
Resignation with or without notice. Any director is free to withdraw his or her labour at any time but there is normally
a notice period required to facilitate an orderly transition from the outgoing chief executive to the incoming one.
Not offering himself/herself for re-election. Terms of office, which are typically three years, are renewable if the director
offers him or herself for re-election and the shareholders support the renewal. Retirement usually takes place at the end
of a three-year term when the director decides not to seek re-election.
Death in service when, obviously, the director is unable to either provide notice or seek retirement.
Failure of the company. When a company fails, all directors’ contracts are cancelled although this need not signal the
end of the directors’ involvement with company affairs as there may be ongoing legal issues to be resolved.
Being removed e.g. by being dismissed for disciplinary offences. It is relatively easy to ‘prove’ a disciplinary offence but
much more difficult to ‘prove’ incompetence. The nature of disciplinary offences are usually made clear in the terms and
conditions of employment and company policy.
Prolonged absence. Directors unable to perform. their duties owing to protracted absence, for any reason, may be
removed. The length of qualifying absence period varies by jurisdiction.
Being disqualified from being a company director by a court. Directors can be banned from holding directorships by a
court for a number of reasons including personal bankruptcy and other legal issues.
Failing to be re-elected if, having offered him or herself for re-election, shareholders elect not to re-appoint.
An ‘agreed departure’ such as by providing compensation to a director to leave.

(ii) Discuss Miss Hoiku’s statement
The way that directors’ contracts and company law are written (in most countries) makes it difficult to remove a director
such as Mr Smith from office during an elected term of office so in that respect, Miss Hoiku is correct. Unless his contract
has highly specific performance targets built in to it, it is difficult to remove Mr Smith for incompetence in the
short-term as it is sometimes difficult to assess the success of strategies until some time has passed. If the alleged
incompetence is within Mr Smith’s term of office (typically three years) then it will usually be necessary to wait until the
director offers himself for re-election. The shareholders can then simply not re-elect the incompetent director (in this
case, Mr Smith). The most likely way to achieve the departure of Mr Smith within his term of office will be to ‘encourage’
him to resign by other directors failing to support him or by shareholders issuing a vote of no confidence at an AGM or
EGM. This would probably involve offering him a suitable financial package to depart at a time chosen by the other
members of the board or company shareholders.
(b) Importance of the chairman’s statement
The chairman’s statement (or president’s letter in some countries) is an important and usually voluntary item, typically carried
at the very beginning of an annual report. In general terms, it is intended to convey important messages to shareholders in
general, strategic terms. As a separate section from other narrative reporting sections of an annual report, it offers the
chairman the opportunity to inform. shareholders about issues that he or she feels it would be beneficial for them to be aware
of. This independent communication is an important part of the separation of the roles of CEO and chairman.
In the case of TQ Company, the role of the chairman is of particular importance because of the dominance of Mr Smith.
Miss Hoiku had a particular responsibility to use her most recent statement to inform. shareholders about going concern issues
notwithstanding the difficulties that might cause in her relationship with Mr Smith. Miss Hoiku has an ethical as well as an
agency responsibility to express her independence in the chairman’s statement and convey issues relevant to company value
to the company’s shareholders. She can use her chairman’s statement for this purpose.

