NATIONAL MUSEUM

PART A

PESTEL analysis may be used to analyses the macro environment of NM. PESTEL requires analysis of six
factors Political, social, economic, Technological, environmental, legal.

Political

NM is currently dependent on government funding and after the new election, new government has
reduced the government funding which will significantly affect NM. The effect of reduction is recognized
by the trustees and lead to appointment of new director general. However the senior staff is resisting
the changes proposed by the director general which leads to resignation of director. the resignation
have further effect on political pressure and now government is threatening to not provide any funding
and further trustee appointment on board on behalf of government. As the government is just been
elected and opposition views on government funding reduction is same the resistance does not appear
well likely to benefit NM. The employees should accept the fact that government funding has been
reduced and consider further implications to improve the situation.

Economical

From the beginning the NM has not been so much exposed to economic environment because almost all
funding has been received by the government and based on heritage collections. But after the reduction
in funding NM museum is more exposed to economic environment. Nm has to set an appropriate
admission charges and need to decide how their resources has been exploited and how they will gather
the opportunities and talent from market to increase funding . The director general has proposed many
ideas in their proposal in this regard. However it is difficult to determine the visitor admission charges
because most visitors have been used to pay nominal charges which does not cover cost of museum.

Social

Social inclusion is important part of government targets. The government is committed to increasing
museum attendance by lower socio economic classes and younger people so that they are more aware
of heritage. As shown in figure 3 not only total number of visitors are decreasing from 2004 but people
aged 22 or less are 12 % less than 2004 in 2007. So the NM should think of ideas how to attract such
groups to museum. As the surrounding socio economic structure has rapidly changed from middle class
houses to multi apartments so these are the people government want to visit the museum so the
location may be great advantage for museum. The director general has proposed free admission in this
regard.

Changes in surrounding and increased crime rate may deter the fee paying visitors. The museum is being
isolated with many of its middle class customers are moving away which may deter the new customers.
The assault on a visitor has been reported in national newspaper which may deter new visitors. The
museum need to ensure the safety of visitors. NM should increase the security on entrance and its
surrounding. If the museum does not thing that it will effect appropriately then museum should move to
other position.

Technological
Electronic commerce and access is important part of government targets. Technology provide displaying
and viewing artifacts online and provides the opportunity to become virtual museum. Through
technology museum can sell artefacts through a secure payment method and people from all over the
world can view the products and its descriptions and buy it online. The appropriate use of technology
frees the museum from above physical place constraints like increased crime rate.

Environmental

Environment have significant effects on organizations and its activities. As museum is located in old
building which requires repairs and maintenance to reflect the government requirements. As the
building is old it is not energy sufficient so that energy costs have been increased significantly. The
museum should consider recycling and conservation of energy. The relocation of museum to a modern
museum may provide solution to these problems and may reduce the cost.

Legal

The legal requirements for disability access and for health and safety regulations has to be met. This
requires alterations which are expensive and lead to unpleasing modifications of building. Further
tightening of legislation the museum need to maintain records regarding health and safety protocols.

As NM is a charity and is run by the trustees, museum should be aware of these and their work is
properly coped and monitored. Trustees are ultimately responsible for directing the charity affairs and
maintain its solvent position and achieving its objectives. Trustees should adhere to charity law of
country.

34 NESTA

Eurobian market can be assessed by porter’s five forces from nesta point of view.

Bargaining power of buyers

Bargaining powers of buyers appears to be strong because of following factors

 The profit of buyer from products of Nesta co is very low so the customers can find low
purchasing cost supplier.
 Switching cost is relatively low as the products are largely unbranded commodities. The
customer may find alternative supplier easily.
 The products are standardized and undifferentiated so customers may find alternative suppliers
easily in search better prices and better terms of supply.

