THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND.

MANAGEMENT & STRATEGY

PROFESSIONAL 1 EXAMINATION - APRIL 2006

Time allowed: 3 Hours and 10 minutes to read the paper. Answer question 1
AND 3 out of questions 2, 3, 4 and 5.

1. The Picasso Food Company is engaged in manufacturing and selling premium food products in Ireland.
The company's principal products include soups, sauces, pasta meals, fresh pizza, seafood and other
processed food products.

Established in 1950 as a fresh food manufacturing assembly business, the company remains a family
business and has grown over the years. What was once a business targeting a small local community in
the north east coast of Ireland has grown into a business with a much broader appeal.

The company employs over one hundred people and sells its products through a sales team of four that is
led by the managing director Tom Berry. It sells to two main market sectors, retail grocery (all the main
supermarket groups in Ireland), and food service (includes hotels, restaurants, hospitals and institutions).
The grocery retail market is growing modestly while the food service market is expected to continue to
expand on a pan-European basis, due mainly to the general improvements in disposable income. This
trend is well illustrated in the UK market, which has an estimated consumer-catering expenditure of 35
billion (30% of total retail food market in 2005 up from 22% in 2000). Ireland has experienced similar
growth.

The operating landscape for the food industry is changing and common driving forces exist across Europe.
The competitive environment is more intense and market liberalisation is gaining pace with the
globalisation of the market for food and consumer demand patterns converging. Retailers are
consolidating, are more concentrated, efficient, international and consequently a lot more powerful,
resulting in the concentration of the balance of power among relatively few.

Picasso produced products are strongly represented in the grocery retail sector but have not managed to
adequately penetrate the fast growing foodservice sector. Picassos products are positioned at the higher
end of the market in terms of quality but are struggling to maintain a similar position in terms of price in the
grocery retail sector. In this sector they are very dependent on two grocery retailers who together account
for almost half of the companys total sales revenue and for whom they produce own-label products under
the retailers brand name. The Picasso brand itself does not have a strong loyal consumer franchise or
following. It accounts for a small percentage of the companys total sales volume and does not command
a premium margin. The company has no formal organisation for marketing and its emphasis is on quality
and production rather than on systematic market development.

The consumer is moving from purchasing "commodity" type products to more differentiated, high quality,
value-added products. Businesses consequently are adopting more market-oriented policies and not
surprisingly reliance on a constant range of traditional products is not a road to take. The consumer is
adventurous having more opportunity to experience food from different countries than was the case for
earlier generations. Demand for home consumption is heavily influenced by limited time for meal
preparation in todays busy lifestyles and quick and easy to prepare products meet this requirement. There
appears to be a growing demand for healthier foods supported by the need to preserve and enhance
health and appearance. There is strong evidence of an explosion in ready-to-cook, ready-to-serve, take-
aways, home delivery and retail meal replacement

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 The large multi-national food manufacturers are working on developing Europe, pan-European and global
brands as opposed to national brands and adopting a mix of cost minimisation and product differentiation
strategies. The smaller food manufacturers markets, such as Picassos, tend to be national or local. Their
task is to find strategies to defend, at the very least, the home market against foreign competition.

Tom Berry realises that the business is changing dramatically and has hired you to advise him and the
family on the future direction of the business.

a) Analyse the companys current position, drawing on the present economic climate in Ireland and
applying relevant theories and models
(30 Marks)

b) Recommend action for the future direction of the company, based on your analysis at a) above.
(10 Marks)

(Note: The scenario presented above is not intended to be comprehensive. Students should make
whatever additional logical assumptions about Picassos and its environment that will give them sufficient
scope to demonstrate their ability to apply the analytical tools and draw conclusions.)
[Total: 40 Marks]

2. a) Marketing is said to play a critical role in business today. Explain what marketing is, stating with
reasons, how relevant you consider it to be to the business environment prevailing in Ireland today.
(10 marks)

b) Assume you have just been appointed as the marketing manager of The Picasso Food Company,
outlined in Question 1 above. You have been asked to give a talk to the rest of the management team
about meeting customer needs. List and explain the areas you would cover.
(10 Marks)
[Total: 20 Marks]

3. Hammel and Prahalad coined the term core competence. The value of the term is that it focuses attention
on the issue of competitive advantage.

a) Describe what core competencies are.

(10 Marks)

b) Outline the three factors suggested by Hammel and Prahalad that help identify core competencies
in any business providing an example of each.
(6 Marks)

c) Referring to Question 1, identify the potential for developing core competencies at Picassos.
(4 Marks)

[Total: 20 Marks]

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4. Helping employees to become effective in their jobs is one of the fundamentally important tasks in human
resource management.
a) Define performance appraisal.
(5 Marks)

b) Identify the main objectives of the performance appraisal process.

(5 Marks)

c) Outline a range of recognised steps that will increase the effectiveness of the performance appraisal
interview.
(10 Marks)

[Total: 20 Marks]

5. Write explanatory notes on any two (2) of the following:

a) Johnson & Scholes three stage framework for evaluating strategic options i.e. suitability, feasibility,
and acceptability.
(10 Marks)

b) The extended marketing mix for services.