(c) Criticise the structure of the reward package that Mr Smith awarded himself
The balance between basic to performance related pay was very poor. Mr Smith, perhaps being aware that the prospect of
gaining much performance related income was low, took the opportunity to increase the fixed element of his income to
compensate. This was not only unprofessional and unethical on Mr Smith’s part, but it also represented very bad value for
shareholders. Having exercised his share options and sold the resulting shares, there was now no element of alignment of
his package with shareholder interests at all. His award to himself of an ‘excessively’ expensive company car was also not
in the shareholders’ interests. The fact that he exercised and sold all of his share options means that he will now have no
personal financial motivation to take strategic decisions intended to increase TQ Company’s share value. This represents a
poor degree of alignment between Mr Smith’s package and the interests of TQ’s shareholders.
(d) Criticise Miss Hoiku’s performance as chairman of TQ Company
The case describes a particularly poor performance by a company chairman. It is a key function of the chairman to represent
the shareholders’ interests in the company and Miss Hoiku has clearly failed in this duty.
A key reason for her poor performance was her reported inability or unwillingness to face up to Mr Smith who was clearly a
domineering personality. A key quality of a company chairman is his or her ability and willingness to personally challenge the
chief executive if necessary.
She failed to ensure that a committee structure was in place, allowing as she did, the remunerations committee to atrophy
when two members left the company.
Linked to this, it appears from the case that the two non-executive directors that left were not replaced and again, it is a part
of the chairman’s responsibility to ensure that an adequate number of non-executives are in place on the board.
She inexplicably allowed Mr Smith to design his own rewards package and presided over him reducing the performance
related element of his package which was clearly misaligned with the shareholders’ interests.
When Mr Smith failed to co-ordinate the other directors because of his unspecified business travel, she failed to hold him to
account thereby allowing the company’s strategy to fail.
There seems to have been some under-reporting of potential strategic problems in the most recent annual report. A ‘future
prospects’ or ‘continuing business’ statement is often a required disclosure in an annual report (in many countries) and there is evidence that this statement may have been missing or misleading in the most recent annual report.

参考答案：C

正确答案：
(d) The change in ownership represents a major change in the life of any organisation and the opportunity to convince the various
stakeholders of the strategic direction the firm is going in should not be missed. Mission statements are not something that
can be created at five minutes notice and once created need to be revisited to ensure they are still relevant and engaging.
Some experts argue that the mission can only be developed once the firm’s competitive strategy has been developed. Others
argue that it is the starting point for the whole strategic planning process.
A mission statement expresses the purpose of the business and great care will need to be taken to clarify the new role and
status of the buyout directors. Two other critical stakeholders are the workforce and the customers – alienation of either group
will have serious consequences for the firm. Customers need to be convinced that they should stay with the firm and staff
that there is a future for them in the new set up. Bonar Paint needs to ensure that its reputation for customer care is part of
the statement.
The strategy of the firm in terms of where and how it is going to compete again should create confidence in the key
stakeholders. Developing this clear sense of where Bonar Paint is going and how it is going to get there will be of particular
interest to its financial backers. Expressing the mission of the business will be a key part of any business plan. Bonar Paint
may also choose to emphasise the standards of behaviour that will underpin the way it does business. This may include an
explicit commitment to innovative products and customer service. Once again the impact and relevance to both internal and
external stakeholders is important.
Finally, the buyout managers have to convince stakeholders that the culture and values associated with that culture will be
retained after the change in ownership. Bonar Paint, under the Bonar brothers’ ownership and direction, did not feel that
strategic planning was a necessary activity. A succinct and meaningful mission statement may be an excellent way to
communicate the new ownership and sense of purpose in Bonar Paint.
Creating mission statements that convey a sense of purpose may not be easy for the buyout team. The time spent creating
the statement has to have positive outcomes or it will be time wasted. Creating such a statement with no previous experience
increases the difficulties. Seeing it as an integral part of a strategic planning process is important. Care must be taken to
involve other stakeholders in the process or statements may be made with little meaning for them. The degree of involvement
is also significant; most stakeholders are more likely to be useful as ‘sounding boards’ for testing and refining the statement.
The danger is that a statement is produced that few stakeholders buy into and does not affect attitudes or behaviours towardBonar Paint.

正确答案：
(b) Johnson, Scholes and Whittington define a strategic alliance as ‘where two or more organisations share resources and
activities to pursue a strategy’. There are a number of types of alliance ranging from a formal joint venture through to networks
where there is collaboration but no formal agreement. The type of strategic alliance will be affected by how quickly market
conditions are changing – swift rates of change may require flexible less formal types of alliance and determine whether
specific dedicated resources are required or whether the partners can use existing resources. Johnson, Scholes and
Whittington argue that for an alliance to be successful there needs to be a clear strategic purpose and senior management
support; compatibility between the partners at all levels – this may be complicated if it is a cross-border alliance; time spent
defining and meeting performance expectations including clear goals, governance and organisational arrangements; and
finally trust both in terms of respective competences and trustworthiness.