Bargaining power of suppliers

Bargaining power of suppliers appear to be low because of following factors;

 There are small number of many suppliers who supplies nesta co. Suppliers may have
alternative customers but their scope is limited because their significant customer group is fixed
price discount shops.
 Switching cost is very low because there are many small suppliers through which nesta can
negotiate for best price and best terms of supply.
Furthermore effective purchasing system, supplier selection and excellent logistics is the core strength
of NESTA which add up to conclusion of low bargaining power.

Threat of new entrants;

In eurobia there are three dominant competitors. The three fixed price discount shops compete us on
profit margin and brand name and expansion of business. The intensity of competition is largely caused
by the expansion plans. It is likely that new arrival will be resisted. Resistance will be probably through
best supplier relationship.

However the analysis from table one suggests that growth is happening from past two years by
approximately 13 % even in recession which means that companies can improve the results by simply
keeping up with industry performance so in this regard arrival of nesta may grow the market.

NESTA should experience very little competition from existing rivals because nesta has turnover of
120000m which means that new rivals will be less than 1% of nesta overall. The main entry barrier is
capital requirements of stock, rent and staff but it appears that nesta has both capital and expertise
particularly when economic recession has led to reduced shop rents and greater availability. As nesta
has greater capital it will help nesta to stand out in advertising and marketing strategies and gain more
competitive advantage.

However establishing brand name among general customers of which 90% only recognizes established
brand may be main problem. Finally there may be restriction of government resisting the foreign
companies to enter the market.

Threat of substitutes

The threat of substitutes is high because of following factors;

 The scenario says that large super markets do supply ambient goods but so far away from fixed
price discount strategies so are not price competitive.
 Their scale may mean that they are overlooking the discount fixed price shops because their
revenue of 42500m is much bigger than fixed price shops revenue of 330m. However the nesta
is an established player which may change the dynamics of market.
 The supply of ambient goods through internet and growth of internet can be the substitute for
nesta products so nesta should consider internet shopping its differentiation strategy for future.

30 INDEPENDENT LIVING

PART A

IL supplies both manufactured and bought in products and their value chain analysis is different. The
primary activities of IL are;

Inbound logistics

For manufactured products this concerns collection of material from scrap and storage of material. For
bought in products inbound logistics is being handled by manufacturers. Products are stored in
warehouse.
Operations

For manufactured products this concerns production of crutches and walkers and their testing and
packaging. For bought in products operations is concerned with careful opening of packages and putting
IL logo and repackaging it.

Outbound logistics

At IL both manufactured and bought in products need to be stored before sale and distribution is
undertaken by national courier company. Orders are placed by telephone or through website.

Marketing

At IL this concerns cover leaflets in hospitals and surgeries and website catalogue and giving advice.

Service

The simple nature of manufactured products means service is inappropriate. For bought in products the
after sale service is provided by the manufacturer.

PART B

The value chain is used to answer this question. Potential restructuring suggestion can reduce costs but
keeping in mind the aim of charity to provide jobs to disable persons.

Inbound logistics

For manufactured products IL could ask its suppliers to hold scrap metal until required and could ask for
competitive delivery cost which reduce the cost. IL could explore the use of specialist Logistics Company
to outsource its inbound and outbound logistics to gain economies of scale and hence reducing cost.

Operations

For manufactured product IL could outsource its manufacturing to low cost labor countries but this
would not meet its core objective of jobs. For bought in products IL could ask its suppliers to fix IL logo
prior to dispatch. The testing of product could be performed by manufacturer because its after sale
support is provided by manufacturer.IL could reduce its inventory levels by arranging for bought in
product to supplied direct from manufacturer to customer. It will reduce inventory cost and reducing
need to write off inventory.

Outbound logistics

The ordering through website seems to be extremely efficient but still most orders are placed by
telephone. Telephone ordering is too complex. The sales have to give description and details of products
on phone .IL should consider ways of making details of products available to customers before they
order. IL could consider ways of encoring customers to order through websites by offering discounts and
cheaper prices. It could consider making more feasible website to attract customers.