(10 Marks)

c) Effective listening skills.

(10 Marks)

d) The elements of a marketing plan or process.

(10 Marks)

[Total: 20 Marks]

END OF PAPER

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 Suggested Solutions

Management & Strategy

PROFESSIONAL 1 EXAMINATION - APRIL 2006

Examiners Report - May 2006

SOLUTION 1

TUTORIAL

Similar issues continue to arise each year in this mini-case study question and the following recommendations
address most if not all of them.

Students in preparation for this examination should map out a structure, practise it and be thoroughly familiar with
its sequence, etc., which places the models in appropriate positions. A suggested structure was outlined in my
recent article in the December 2004 issue of Student News (available on www.cpaireland.ie) and it was noticeable
from the scripts which candidates had studied the article.

Having a suitable structure in mind before entering the examination hall should enable candidates, make it easier
for them and even help to reduce time constraints.

The development of strategy is dependent on the quality of analysis and the rigour applied to the strategic process.
The process needs to ensure that all the angles and perspectives are taken into account to develop a creative
strategy that provides a sustainable competitive advantage. The strategic process therefore needs to be carried
out in a logical, sequential and systematic way.

It is realised that within the confines of an examination, the relatively comprehensive nature of the solution below
cannot be fully expected. However it is important to understand that the process used to tackle the questions
posed should be structured methodically, and in a way that will best identify and address the challenges and issues
of the competitive environment under consideration. For example the issues falling out of the analysis of the
external environment should be fed into the opportunities and threats side of the SWOT analysis and the issues
falling out of the analysis of the internal environment should be fed into the strengths and weaknesses side. The
key issues for the business going forward can then in turn fall out of this SWOT analysis and be prioritised. A
directional analysis then logically follows on from this, using perhaps Porters generic strategies and Ansoffs
growth/share matrix, followed by a consideration of alternative methods. Remember too that strategies mean
choice, that what needs to be identified are the strategic options available to the business, the case for each, and
your choice of direction, stating the reasons why. It is important to understand that significant marks are lost if
these points are not adequately linked? It is noticeable that students seem to have problems selecting and
applying suitable models in this strategy section.

In the analysis of the business situation phase, marks are determined by demonstrating an analytical and
diagnostic ability. In the development of strategic options phase for the business, marks are determined by
demonstrating an ability to identify real options. In evaluating the options phase, marks are determined for
demonstrating a reasoned approach to the selection of a choice of a strategy.

Still too many students did not understand the concept of the strategic process and how it works, e.g. some started
their answer immediately with a SWOT analysis or left out the PEST analysis or even directional models
altogether.

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PEST Analysis.
This analysis is essential; it can yield a substantial understanding of elements of the future and the likely impact
of the drivers of change. However some students continue to struggle with this analysis, some only partially
completing it e.g. no comment on technology. With a little effort and preparation, candidates should be well
prepared in a general sense before they enter the examination hall to complete this analysis fairly comfortably.
The ability to analyse the business environment in which their clients/employers operate, should be the hallmark
of competent CPA accountants.

Recommendation
Practise preparing a broad general PEST analysis for the examination and understand why it is a useful analysis
tool. Throughout the year keep an eye out in the media for drivers of change in the environment, as students are
expected to be in touch with current developments.

Use of Models
Common problems in the use of models are as follows.
a) Presentation of the model with little attempt to apply it to the situation. A sensibly reasoned analysis is
expected. Options should be identified, considered and choices made.
b) Incomplete consideration of the model e.g. addressing only three of Porters five forces.
c) Apparent understanding evident from the written text but incomplete supporting diagrams provided.
d) Incorrect presentation of models: This involved confusion over the correct positioning of the elements of a
model in a diagram, demonstrating a lack of understanding. This is particularly noticeable with Ansoffs
matrix, where students attempted the impossible task of applying a faulty model to the situation outlined in
the case study.
Remember models are merely a schematic way of illustrating processes or linking elements within a concept.
Students at P. 1 level are expected to demonstrate a thorough understanding of the concepts underpinning any
models they reproduce.

SWOT Analysis
o The SWOT analysis is a situation audit. It describes the environment in terms of its position today as a
balancing of internal strengths and weaknesses, with external opportunities and threats. The external
factors can be summarised as opportunities and threats, while the strengths and weaknesses are internal.
In examinations there is evidence of confusion on this point e.g. factors such as "improve costs" are not
opportunities, but are weaknesses, today.
o As mentioned above some students identified issues in the PEST analysis but then did not feature the
issues in the SWOT analysis.

Presentation
Ideally responses should be in report format with headings and sub-headings as appropriate. Due care with
handwriting should be taken into account with a view to ensuring legibility for the examiner.