6D–ENGAA
Paper 3.5
6D–ENGAA
Paper 3.5
The advantages that may be gained by a successful strategic alliance include creating a joint operation that has a ‘critical
mass’ that may lead to lower costs or an improved offer to the customer. It may also allow each partner to specialise in areas
where they have a particular advantage or competence. Interestingly, alliances are often entered into where a company is
seeking to enter new geographical markets, as is the case with both divisions. The partner brings local knowledge and
expertise in distribution, marketing and customer support. A good strategic alliance will also enable the partners to learn from
one another and develop competences that may be used in other markets. Often firms looking to develop an e-business will
use an alliance with a partner with experience in website development. Once its e-business is up and running a firm may
eventually decide to bring the website design skills in-house and acquire the partner.
Disadvantages of alliances range from over-dependence on the partner, not developing own core competences and a tendency
for them not to have a defined end date. Clearly there is a real danger of the partner eventually becoming a competitor.
In assessing the suitability for each division in using a strategic alliance to enter European markets one clearly has to analyse
the very different positions of the divisions in terms of what they can offer a potential partner. The earlier analysis suggests
that the Shirtmaster division may have the greater difficulty in attracting a partner. One may seriously question the feasibility
of using the Shirtmaster brand in Europe and the competences the division has in terms of manufacturing and selling to large
numbers of small independent UK clothing retailers would seem inappropriate to potential European partners. Ironically, if
the management consultant recommends that the Shirtmaster division sources some or all of its shirts from low cost
manufacturers in Europe this may provide a reason for setting up an alliance with such a manufacturer.
The prospects of developing a strategic alliance in the Corporate Clothing division are much more favourable. The division
has developed a value added service for its corporate customers, indeed its relationship with its customers can be seen as a
relatively informal network or alliance and there seems every chance this could be replicated with large corporate customers
in Europe. Equally, there may be European workwear companies looking to grow and develop who would welcome sharingthe Corporate Clothing division’s expertise.

正确答案：
(b) It is important to note that there is nothing in the nature of the activities carried out by HR staff and departments that prevents
outsourcing being looked at as a serious option. Indeed, amongst larger companies the outsourcing of some parts of the HR
function is already well under way, with one source estimating that HR outsourcing is growing by 27% each year. Paul,
therefore, needs to look at the HR activities identified above and assess the advantages and disadvantages of outsourcing a
particular HR activity. Outsourcing certain parts of the recruitment process has long been accepted, with professional
recruitment agencies and ‘head-hunters’ being heavily involved in the advertising and short listing of candidates for senior
management positions. Some HR specialists argue that outsourcing much of the routine personnel work, including
maintaining employees’ records, frees the HR specialist to make a real contribution to the strategic planning process. One
study argues that ‘HR should become a partner with senior and line managers in strategy execution’.
If Paul is able to outsource the routine HR activities this will free him to contribute to the development of the growth strategy
and the critical people needs that strategy will require. In many ways the HR specialist is in a unique position to assess current
skills and capabilities of existing staff and the extent to which these can be ‘leveraged’ to achieve the desired strategy. In
Hamel and Prahalad’s terms this strategy is likely to ‘stretch’ the people resources of the company and require the recruitment
of additional staff with the relevant capabilities. Paul needs to show how long it will take to develop the necessary staff
resources as this will significantly influence the time needed to achieve the growth strategy.
Outsourcing passes on to the provider the heavy investment needed if the company sets up its own internal HR services with
much of this investment now going into web-based systems. The benefits are reduced costs and improved service quality.
The downside is a perceived loss of control and a reduced ability to differentiate the HR function from that of competitors.
Issues of employee confidentiality are also relevant in the decision to outsource.