Marketing

Traditional marketing is very limited restricted to leaflets in hospitals. It could consider replacing current
leaflets with leaflets that effectively doubles as a catalogue, showing product specifications. This could
help improve telephone ordering. It could consider advertising in newspapers and magazines. IL could
consider using Customer relationship management to monitor customers and their donations made.

Service

Because of nature of product little service is required however it can be achieved by expanding the
website to include general support and advice.

32 ONA

PART A

Strengths

 Strong brand name as in the scenario that 90% of people preferred ONA for regional flights and
70% of people for international flights and 85% of people were proud of their airline.
 ONA has extraordinary safety record. There have been no fatal accidents since its merge.
 Excellent customer service as recognized by regional airline of year award and Golden bowl for
best airline food award.
 High business class load factors in regional sector suggesting that ONA has better grip on
business market.
 Relatively strong cargo performance as in scenario from 2004-06 worldwide cargo revenue
increased by 10% but ONA has increased it by 11%.
 Although net profit margin has fallen, gross profit margin remains stable because cost of sales
are in line with revenue. The GP margin has decrease a little bit from 37.04% in 2004 to 36.985
in 2006.
 The trade receivable periods is low at 29 days and continually reducing suggesting that ONA has
better credit control.
 The gearing ratio remains stable from 2004(71.05%) to 2006 (71.13%).
 Convenient schedules of business travel flights so that business customers flight in morning and
come back in evening.
 Highly motivated staff.

Weaknesses

 High cost base. Pilot salaries are over 10 % higher than competitors and ONA pay salaries above
industry average and offer excellent benefits. Other high costs activities are catering .other high
costs are as shown in table 1 that ONA has older load factors which needs more maintenance
and service and low utilization hours than their competitors. The average wage of an employee
increases by 7% over period.
 This scenario clears the point that air travel revenue has increased by 12% and travel to Oceania
by 15 % but ONA revenue has increased by only 4.6 %.
 Low frequency of flights in international sector, where there is on average on flight per day.
 The airline has two load factors of two different competing brands. When maintenance is
required both brands require different staff and maintenance which incur unnecessary cost.
 Although airline offers online booking but does not offer online check in but still overheads
remains high. The business customers are attractive to online check in.
  Table 2 shows below average load factors in standard class seating.
 ROCE is a measure of profitability. ROCE significantly fall in 2006. This fall can be attributed by
net profit margin which decreased by increased overheads.
 The net profit margin has decreased from 12.1% to 9.66% in 2006 most probably because of
increased salaries expenses and borrowing cost.
 Trade payables days has increased marginally. Trade payables provide free source of finance but
over extending may cause loss of supplier goodwill.
 Liquidity ratios has fallen significantly in 2006. This may affect ability of company to meet its
short term obligations.
 Finally interest cover has declined considerably during the period in table 1 from 5.44 to 3.73
which means that we may not be able to cover the interest charges payable to lenders.

31 MMI

PART A
First Leisure

The acquisition of First leisure was done to diversify out MMI from declining market (falling 5% over the
period) to expanding market (increasing over 25% over the period). The cash generated by quarrying
was used to purchase a well-established and profitable company first leisure. Diversification is the
results of environmental changes as increased costs and falling reserves means that there is a little
chance of getting new sites. MMI initially played no role in First leisure leaving their management on
their own which classifies it as portfolio management. This is an example of unrelated diversification.

After consolidation, unexpected synergies appears. These came from conversion of unprofitable quarry
sites to leisure parks. This conversion was undoubtly advantageous. However discovery of unexpected
synergies has led to adopting synergy manager role in terms of BCG matrix, First leisure appears to be in
star business unit as it has increasing margins and market share and cost are beginning to fall.

The synergies also allowed first leisure to acquire sites at cheap rates for leisure parks where it was
becoming harder and more expensive because of planning restrictions. JSW describes it as utilization of
unutilized resources called economies of scope.

The turnover of leisure group has doubled in six years. Its market share has grown from 13 to 21 percent
however the gross margins remain constant but net profit increases fairly which means that costs are
under control of leisure group.