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Solution 1

1.0 THE EXTERNAL ENVIRONMENT

1.1 PEST ANALYSIS.

The Political/ Legal Factors:
The Government is encouraging growth and investment in small companies and is under constant
pressure to create and support industries that can provide employment and have adopted policies such as
low company taxation to achieve such goals. The government is concerned about health aspects of food
products, unhealthy lifestyles and the increasing incidence of obesity in the country and is playing a larger
role in food safety. As a result of a series of food scares throughout the 1990s, the importance attached to
food industry regulation has increased dramatically in recent years. Much tighter standards have been
imposed and enforcement is more rigorous. In line with this, food processors and manufacturers have had
to increase the resources devoted to this aspect of their business. The whole issue of food safety is now
important to consumers and, accordingly, to trade buyers.

The Economic Factors:

As a small open economy, Ireland's growth performance is closely related to the overall strength of the
global economy. In line with international trends, the Irish economy moved above trend growth in 2004. A
consistent out-performer in European terms, this out-performance is forecast to continue for at least the
next two years. GDP growth forecasts for 2005 and 2006 settle at 4.8% and 5.0% respectively, well ahead
of its EU peers. Following a relatively weak period for private consumption growth in 2002 (2.6%) and 2003
(2.6%), Irish consumption regained some spending spirit in 2004. In response to improving global
economic conditions and buoyant domestic growth, it is thought that domestic consumption grew by 3% in
2004.

While the short-term outlook for the Irish economy is bright, there are risks going forward.
l The euro will continue to appreciate against the US Dollar and Sterling.
l Energy prices and those of other inputs may increase further.

These developments would impact negatively on the Irish food industrys competitiveness.
Exchange rates are an important determinant of a countrys competitiveness. More particularly, the UKs
position as home to Irelands main food industry competitors, and also its position as the principal Irish food
export market. The consensus at the moment is that Sterling will depreciate further over the next two years.

Market liberalisation is gaining pace, as is the globalisation of the market for food and consumer demand
patterns are converging world-wide

The Social Factors:

By far the dominant trend affecting consumer choice has been the renewed interest in personal health and
wellbeing. Health and wellbeing as a term encompasses all of these factors physical health, emotional
health and environmental health. The saying "You are what you eat" has become widely adopted and
consumers have played an instrumental role in driving the growth of the health food market in general.
Each of these health concerns has in turn lent itself to consumer products being targeted at specific or
general health issues, including functional foods, better for you products with lower fat/salt/sugar, organics
and even weight loss products.

Convenience continues to be a strong driver of consumer choice. Changes in lifestyles and work habits,
and increased financial pressures have lead to a growing need for convenience in all areas. With more
women working and less time to prepare food, consumers are looking for ways to juggle work, feed the
kids and get enough sleep. Convenience should now be a given and all products, services and shopping
experiences must incorporate it. The implications for food and drink products are obvious an increased
demand for easy meal solutions, greater occasions of snacking and on-the-go consumption, eating out of
home, and eating "out" at home with prepared ready meals more regularly. Data from TNS Family Food

Page 6
 Panel 2004 suggests that if the current trends in convenience continue in ten years time snacking and
informal meals will account for 70% of all eating occasions.

An additional overriding consumer trend is a "shift to value", one that cuts across all ages, nearly all income
groups and to some degree all consumer segments. The emergence of the "smart shopper" ethos has
spread and has never been more evident in the global and Irish food industry.

The Technology Factors:

As with all industries, technology is a major driver of change. This refers to both process automation and
information and communication technologies. Specifically in the food sector, biotechnology is also of
importance. In general terms, the trend of process automation replacing manual labour is also occurring in
the food sector. This is driving productivity gains and lowering unit costs. It is also greatly improving the
working environment and conditions for production operatives in particular. Information Technology (IT) is
also a compelling factor for change. It has had a dramatic impact on the food business over the past
decade with some examples being the introduction of Electronic Data Interchange (EDI) between suppliers
and buyers and computerised process control systems. Communication technology advances and growth
in Internet shopping, is providing new market channels.

Technology changes are changing the way business operates. The Internet is having a deep penetrating
impact on the marketing mix strategy of businesses. 24 hours a day shopping is now available to
consumers and they can shop in comfort from their armchairs. Businesses that are slow to respond to this
driver of change face potential traumas brought on simply by their tardiness. This revolution in technology
means a much faster exchange of information that can really help businesses, enabling them to respond
quickly to changes in their operating environment.

The combined influence of all developments will result in a profound change in the future landscape, and
as the various technologies continue to evolve, companies that ignore this will face extinction. Such
pressures may provide a catalyst that will result in the development of innovative products, technologies
and services, moving companies forward from the producer mind-set that has historically prevailed in this
country.

1.2 THE COMPETITIVE SITUATION

Fig 1
Porters Five Forces

Threat of New
Entrants

Supplier Power Buyer Power

Intensity of
Bargaining Power Bargaining Power
Rivalry
of Suppliers of Buyers

Threat of
Substitution

Page 7
 Threat of new Entrants
Most of the major international food manufacturers already have a presence in Ireland.