正确答案：
(b) Franchising is typically seen as a quick and cost effective way of growing the business but Ramon should be aware of both
the advantages and disadvantages of using it as the preferred method of growth. Franchised chains are argued to benefit from
the sort of brand recognition and economies of scale not enjoyed by independent owner/managers. When combined with the
high levels of motivation normally associated with owner/managed businesses, franchises can be argued to get the best of
both worlds.
Franchising is defined as ‘a contractual agreement between two legally independent companies whereby the franchisor grants
the right to the franchisee to sell the franchisor’s product or do business under its trademarks in a given location for a specified
period of time. In return, the franchisee agrees to pay the franchisor a combination of fees, usually including an up-front
franchise fee, royalties calculated as a percentage of unit revenues, and an advertising conbribution that is also usually a
percentage of unit sales.’
Ramon is considering a type of franchising called ‘business-format franchising’, where the franchisor sells a way of doing
business to its franchisees. Business-format franchising is a model frequently found in the fast food and restaurant industry,
hotels and motels, construction and maintenance, and non-food retailing. Often these franchises are labour intensive and
relatively small-scale operations.
Franchising is seen as a safer alternative to growing the business organically, so while this may be true of well established
global franchises, failure rates among franchised small businesses were greater than those of independent businesses (in one
US study a 34·7% failure rate for franchises as opposed to 28·0% for independents over a six or seven year period). Often
it is the failure of the franchisor that brings down its franchisees. Failure stems from the franchisee not only having to rely on
their own skills and enthusiasm but also the capacity of the franchisor and other franchisees to make the overall operation
work.
The advantages to the franchisee are through gaining access to a well-regarded brand name that will generate a higher level
of demand and use of a tried and tested business model that should reduce the franchisee’s operating costs. Both of these
benefits stem from being a member of a well-established franchised system. Yet La Familia Amable along with many other
franchises will be new and small. These smaller franchises tend to be regional in scope, and fairly unknown outside their
regional market. This has a significant effect on what the franchisees can expect to gain from their franchisors and their
prospects of success. Both parties need to carefully assess the strengths and weaknesses of the system. Companies growing
via franchises need to take the time to understand their business model thoroughly and determine how franchising fits with
their long-term strategy. Care must be taken with the franchise agreement that creates a genuine partnership with the rightbalance between freedom and control over the franchisees.

正确答案：
(a) Typical roles of a risk management committee
The typical roles of a risk management committee are as follows:
To agree and approve the risk management strategy and policies. The design of risk policy will take into account the
environment, the strategic posture towards risk, the product type and a range of other relevant factors.
Receiving and reviewing risk reports from affected departments. Some departments will file regular reports on key risks (such
as liquidity assessments from the accounting department, legal risks from the company secretariat or product risks from the
sales manager).
Monitoring overall exposure and specific risks. If the risk policy places limits on the total risk exposure for a given risk then
this role ensures that limits are adhered to. In the case of certain strategic risks, monitoring could occur on a very frequent
basis whereas for more operational risks, monitoring will more typically occur to coincide with risk management committee
meetings.
Assessing the effectiveness of risk management systems. This involves getting feedback from departments and the internal
audit function on the workings of current management and risk mitigation systems.
Providing general and explicit guidance to the main board on emerging risks and to report on existing risks. This will involve
preparing reports on apparent risks and assessing their probability of being realised and their potential impact if they do.
To work with the audit committee on designing and monitoring internal controls for the management and mitigation of risks.
If the risk committee is part of the executive structure, it will likely have an advisory role in respect of its input into the audit
committee. If it is non-executive, its input may be more directly influential.
[Tutorial note: other roles may be suggested that, if relevant, will be rewarded]

正确答案：
(c) Market risk
Definition of market risk
Market risks are those arising from any of the markets that a company operates in. Most common examples are those risks
from resource markets (inputs), product markets (outputs) or capital markets (finance).
[Tutorial note: markers should exercise latitude in allowing definitions of market risk. IFRS 7, for example, offers a technical
definition: ‘Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in
market prices. Market risk reflects interest rate risk, currency risk, and other price risks’.]
Why non-compliance increases market risk
The lack of a fully compliant committee structure (such as having a non-compliant audit committee) erodes investor
confidence in the general governance of a company. This will, over time, affect share price and hence company value. Low
company value will threaten existing management (possibly with good cause in the case of Gluck and Goodman) and make
the company a possible takeover target. It will also adversely affect price-earnings and hence market confidence in Gluck and
Goodman’s shares. This will make it more difficult to raise funds from the stock market.