Boat land

By this time MMI felt that they had built up significant, management competencies that could be
successfully applied to acquire companies and to generate extra value for shareholders. So they
acquired boatland which could be justifies as developing synergies with first leisure. MMI felt that they
are in high feel and high benefit of Ashridge portfolio display classifies as heartland but after some time
heartland becomes value trap.

After acquisition of boatland First leisure has been in difficulties of supply and maintenance of boats but
boatland has prioritized first leisure as its preferred customer. In this regards MMI has saved many costs
by backward related diversification in which it acquires supplier and produce boats for itself.
Secondly boatland appears to be undervalued. The staff has lack of ambition producing limited number
of boats of higher specification. Acquisition helps boatland to increase its market share by guaranteeing
first contract with first leisure.

In this instance MMI thought to be synergy manager but acquisition results does not seem to be fruitful.
Boatland has not provided appropriate boats for leisure because of way misused by holiday makers and
hence costs has increased. Furthermore because of priority customer being first leisure customer
relationship has been worsen because of delays of orders.

Orders has fallen and hence market share of company. Revenue and market share has fallen in static
market place but more worrying is significant fall in gross and net profit margin. The net profit margin
has fallen from 13.04 to 4.29 in 2008. The problem of boat land appears to be cultural and hence loss of
experienced boat employees.

IN BCG matrix boatland has very small share of market and revenue and hence classifies as dog.
Although no evidence of cash shortages are present but boatland has used disproportionate amount of
time and resources. It seems sensible to divest boat land from portfolio.

28 MOORFARM

PART A

Stakeholder expectations

Any strategy should take into account the expectations of stakeholders. For internal perspective
Strategy has to take account the volunteers because they made 90% of total workforce of charity.
Volunteers may be alienated if the charity objectives are not met because they are not driven by the
increased pay and advantages, they work there voluntarily.

In case of moor farm, potential customers do conflict. There are examples of cyclists with walkers and
dog walkers with farmers. Although land is freely accessible to all but it will affect our potential
customers. SO the strategy need to be aligned with these conflicting needs of customers.

Finally moor farm includes two village where the homeowners are increasing concerned about traffic
problems due to visitors. As well as having moral responsibility estate also depends on some rental
income from village so the residents should be taken into account in the strategy.

External environment

Most environmental issues are outside the control of organizations but strategy should take into
account the external issues to lobby for those creating these influences.

In this case the political landscape has changed which cause funding difficulties from govt. this will affect
the income of estate. Changes in weather patterns causing the mansion to deteriorate leading to
increased maintenance costs.

Finally the population of country is increasingly concerned about the rights of individuals. The survey
suggests that they have a right to roam in private land although this violates the rights of others such as
farmers. The estate should take this in to account when formulating strategy.

Strategic capabilities
Finally the strategy should take into account the internal resources and competencies. The estate has
significant tangible resources such as land and property. It has a unique resource, the only garden
designed by James Kent. A happy highly motivated volunteer workforce must be properly utilized by the
change in strategy. Exceptional skills of three volunteers should be exploited to earn other opportunities
in other estates. Leadership style needs to be considered as previous manger is well linked and
successful. A sudden change in style may cause fall in morale. The new leader should be sensitive to the
previous leadership style.

Conclusion

A stakeholder analysis leading to appropriate stakeholder management policies seems key here and may
provide insights on how website may be improved. Government relations should be monitored as their
policies threaten the funding of trust.

PART B

There is a little point in having a well-designed website if it difficult to find. The role of search engine is
important here. Moor farm needs to appear near the top search of engine listings for search terms such
as moor farm or walking in rural Corneille. On fool proof way is to buy sponsored links which are shown
in top of displayed pages.

Although website is well developed but it does not appear to have weather feeds. It is dangerous for
families visiting the estate on days when weather was so poor. The website should have weather feeds
and webcam of specific areas of weather so that families can postpone their trip when weather is poor.