Threat of new entrants is low.

Supplier Power
Competition has intensified on the supply side. The advent of increasing international competition and
more efficient and effective logistics have provided exciting new opportunities for food manufacturers and
processors.

Supplier power is low to medium

Buyer Power
Retailers are more concentrated, efficient, international and consequently more powerful. Considerable
consolidation has taken place in both the retail and food service sectors resulting in a concentration of the
balance of power among relatively few and the emergence of retailer buying groups. They are driven by
the changing and more sophisticated consumer preferences and have responded to segmentation in
consumer demand with some distinct consumer groups emerging e.g. rapid growth for natural or "organic"
foods and convenience food.

Buyer power is high.

Degree of Rivalry (Competition)

The large multi-national manufacturers are responding to the changing environment by working on
developing Europe as a single market as opposed to national brands. They are attempting to develop
plants flexible enough to supply the wide product range demanded by fragmenting consumer markets and
organising plants capable of supplying the entire European market in product categories. They are seeking
new products based on new technologies and adopting a mix of cost minimisation and product
differentiation strategies.

The markets of smaller manufacturers tend to be national or local and must either merge, develop products
and strategies to supply Euro wide niches and find strategies to at least defend the home market against
foreign competition. Scale is an increasingly important issue. In the food industry, acquisitions are usually
viewed as the primary means of achieving such scale.

Degree of rivalry is intense.

Threat of Substitution
Substitution is a real threat today in such a dynamic and fast changing market place, as the options
available to consumers multiply and as their consumption habits and preferences evolve.

Threat of substitution is medium.

Conclusion:
These combined forces are more likely to result in an even much more demanding and competitive
environment. Consequently, distinctive competitively positioned products and supporting services is
required in the food manufacturing and processing in order to compete successfully.

2.0 THE INTERNAL ENVIRONMENT

THE PICASSO ORGANISATION
Picassos hold a production orientation to the market place believing that consumers prefer products that
are widely available and inexpensive. Their focus involves exploiting economies of scale.

An organisation can be described, according to the McKinsey 7S framework, as the interrelationship of

Page 8
 the 7Ss. In total these represent a comprehensive representation of an organisation and typical decisions
for a business that need to be considered can be thought of in these terms as follows.

Structure: Picassos is a third generation family business owned and run by two brothers who have been
involved in the business all of their working lives. The elder brother Tom is the Managing Director and in
addition takes on responsibility for field selling. Philip, the second brother is responsible for the production,
processing and distribution. Both joined the business shortly after leaving school and talk passionately
about their production capabilities. The organisation structure is simple and has not changed in the past
ten years. A major concern is its lack of a marketing resource or person.

Strategy: The business does not have any formal written strategy. Informally they are focused on achieving
economies of scale through the acquisition of a few small competitors, which provides sufficient plant
capacity to enable them to take on board retailer own-brand production.

Systems & Processes: The company systems are largely legacy and are inadequate to cope with the
demands of the business today. With a relatively large number of employees the company does not have
a adequate HRM system. Information is scarce and there is a very limited information system. There is no
systematic business planning system in place involving the production of short and longer term plans. The
leadership factor is a significant issue where the emphasis has been on doing things right, but gives
inadequate attention to doing the right things. The production/ process plant offers great opportunities for
automation.

Staff: Staff is reasonably well rewarded and there is a bonus linked to performance but there is no formal
appraisal programme. They have received excellent training in food safety provision which they are very
good and very proud of.

Skills: The company has insufficient management skills overall and is lacking in team leadership skills at
supervisory level. In particular the company needs an injection of marketing and sales skills to help it
compete more effectively.

Shared Values: The values of the company are largely expressed informally and the focus is on producing
quality products and there is little mention of meeting customer need.

2.1 Core competencies, Key Success Factors.

A value chain analysis of Picassos and the food industry reveals a range of core activities and linkages
which provide the key to the companys performance and which are fundamental to providing a competitive
advantage.

Core Competencies: (The things Picassos is good at, ideally better that the competition and difficult to
replicate)
l Producer of quality products:
This is inadequate going forward. The company needs to consider selecting and building a range of
core competencies that will sustain competitive advantage in its chosen markets.

The Key Success Factors (Critical activities the business needs to undertake to be successful)
l Persuading consumers and customers of the value of its products and services as appropriate.
l Enabling and motivating employees to deliver superior performance.
l Being the most informed player about their niche markets and the most responsive to consumer and
trade customer drivers of change.