正确答案：
(b) Good performance should result in improved profitability and therefore other stakeholder groups may be rewarded for ‘good
performance’ as follows:
– Shareholders may receive increased returns on equity in the form. of increased dividends and /or capital growth.
– Customers may benefit from improved quality of products and services, and possibly lower prices.
– Suppliers may benefit from increased volumes of purchases.
– Government will benefit from increased amounts of taxation.

正确答案：
(ii) The summary analysis in (a)(i) shows that using overall points gained, Michaelangelotown has achieved the best
performance with 12 points. Donatellotown and Leonardotown have achieved a reasonable level of performance with
eight points each. Raphaeltown has under performed, however, gaining only four out of the available 12 points.
Michaelangelotown is the only depot to have achieved both an increase in revenue over budget and an increased
profit:revenue percentage.
In the customer care and service delivery statistics, Michaelangelotown has achieved all six of the target standards,
Donatellotown four; Leonardotown three. The Raphaeltown statistic of achieving only one out of six targets indicates the
need for investigation.
With regard to the credit control and administrative efficiency statistics, Leonardotown and Michaelangelotown achieved
all four standards and Donatellotown achieved three of the four standards. Once again, Raphaeltown is the ‘poor
performer’ achieving only two of the four standards.

正确答案：
(ii) Apart from the fact that Alasdair can keep an eye on his tenant, the main advantages are twofold:
IHT: If the firm are the tenants, the property will be land and buildings used in a business carried on by a partnership
in which the donor is a partner. Thus, Alasdair will be able to claim business property relief (BPR) at a rate of 50%
so long as he remains a partner in the firm. However, this relief would not be available until Alasdair has owned
the property for at least two years from his firm taking up the tenancy.
CGT: As Alasdair is a partner in the firm using the building, it will also be a qualifying asset for the purposes of rollover
relief on any gains arising from the disposal of the property. Assuming that Alasdair acquires a replacement asset
which will be used in the trade, the gain on sale can be deferred against the tax base cost of the replacement asset.
In the event that rollover relief cannot be used, any gains on disposal will be subject to business asset taper relief.

正确答案：

(a) (i) Roles of a risk manager
Providing overall leadership, vision and direction, involving the establishment of risk management (RM) policies,
establishing RM systems etc. Seeking opportunities for improvement or tightening of systems.
Developing and promoting RM competences, systems, culture, procedures, protocols and patterns of behaviour. It is
important to understand that risk management is as much about instituting and embedding risk systems as much as
issuing written procedure. The systems must be capable of accurate risk assessment which seem not to be the case at
H&Z as he didn’t account for variables other than impact/hazard.
Reporting on the above to management and risk committee as appropriate. Reporting information should be in a form
able to be used for the generation of external reporting as necessary. John’s issuing of ‘advice’ will usually be less useful
than full reporting information containing all of the information necessary for management to decide on risk policy.

Ensuring compliance with relevant codes, regulations, statutes, etc. This may be at national level (e.g. Sarbanes Oxley)
or it may be industry specific. Banks, oil, mining and some parts of the tourism industry, for example, all have internal
risk rules that risk managers are required to comply with.
[Tutorial note: do not reward bullet lists. Study texts both use lists but question says ‘describe’.]
(ii) John Pentanol’s understanding of his role
John appears to misunderstand the role of a risk manager in four ways.
Whereas the establishment of RM policies is usually the most important first step in risk management, John launched
straight into detailed risk assessments (as he saw it). It is much more important, initially, to gain an understanding of
the business, its strategies, controls and risk exposures. The assessment comes once the policy has been put in place.
It is important for the risk manager to report fully on the risks in the organisation and John’s issuing of ‘advice’ will usually
be less useful than full reporting information. Full reporting would contain all of the information necessary for
management to decide on risk policy.
He told Jane Xylene that his role as risk manager involved eliminating ‘all of the highest risks at H&Z Company’ which
is an incorrect view. Jane Xylene was correct to say that entrepreneurial risk was important, for example.
The risk manager is an operational role in a company such as H&Z Company and it will usually be up to senior
management to decide on important matters such as withdrawal from risky activities. John was being presumptuous
and overstepping his role in issuing advice on withdrawal from Risk 3. It is his job to report on risks to senior
management and for them to make such decisions based on the information he provides.