The website currently shows information about events but it does not allow visitors book and pay in
advance for events leading to families coming from long way finding event fully booked. The interactivity
of site has to be improved allowing customers to book and pay I advance to avoid the disappointment of
families. Furthermore it will help to increase cash flows.

Feedback from visitors can be important factor in attracting new customers. At present the website does
not allow to post comments and recommendations. The moor farm is losing an effective marketing
tool .the website should include comments section and recommendations section. The moor farm can
ask its volunteers to write blogs to attract visitors.

There are number of regular visitors who wants to be more involved in estate as suggested by survey.
This could be achieved by asking them to register the website through their email address. They will
then receive newsletters, special offers, information about forthcoming events. It will not only provide
moor farm with resources it will also allow them to build up marketing profile of likely visitors and
through surveys and questionnaires continue to understand the needs of stakeholders.

29 NOBLE PETS

There are five primary activities in the value chain; inbound logistics, operations, outbound logistics,
sales and marketing, service.

Inbound logistics are activities associated with storing, handling and receiving inputs for productions. In
terms of cost inbound logistics are concerned with raw foodstuff costs, costs of cans and transport costs.
In terms of raw foodstuff and cots of cans noble pets appears to be competitive but transport cost are
higher than their competitors. It is probably due to location of factory which make transport cost higher.
Travelling on relatively minor rural road and negotiating the congested town Centre will affect the fuel
economy of trucks. There is also some reputational damage caused by complaints from local residents
kept awake by trucks.

Operations are concerned with production activities associated with turning inputs to outputs. In terms
of cost operations are concerned with production cost and direct labor cost. Labor cost are in line with
competitors but production cots is higher than their competitors. This is probably because of aging
technology. Although it was innovative when installed over 40 years ago but now technology have come
too far. The site can also be a constraint by housing developments which were built subsequent to plant
leading to no opportunities for expanding.

Outbound logistics are activities associated with distribution of products in this instance wholesales and
supermarkets. This area is represented by outward transport cost in the table given. Like inward cost,
outward cost is also higher than its competitors. This is again partly due to nature of roads which led to
factory and congestion of Milton. A further problem with outbound logistics is sized of trucks which can
be used to carry the final product. The larger 44 tones are banned so the company has to use less cost
effective trucks which increases the cost.

Sales and marketing is concerned with the activities which make the buyer aware of product and also
provide a means by which the buyer can purchase the product. No details of cost of sales and marketing
are provided in table. However the marketing strategy has been the strength of company which allowed
it to demand premium prices for its products. The term noble it is appealing to buyers which can be seen
as superior product. In fact the customers feedback is restricted to pets reluctance to eat this food.so
the advertising campaign which stresses the need for people to give their parts the best are very
effective.

Service activities are concerned with after sale services such as installation, repair, maintenance etc. in
terms of Noble pets, this can be perceived as website designed to promote responsible and appropriate
pet ownership. Although advice is product neutral but it enhances the company reputation and makes it
more likely that customers buy this product.

25 SWIFT

PART A

The acquisition of EVM can be analyzed by success criteria of suitability, acceptability, feasibility.

Suitability

Suitability is concerned with whether the strategy addressed the current strategic position of acquiring
company.in general terms acquisition makes sense. The market is mature and competitive in ambion,
pushing down margins. There are further difficulties such as govt policies regarding road transport
resulting in higher taxation on fuel and road taxes linked to carbon emission vehicles and restricted
working practices.

The acquisition of EVM provides an opportunity for swift to exploit their core competencies in a
different geographical area where demand is rising, national govt is investing in road infrastructure and
competition is immature. The size of swift will also allow it to obtain economies of scales.
However there are concerns regarding the cultural differences between swift and EVM. Swift has
working experience of acquiring foreign companies. It has no experience of trading in ecuria. Further
EVM is now in private hands but their employees still reflect the govt culture.

Although altering these practices may give scope for further profitability but may cause labor disputes
that may harm service and reputation.

Acceptability

Acceptability is concerned with expected performance of a strategy in terms of return, risk and
stakeholder reactions.