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3.0 SWOT Analysis

POSITIVE NEGATIVE

STRENGTHS WEAKNESSES
Access to a market Low level presence in foodservice sector
INTERNAL FACTORS

Scale economies (Ireland terms)

Quality products Picasso brand
Latent potential Weak margins
New product development Dependency on two big customers
Limited marketing resource
No formal strategy and systematic business plan
Structure
Systems and processes
Skills set Ramp up Selling
Culture
Mature product portfolio
Inadequate presence outside Ireland/

OPPORTUNITIES THREATS
Food service sector
Consumer international demand patterns Retail consolidation
converging.
High quality value added products Buyer power
EXTERNAL FACTORS

New innovative products and service and Competitive intensity, domestic and international
technologies.
Adventurous consumer Food safety regulations
Convenient, easy meal solution Cost of energy
Healthy food, personal health, well-being. Exchange rates v
Low fat, salt, sugar.
Process automation and systems Shift to value shopping smart shopper advent
technology
Organic food Substitute products
Weigh less products Globalisation
ICT
Strong economy
Biotechnology

Page 10
1.5 Summary Key Issues.

THE KEY ISSUES

1 Systems: Internal infrastructure development to include all systems to include formal business
planning, information systems etc
2 Building competitive advantage through developing core competencies and key skills
3 Customer relationship management and brand marketing capability.
4 Delivering on the key success factors
5 Margin improvement
6 International sales success.
7 The foodservice opportunity.
8 Identify a compelling consumer brand value proposition that appeals to a Euro/Global wide niche
consumer common to many geographic markets.
9 Process automation and systems technology
10 Information and communications technology
11 Product portfolio rationalisation and new product development

2.0 COMPETITIVE STRATEGY

There are three main types of strategic decision Picassos has to take
1) Generic strategy decisions (What basis?)
2) Alternative directions (Decisions covering alternative growth options/directions)
3) Alternative methods (How?)

2.1 Generic Strategy

There are four "generic" business strategies that can be adopted to gain a competitive advantage.
Porters Generic Strategies

SOURCE OF ADVANTAGE

Low cost Differentiation

Broad
Broad Broad
low cost
differentiator
player
COMPETITIVE
SCOPE
Focused
Narrow
Focused
low cost
differentiator
player

Broad Low Cost Player: A strategy of being a broad low cost player is not a runner for Picassos because
they do not have the scale to compete with the major international players.

Differentiator: A strategy concentrating on adding value to the products and services they supply to
customers in such a way that it distinguishes them from the competition, so that the consumer/customer is
prepared to pay a higher price for this. This would appear to have the best fit for Picassos.

In terms of competitive scope for Picassos, adopting a focus strategy that concentrates on serving the
premium higher end of the market appears to offer opportunities for gaining competitive advantage and
potential for achieving better margins.

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2.2 Alternative Directions

Ansoffs Growth Matrix

PRODUCT

Present New

Present Market Product

Penetration development

MARKET

New Market
Diversification
development

Ansoff's matrix offers a range of growth options for the business

a) Do nothing
Clearly not an option for Picassos

b) Market penetration :
This generally involves the company being more aggressive with existing products to existing
customers and means increasing revenue by, for example, improved sales and marketing effort, and
improving quality and productivity. However, the product is not altered and we do not seek any new
customers

This is an option worth pursuing for Picassos with a view to consolidating its position. However on
its own it is inadequate if it does not address fully the key issues identified.

c) Product development:
This involves marketing new products to existing customers of which there are identified clear
opportunities for the company. Picassos should address the development of new product offerings,
replacing and culling existing non-performers.

Picassos operates in a highly competitive market and innovation will help keep ahead of
competitors. The company needs to answer the changing needs of consumers falling out of changing
lifestyles and eating preferences, for example products that can be used more quickly and
conveniently. Trade customers, for example the multiple grocery retailers also want a constant
stream of new products to impress their customers and to give them some competitive edge. It will
help keep Picassos product portfolio fresh and avoid over dependency on a few mature or declining
products, which should be considered for revamping and revitalising and extension of their life-
cycles.

d) Market Development:
This involves Picassos marketing their existing product range in a new market. It means that the
product remains the same, but it is marketed to a new audience. Expanding business outside of
Ireland is a route to take within the new global marketplace that the company competes. It will help
reduce their dependency on one market and should consider identifying and focusing on a
Euro/Global consumer niche.

e) Diversification:
The option here for Picassos to market and sell completely new products to new customers. There

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 are two types of diversification, related and unrelated diversification. In Picassos case related
diversification means that they remain in the food business with which they are familiar. For example,
diversifying into catering equipment is an option. However related or unrelated diversification is not
a way forward for the company at this time

2.3 Alternative Methods of Growth

Internal development is certainly essential for the companys successful progress. Also a well targeted
acquisition could perhaps bring useful synergies, competencies, skills to the Picasso business and
strengthen its product portfolio. This seems a realistic and practical method of growth or way forward

3.0 Recommendations

1 l Pursue a focus differentiation strategy.

l Identify a Euro/Global wide target consumer whose needs you can satisfy better then the
competition
l Consolidate the business, ensure at least the key success factors are met (people, money,
resource and expertise), identify and build distinctive competencies, skills and areas of
sustainable competitive advantage, that will enable you meet the needs of your chosen target
market.
l Establish priority geographic target markets.
l Manage your product portfolio, revitalise or cull existing products where appropriate. Commit
to significant new product development and meet the changing needs of your consumer target
market(s) and trade customers.
2 Complete a restructuring of the business, establishing a marketing capability and a customer
relationship management capability in the process
3 Establish and up-date key internal infrastructure business systems.
4 Establish a meaningful presence in the foodservice sector, delivering attractive menu solutions as
well as providing value added solutions of portion control, preparation time reduction, thus providing
important added value in the form of exact cost control and unit pricing.
5 Build a serious brand: Identify a compelling consumer value proposition.
6 Automate the processing plant
7 Begin the task of establishing a serious information and communication technology resource that can
add value to the business. Get a web presence up and working quickly.
8 Work at being the best informed about the Picasso industry niche and target market.