(b) Criticise John’s advice
The advice is based on an incomplete and flawed risk assessment. Most simple risk assessment frameworks comprise at least
two variables of which impact or hazard is only one. The other key variable is probability. Risk impact has to be weighed
against probability and the fact that a risk has a high potential impact does not mean the risk should be avoided as long as
the probability is within acceptable limits. It is the weighted combination of hazard/impact and probability that forms the basis
for meaningful risk assessment.
John appears to be very certain of his impact assessments but the case does not tell us on what information the assessment
is made. It is important to recognise that ‘hard’ data is very difficult to obtain on both impact and probability. Both measures
are often made with a degree of assumption and absolute measures such as John’s ranking of Risks 1, 2 and 3 are not as
straightforward as he suggests.
John also overlooks a key strategic reason for H&Z bearing the risks in the first place, which is the return achievable by the
bearing of risk. Every investment and business strategy carries a degree of risk and this must be weighed against the financial
return that can be expected by the bearing of the risk.
(c) (i) Define ‘entrepreneurial risk’
Entrepreneurial risk is the necessary risk associated with any new business venture or opportunity. It is most clearly seen
in entrepreneurial business activity, hence its name. In ‘Ansoff’ terms, entrepreneurial risk is expressed in terms of the
unknowns of the market/customer reception of a new venture or of product uncertainties, for example product design,
construction, etc. There is also entrepreneurial risk in uncertainties concerning the competences and skills of the
entrepreneurs themselves.
Entrepreneurial risk is necessary, as Jane Xylene suggested, because it is from taking these risks that business
opportunities arise. The fact that the opportunity may not be as hoped does not mean it should not be pursued. Any
new product, new market development or new activity is a potential source of entrepreneurial risk but these are also the
sources of future revenue streams and hence growth in company value.

(ii) Critically evaluate Jane Xylene’s view of risk management
There are a number of arguments against risk management in general. These arguments apply against the totality of risk
management and also of the employment of inappropriate risk measures.
There is a cost associated with all elements of risk management which must obviously be borne by the company.
Disruption to normal organisational practices and procedures as risk systems are complied with.
Slowing (introducing friction to) the seizing of new business opportunities or the development of internal systems as they
are scrutinised for risk.
‘STOP’ errors can occur as a result of risk management systems where a practice or opportunity has been stopped on
the grounds of its risk when it should have been allowed to proceed. This may be the case with Risk 3 in the case.
(Contrast with ‘GO’ errors which are the opposite of STOP errors.)
There are also arguments for risk management people and systems in H&Z. The most obvious benefit is that an effective
risk system identifies those risks that could detract from the achievements of the company’s strategic objectives. In this
respect, it can prevent costly mistakes by advising against those actions that may lose the company value. It also has
the effect of reassuring investors and capital markets that the company is aware of and is in the process of managing
its risks. Where relevant, risk management is necessary for compliance with codes, listing rules or statutory instruments.