Return

EVM delivers very similar ROCE to swift. This appears to be strong performance indicator of EVM. The
GP margin is higher than Swift but NP margin is lower than swift. This may support the suitability
concerns discussed above. The presumable assumption is that swift thinks that after changing practices
and bringing their own experience in this sector will increase the NP margin.

Risk

Both the current ratio and acid test ratio are lower than swift equivalents and swift will need to look into
this. The introduction of swift practices will reduce trade payable days. The gearing ratio of EVm is much
lower than swift which reflects more conservative approach to long term lending and reflection of
fledging capital markets in the country. However the interest cover ratio is half that of swift because of
lower profitability and high taxation.

Stakeholders

Joe swift and his family are major stakeholders in what is still a family run private limited company. It is
unlikely that there will be any opposition to the acquisition from stakeholders. However government
may respond in negative way such as imposing taxation on foreign investment.

Feasibility

Feasibility is about whether an organization has resources and competencies to deliver the strategy. It
appears that swift does have resources and competencies required for strategy.

DIXEN SMITH BURRELL

TASK 1

PART A

Macro environment

Pestel analysis can be used to analyses the macro environment of pharmaceutical companies in
nearland.

Political
The government in nearland has interest in this industry because of payment of medical treatments for
their public sector workers. This has led pharmaceutical companies under great scrutiny and further
making harder to grow in this industry if they don’t have sufficient patents.

With recent economic downturn the government has also reduced public spending and cutting costs
wherever possible. These measures may harm future growth in nearland.

Economic

The economic downturn has led to less consumer spending on health insurance because the citizens are
reluctant to seek paid medical treatment. This further harms the growth.

Social

There is also evidence of aging population which means older people are more likely to need more
medical treatments and this is likely to be growing demand for drugs

Technological

The development of new drugs is the main technological factor. DSB are likely to invest in R&D and if a
patent is granted then this is likely to be strong growth for future.

Environmental

There is a growing demand for CSR from pharmaceutical companies. Strong CSR is also the mission of
DSB. This may cause many problems if bribery allegation been proved leading to loss of reputation.

Legal

The sector is highly regulated by DARA. It is important that companies have extensive testing and
assurance procedures in order to meet the requirements for obtaining a patent. There is growing
concerns in all over the world regarding pharmaceutical companies in respect of side effects and efficacy
of drugs so it is very important to manage those things because at the end these things will damage our
reputation and demand.

PART B

Analysis of performance and position.

The industry sales chart shows us that there has been slowdown in industry sales in 2002 but there is
still some marginal growth. DSB sales fell by 14.7%. This does not coincides with the industry trend and
means that DSB is losing market share. Much of drop of sales is caused by short term economic issues
discussed above but not solely because of this but also caused by some poor business performance.

Number of patents has decreased by 1 which could be the cause of drop in sales because patent has
generating high sales. In the industry where new patents and innovation is critical success factor this
could be worry for main board of DSB. The number of people in R&D has fallen by 22% and R&D costs
also fallen by 25% this may be due to maintain profits at certain level but it has short term effect in long
term it could be detrimental.
The value of intangibles has decreased because no investment in new patents. There has been increase
in the sales staff by 7.6% despite decrease in sales which should be investigated. Sales per employee has
fallen by 21% which leads to reduction bonuses and staff doing unethical things.

There has been fall in Gp margin from 70% to 68.25% probably because of some fixed costs like
depreciation and some cost reduction in wages and salaries because of increasing unemployment in
nearland.

Despite reductions in R&D and other staff members net profit is not enough to pay dividends. This can
be accepted in short term but in long term dsb should invest more funds to ensure that normal level of
dividend can be attained.

Nearland has enough cash and reasonable assets to invest somewhere, however 480m is not enough to
develop new drug. It is therefore likely that any new finance will come either in form of capital injection
of debts. The gearing ratio stand at 86%. High gearing is not unusual in these industries.