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SOLUTION 2
TUTORIAL
This question tested candidates understanding of marketing. It is surprising how many students relied on a
textbook answer and failed to read selectively a little more broadly e.g. CPA Student Articles (available on
www.cpaireland.ie)

SOLUTION 2
a) Marketing is central to the success of any business. The following definition Chartered Institute of
Marketing describes succinctly what marketing is.
Marketing is the management process responsible for identifying, anticipating and satisfying consumer
requirements profitably.
There are many definitions of marketing but there is no single recognised precise definition or way of
practising marketing. However a common thread throughout is the requirement to meet customer needs
and provide benefits. Philip Kotler the distinguished professor and the world's foremost expert on the
strategic practice of marketing states Today's smart marketers don't sell products; they sell benefit
packages. They don't sell purchase value only; they sell use value

Successful marketing involves the following key requirements summarised below. All are contained in the
various definitions, and are of major and significant relevance to the prevailing environment in Ireland
today.
l The need to be capable of satisfying customers.
l The ability to identify and recognise marketing opportunities in the marketplace. The need to know
and understand target customers or market segments for products and/or services, their needs and
wants, the difficulties, hindrances and disappointments they experience and what they might pay to
have them either removed or reduced.
l The ability to create and deliver a compelling value proposition or promise to customers that meets
their needs or solves a problem for them i.e. a package of benefits from which customers believe
they get superior value than what they might get from a competitor.
l The capacity to differentiate a business from the competition and build competitive advantage. This
involves establishing where the main competition is coming from, from a customers point of view,
what their value proposition and package of benefits is, and how well they meet market
requirements.
l An aim or goal to increase market share in carefully selected and clearly defined target markets.
l The ability to manage for value, allocating and reallocating resources as required, based on insights
into customer needs and improvement in economic profit, where if money can be put to better use,
then the capital is freed up and reinvested where value generated will be better.
l The know-how to deliver a sustainable bottom line that can contribute to propelling the company
forward.
b) 1) The changes in consumer lifestyles driving consumption patterns and implications for Picassos.
2) The need to identify and provide a real package of benefits to Picasso consumers both tangible and
intangible.
3) The current package of benefits or range of value offerings Picassos present to the market.
4) The Picasso target market and attitudes to the Picasso brand.
5) The need for Picassos to carry out continuous consumer research in order to track, understand and
meet the needs of customers, because of the fast changing nature of the food market.
6) The changing retail and foodservice environment and meeting their needs.
7) The role of the Picasso brand and the role of the own brands within the companys portfolio..
8) Competitive benchmarking: The importance to Picassos of understanding the competition, the
package of benefits they have on offer, with a view to measuring, assessing and dealing with
competitive threats and benchmarking Picasso products and services.
9) Discuss food industry trends, how they are evolving and going about meeting the needs of the new
global consumer, with a view to understanding the opportunities and threats facing the industry and
their relevance to Picassos.
10) Developing sustainable competitive advantage for Picassos: Establishing a point of difference for
Picassos in a busy food marketplace.

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Solution 3

TUTORIAL
This question tested students understanding of core competence as outlined by Hammel & Prahalad. While many
could outline the concept, many struggled with providing examples and applying the concept to the Picasso case.
In preparing for this examination, students should spend time getting comfortable with applying appropriate
business models.

SOLUTION 3
a) An organisation needs to be able to articulate its strengths, the areas in which it is good at, better than its
competition and that are difficult to replicate. These strengths are defined as the core competencies of the
organisation. They are the capabilities that are critical to a business achieving competitive advantage. The
concept recognises that the competition between an organisation and its competitors is as much about the
pursuit of competence mastery as it is for market power and position. They are not regarded as being fixed
and should change in response to the companys environment. They are seen as flexible and evolve over
time. As the business evolves and adapts to new circumstances and opportunities, so its core
competencies will have to adapt and change.

b) The focus should be on the areas likely to generate the greatest impact or the areas most likely to create
a unique advantage. The strategy then should concentrate on building this competency.
Prahalad and Hamels following three factors help identify core competencies.

1) Provides potential access to a wide variety of markets.

(Competencies that make possible the development of new products and services.)
e.g. Rynairs strong leading position in the air travel in Europe. Its core competencies involved are:
l Its ability to offer low fares.
l Its ability to design and deliver a ground breaking on-line reservation system.
l Its ability to achieve fast ground turn around.
l Ability to optimise routes.