正确答案：
AchievementofcorporateobjectivesJJGCohasshareholderwealthmaximisationasanobjective.Thewealthofshareholdersisincreasedbydividendsreceivedandcapitalgainsonsharesowned.Totalshareholderreturncomparesthesumofthedividendreceivedandthecapitalgainwiththeopeningshareprice.TheshareholdersofJJGCohadareturnof58%in2008,comparedwithareturnpredictedbythecapitalassetpricingmodelof14%.Thelowestreturnshareholdershavereceivedwas21%andthehighestreturnwas82%.Onthisbasis,theshareholdersofthecompanyhaveexperiencedasignificantincreaseinwealth.Itisdebatablewhetherthishasbeenasaresultoftheactionsofthecompany,however.Sharepricesmayincreaseirrespectiveoftheactionsanddecisionsofmanagers,orevendespitethem.Infact,lookingatthedividendpersharehistoryofthecompany,therewasoneyear(2006)wheredividendswereconstant,eventhoughearningspershareincreased.Itisalsodifficulttoknowwhenwealthhasbeenmaximised.Anotherobjectiveofthecompanywastoachieveacontinuousincreaseinearningspershare.Analysisshowsthatearningspershareincreasedeveryyear,withanaverageincreaseof14·9%.Thisobjectiveappearstohavebeenachieved.CommentonfinancialperformanceReturnoncapitalemployed(ROCE)hasbeengrowingtowardsthesectoraverageof25%onayear-by-yearbasisfrom22%in2005.Thissteadygrowthintheprimaryaccountingratiocanbecontrastedwithirregulargrowthinturnover,thereasonsforwhichareunknown.Returnonshareholders’fundshasbeenconsistentlyhigherthantheaverageforthesector.ThismaybeduemoretothecapitalstructureofJJGCothantogoodperformancebythecompany,however,inthesensethatshareholders’fundsaresmalleronabookvaluebasisthanthelong-termdebtcapital.Ineverypreviousyearbut2008thegearingofthecompanywashigherthanthesectoraverage.(b)CalculationoftheoreticalexrightspershareCurrentshareprice=$8·64pershareCurrentnumberofshares=5·5millionsharesFinancetoberaised=$15mRightsissueprice=$7·50pershareNumberofsharesissued=15m/7·50=2millionsharesTheoreticalexrightspricepershare=((5·5mx8·64)+(2mx7·50))/7·5m=$8·34pershareThesharepricewouldfallfrom$8·64to$8·34pershareHowever,therewouldbenoeffectonshareholderwealthEffectofrightsissueonearningspershareCurrentEPS=100centspershareRevisedEPS=100x5·5m/7·5m=73centspershareTheEPSwouldfallfrom100centspershareto73centspershareHowever,asmentionedearlier,therewouldbenoeffectonshareholderwealthEffectofrightsissueonthedebt/equityratioCurrentdebt/equityratio=100x20/47·5=42%Revisedmarketvalueofequity=7·5mx8·34=$62·55millionReviseddebt/equityratio=100x20/62·55=32%Thedebt/equityratiowouldfallfrom42%to32%,whichiswellbelowthesectoraveragevalueandwouldsignalareductioninfinancialrisk(c)Thecurrentdebt/equityratioofJJGCois42%(20/47·5).Althoughthisislessthanthesectoraveragevalueof50%,itismoreusefulfromafinancialriskperspectivetolookattheextenttowhichinterestpaymentsarecoveredbyprofits.Theinterestonthebondissueis$1·6million(8%of$20m),givinganinterestcoverageratioof6·1times.IfJJGCohasoverdraftfinance,theinterestcoverageratiowillbelowerthanthis,butthereisinsufficientinformationtodetermineifanoverdraftexists.Theinterestcoverageratioisnotonlybelowthesectoraverage,itisalsolowenoughtobeacauseforconcern.Whiletheratioshowsanupwardtrendovertheperiodunderconsideration,itstillindicatesthatanissueoffurtherdebtwouldbeunwise.Aplacing,oranyissueofnewsharessuchasarightsissueorapublicoffer,woulddecreasegearing.Iftheexpansionofbusinessresultsinanincreaseinprofitbeforeinterestandtax,theinterestcoverageratiowillincreaseandfinancialriskwillfall.GiventhecurrentfinancialpositionofJJGCo,adecreaseinfinancialriskiscertainlypreferabletoanincrease.Aplacingwilldiluteownershipandcontrol,providingthenewequityissueistakenupbynewinstitutionalshareholders,whilearightsissuewillnotdiluteownershipandcontrol,providingexistingshareholderstakeuptheirrights.Abondissuedoesnothaveownershipandcontrolimplications,althoughrestrictiveornegativecovenantsinbondissuedocumentscanlimittheactionsofacompanyanditsmanagers.Allthreefinancingchoicesarelong-termsourcesoffinanceandsoareappropriateforalong-terminvestmentsuchastheproposedexpansionofexistingbusiness.Equityissuessuchasaplacingandarightsissuedonotrequiresecurity.Noinformationisprovidedonthenon-currentassetsofJJGCo,butitislikelythattheexistingbondissueissecured.Ifanewbondissuewasbeingconsidered,JJGCowouldneedtoconsiderwhetherithadsufficientnon-currentassetstoofferassecurity,althoughitislikelythatnewnon-currentassetswouldbeboughtaspartofthebusinessexpansion.