There is very low level of interest cover and therefore debt providers may be reluctant to give debt to
DSB. The nearland has performed poorly in the year and seems to have underinvested in R&D . In order
to grow in future large capital investment is necessary.

TASK 2

PART A

Bribery Allegations

DSB should consider the validity of press article posted by farland newspaper. The newspaper has not
provided any evidence and proof of allegations and much of this article is based on exaggerated
approach.

The amounts involved do appear high and at least one member of staff is under impression that
conferences are not genuine. But Dsb should not use this article as sole evidence of bribery.

Related and correlated risks

Related risks are risks that vary because of presence of another risk or where two risks have common
cause. This means when one risks changes it has impact on other risk as well. There are two types of
correlated risk. Positively correlated risk are risks in which when one risk increases other increases as
well and vice versa. Negatively correlated risks are those in which when one risk increases other
decreases and vice versa.

Legal and reputational risks

At DSB legal and reputational risks are positively correlated when legal risk increases the reputational
risk also increases.

The legal risk is the possibility that if bribery allegation are proved there are many fines for breaking
local law and according to burak rom there is a risk that other authorities in other countries may bring
legal action too.
The reputational risk is the risk in which the allegation come to the public consciousness.in the case of
DSB they may be accused of incompetences in control activities of sales staff.

The fact that fraudulent behavior is found by own investigations suggest incompetences in control
environment and may harm reputation. Stakeholders assume that same practices are being carried by
other staff members as well.

The effect of this would be portraying DSB as an unethical business organization which may affect its
relations with other countries and may affect the new opportunity in leeland.

PART B

General purposes of internal control systems

Internal control system should cover all the activities in the organization such as operating, marketing,
sales and compliance etc. this should ensure that corporate governance principles are followed and
responsible for risk management.

This system will be assisted by sound system of internal controls which ensure the safety of assets and
prevent and detect fraud and error and provide accurate and complete financial records and timely
preparation of FS.

The maintenance of sound system of internal control is important because of DSB commitment to
remain at high standards of ethical performance and aspires to be well governed organization.

The sound system of internal control is necessary to maintain its prestigious brand name and maintain
investor confidence in Geeland.

Internal control failings

It would seem that despite DSB having an internal audit function, controls over sales staff in farland
were weak.

Farland sales representative were able to make up fictitious conferences without senior staff checking
that events actually took place. A lack of checking led to gifts and excessive payment to doctors not
being found which means sales staff can easily bribe doctors to reach their targets without being found.

The excessive payment amount is set very high in farland so that the exception report on payments
considered too high was always without content. Management has considered payments in usual
parameters and does not take any actions. The fact that exception reports were empty would suggest
no large sums paid further. The fact that the exception reports were empty suggests no large sums were
paid. This is not the case here.

The bribery payments was covered in travel expenses and approved by sales manager locally in farland.
This collusion between sale staff and managers means that although control were present but not
working at all.

TASK 3
PART A

Public statement by Nur Saah

Action statement in respect of bribery allegations

DSB has recently found into bribery allegations made by our sales team in farland. This is widely
reported in media and As CEO it is my responsibility to explain the allegations and also give reassurance
to our many stakeholders that DSB continues to ensure its commitment of maintaining highest
standards of ethics as stated in our corporate code of ethics.

The allegations are payments made to doctors for prescribing DSB products. In pharmaceutical industry
it is common practice to compensate doctors for learning about our products and speaking at
conferences in order to educate their colleagues and to spread information of new and innovative drugs
to wide audience for the benefit of patients. But these practices are taken too far by sales team of DSB.

At DSB we do not tolerate corruption. Although allegations has not been proved, we have tighten the
controls so we can ensure all payments to clinicians are in line with our policies. We have undertaken
external audit and ethical advice and thorough investigations as a result there are employee dismissals
in DSB. The employees are being asked to take ethical training so that they know what is acceptable and
what is not.