2) Makes a significant contribution to the perceived customer benefits of the end product.
e.g. Tesco online shipping is a good example. The core competencies involved are:
l The supply systems that the put together that effectively link existing shops with their website.
l Ability to design and deliver a "customer interface" that personalise online shopping and
makes it more efficient.
l Reliable and efficient delivery structure (product picking, distribution, customer satisfaction
handling)

3) Difficult for competitors to imitate. e.g. Baileys strong position in the international spirits market. The
core competencies involved are:
l The companys ability to develop innovative products and finance marketing.
l The companys ability to be the most informed people in the business about consumer
attitudes and behaviour.
l The companys brand marketing skills.
l The companys access to distribution networks around the world.

c) 1. Capitalise on their Irish heritage as a high quality family business.

2. Capitalise on their existing process capacity.
3. Exploit the use of technology to extend the shelf life of some exciting new products that meet the
needs of todays consumer.

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Solution 4

a) Performance appraisal comprises the steps of observing and assessing employee performance, recording
the assessment, and providing feedback to the employee. Managers use performance appraisal to
describe and evaluate employees performance. During performance appraisal, skilful managers give
feedback and praise concerning the acceptable elements of the employees performance. They also
describe performance areas that need improvement. Employees can use this information to change their
job performance. Performance appraisal can also reward high performers through merit pay, recognition
and other rewards.

Generally, HRM professionals concentrate on two things to make performance a positive force in their
organisation: 1) the accurate assessment of performance through the training of managers and the
development of assessment systems such as rating scales, and 2) the performance appraisal interview, in
which managers can provide feedback that will reinforce good performance and motivate employee
development.

b) Tyson and York (1992) identify six major objectives of the performance appraisal process:
l To determine how far people are meeting the requirements of their jobs and whether any changes
or action are required for the future.
l To determine developmental needs in terms of work experience and training.
l To identify people who have potential to take on wider responsibilities.
l To provide a basis for assessing and allocating pay increments and similar rewards.
l To improve communication between managers and their staff.
l To develop motivation and commitment by providing regular and scheduled opportunities for
feedback on performance and discussion of work, problems, suggestions for improvement,
prospects etc.
McMahon and Gunnigle (1997), in their study of performance appraisal on Ireland, suggest that, in a
majority of cases, performance appraisal is used to identify individual training needs. The identification of
promotion potential and career development are also important outcomes of the appraisal process

c) Research into the performance appraisal interview suggests a number of steps that will increase its
effectiveness.
1. Raters (usually supervisors) should be knowledgeable about the subordinates jobs and performance
levels
2. Raters should welcome employees participation during the interview rather that "tell and sell" their
views by lecturing to subordinates. This is particularly true when the employee is knowledgeable and
accustomed to participating with the supervisor.
3. A contingency approach to feedback based on the characteristics of the subordinate, the job, and his
or her performance level is useful e.g.
l With difficult, non-routine jobs, high performers need feedback that is given at flexible time
intervals and focused on development.
l With routine jobs, satisfactory performers need infrequent feedback (positive or negative) that
is focused only on deviations from acceptable performance.
l Newer employees need more frequent feedback.
4. Training is needed to help supervisors devise interview strategies for different situations. This
training should include the observation and rating of performance. Role playing that involves practice
appraisal interviews is helpful for this purpose.

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Solution 5

a) Three-stage framework for evaluating strategic options i.e. suitability, feasibility, and acceptability. Initially
a shortlist of suitable strategic options should to be drawn up. In the second stage these options are then
screened for feasibility and acceptability

a) Suitability: To what extent does the option address the issues facing the company? Does it capitalise
on its strengths and overcome or avoid weaknesses, whilst dealing with environmental threats.
n Strategic logic: Matching environmental opportunities with available resources.
l Will the strategic options selected lead to a balanced portfolio with business in different
stages of the lifecycle?
l Are the strategic alternatives appropriate given the competitive position of the company
and its stage in industry maturity?
l Are the options appropriate given the position of the firm as leader or follower, attacker
or drfrnder?
n Research evidence: Testing strategic moves against the findings of empirical research studied
n Cultural fit: Matching strategies to the culture of the organisation. However culture is not a an
absolute which should be allowed to confine radical change in the light of a changed
environment,

b) Feasibility: To what extent does the organisation have the financial, physical, and human resources
to see the strategy through? Can the strategy be successfully implemented?
n Financial resources
n Material resources
n Skills base
It also involves a realistic evaluation of the consequences of implementing the strategy in terms of:
n Impact on the market (e.g. on price levels or volatility of demand)
n Competitor reactions, which could negate the original strategy.

c) Acceptability: To what extent is the strategy acceptable to the key stakeholders?

n Meet financial goals set by management
n Involve a degree of risk commensurate with the expected benefit and which does not endanger
the survival of the organisation
n Fulfil the expectations of key stakeholders

b) Services Marketing Mix

The marketing mix can be defined as the elements an organisation controls that can be used to satisfy or
communicate with customers. The traditional four Ps marketing, product, place, price and promotion work
well for goods, but additional ele-ments require attention in service a business. Booms and Bitner
suggested three ad-ditional Ps for services marketing: people, physical evidence, and process.

Because services are usually produced and consumed simultaneously, customers are often present in the
firms factory, interact directly with the firms personnel, and are actually part of the service production
process. Also because services are intangible customers will often be looking for any intangible cue to help
them understand the nature of the service experience. These facts have led service marketers to conclude
that they can use additional variables to communicate with and satisfy their customers. For example, the
design and dcor in a hotel, as well as the appearance and attitude of its employees will influence customer
perceptions and experiences.

l People:
These are all the human actors who play a part in the service delivery and thus influence the buyers
perceptions; namely, the firms personnel, the customer, and other customers in the service
environment.

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 Because most services are provided by people the selection, training, and motivation of employees
can make a huge difference in customer satisfaction. Ideally, employees should exhibit competence,
a caring attitude, responsiveness, initiative, problem-solving abil-ity, and goodwill.

l Physical Evidence
This is the environment in which the service is delivered and where the firm and customers interact
and any intangible components that facilitate performance or communication of the service. Physical
Environment and ambience is central to consumers understanding/satisfaction.
Companies also try to demonstrate their service quality through physical evidence and presentation.
A hotel will develop a look and observable style of dealing with customers that carries out its intended
customer value proposition, whether it is clean-liness, speed, or some other benefit.

l Process
Finally, this is the actual procedure, mechanisms, and flow of activities by which the service is
delivered the service delivery and operating systems. Service companies can choose among dif-
ferent processes to deliver their service. Restaurants have developed such different formats as
cafeteria-style, fast-food, buffet, and candlelight service.

The direct involvement of consumers in most services and the perishability (the fact that that services
cannot be saved, stored, resold or returned) of these services place greater emphasis on the
process of the transaction for services, eg friendliness of staff, information, prompt delivery/payment,
etc.

c) Effective Listening Skills

Good communication is a two-way process: one person transmits a message and the other receives it.
Active listening is the key to effective communication. Active listening is more than simply listening to what
is being said, it is also confirming to the speaker that their points are being understood in the way that they
intended. In turn, they will be more open and participative in their work.

Active listening skill can be verbal and non-verbal. Verbal listening skills include:
l Summarising what they person is saying,
l Clarifying what was said is understood, such as facts, opinions etc;
l Paraphrasing repeating back to the speaker a little of what was said either in their own words or
similar words.
l Explaining giving an interpretation of previous statements.
l Open-ended questions to encourage further disclosure.
l Encouraging thanking the person for their contribution
l Silence to encourage the speaker to continue.
l Linking linking various statements and comments

Non verbal listening skills are rarely used by themselves and work in conjunction with and enhance verbal
skills. They include facial expression, eye contact, body language, gestures, personal space and timing.
There are cultural and gender variations in how non-verbal language is used and in the meaning attached
to them.

Active listening skills are very valuable but there are a number of pitfalls, which should be avoided. These
include over-analysing, parroting, over-expansion, omitting, exaggerating, and rushing. It is also important
that the person chooses the right environment for the meeting and avoids a judgmental attitude. If the
listener is trying to find a solution, they may be concentrating on what they are going to say, and not on
what is being said. Good listening skills are a very important part of management. To improve on listening
skills a person needs to be aware of their present level of skills in this area, recognise the areas that need
improvement and then actively work on those areas.

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d) CORPORATE GOAL/OBJECTIVES
MARKETING
1. UNDERSTANDING MARKETS - ANALYSIS
Customers l

Competition l

Trends/marketing Environment
l

Marketing Intelligence
l

2. MARKETING STRATEGY
Market segments
l

Target markets
l

Positioning
l

l Utilising Differential Advantages

3. MARKETING PROGRAMMES
Products l

Pricing l

Distribution l

Promotion l

l People, Process, physical Environment

4. IMPLEMENTATION & CONTROL

Budgets & schedules
l

Personnel & Responsibilities

l

l Benchmarking & Monitoring progress

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 Management & Strategy

Marking Framework April 2006

Question Mark Section Total

1 Framework around the answer

Understanding and analysis of the issues 5
l PEST, Porters 5 Forces, Value Chain, Core competencies
SWOT analysis (Use of three) 15
Alternative solutions derived and analysis of same 10
Recommendation 10
40

2 a) Definition 6

Relevance 4 10

b) List/ explanation 5X2 10 10

20

3 a) Description 10 10

b) The factors 6 6

c) Picassos 4 4
20

4 a) Definition 5 5

b) Main objectives 5 5

c) Steps 10 10
20

5 a) Suitability 4
Feasibility 3
Acceptability 3 10

b) Explanation why 4
Elements 3X2 6 10

c) Explanation 5
Skills 5 10

d) The four sectors or elements named 5

The content of each element 5 10
20

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