PART B

The roles of CEO

As CEO it is my job to lead the company and to protect shareholders interest above all. In particular
about issues regarding bribery allegation I would like to briefly explain my roles. It is my role to develop
and implement policies and strategies for shareholder wealth maximization. It was me who approved
the expansion of sales team in farland. The fact that we have been able to develop significant presence
there in short time is the evidence of my correct decision.

I must also mange financial and physical resources of company and monitor results and ensure that
effective operational and risk controls are present. DSB is profitable company and I personally take
interest in rewarding sales teams for exceeding their targets. But this must be done with strict ethical
standards and controls.

My role also involves overseeing the management team coordination between top management and
other employees and also assisting in appointment of senior management. Finally it is my role to relate
to rage of external parties including companies’ shareholders, suppliers, customers, relevant authorities.
I hope this statement has satisfied all information needs of all stakeholders.

TASK 4

PART A

RISKS

Strategic risks
Risk Evaluation
 Loss of focus on current strategies  May mean that current strategies are not
 achieved
 Unlikely growth opportunities  There is only small chance of any growth
 Retaining patent may upset government  May not fit with their goal of free care
NOTES

DSB have strong position in lee land and if this new strategy is implemented the resources will be
relocated to this and may harm leeland strategic position.

The chance of success is very small therefore the effect on strategic position is very small too.

The government may prefer to own the patent so that drug will be available without any premium price.

Financial risk
Risk Evaluation
 Unlikely to recover initial investment  Shareholder wealth will suffer
 Future returns are unspecified  Estimated returns are very uncertain
 Costs are upfront and returns are late  Other projects may not be funded
 May be difficult to raise finance  Debt finance is not available

PART B

Development of new antibiotics

Business benefits
Benefit Rationale
 Improved reputation  May attract customer
 More attractive to clinicians/employees  Will match their own ethical goals
 Have the expertise  DSB may only company to do this
NOTES

Development of new drug will improve DSB repo in terms of ethical organization. The increased repo
will attract customers because they would only be aware of potential devastating effect of superbug.

New and innovative product will attract talented employees and their skills can be used by DSB.

DSB have the expertise and resources to develop this new antibiotic. DSB is largest pharmaceutical
company and have international support so they would only be the one to do this.

Ethical arguments
Issue Rationale
 Matches DSB code of ethics  Puts patients interest first
 Ties in with other ethical activities  Such as developing nations
NOTES

DSB has corporate code of ethics in which it ensures commitment to highest ethical standards of
performance and it is clear that society is in need of this new antibiotic.
DSB already sells developing nations at lower prices than usual and donates vaccine to vulnerable
populations. It may be helpful for the whole community to develop this drug.

Conclusions
Benefits Risks
 Better reputation  Requires significant investment
 More sales = more profit  High risk of failure
 Ethical right thing 
NOTES

The business case for developing new drugs regardless of external funding concludes that development
will increase the reputation of DSB leading to greater sales and more profits.

3 SWAN HILL COMPANY (SHC)

TASK 1

PART A

SECRECY OPTION

Tuckers model can be used to evaluate the secrecy option from ethical point of view.

Is the decision profitable?

For SHC the answer to this question is yes. The secrecy option is forecast to create almost ten times as
much wealth for shareholders as licensing option.

Is the decision legal?

The secrecy options poses no legal problems as it is a part of normal competitive behavior in industries.

Is the decision fair?

The fairness of this decision is a moral judgment. It is probably fair when judged from point of view of
shareholders.

Is this decision right?

The secrecy option may be only benefit most to the local community of SH community that SHC has
traditionally valued.

Is this decision sustainable?

The sink method emits at lower rate per unit of output than existing process but this has little to do with
secrecy option as rates of emission would apply if licensed the process. In addition if licensed
environmental emissions is lowers if competitors switched too. There may be environmental
implications when decommissioning the plant.

PART B
Strategic and operational risks

Strategic risks

These arise from overall strategic position of company. Some strategic position have higher risk
exposures than others. Because strategic potion affects the whole organization they can have very high
hazards and high return. They are managed at board level.

Operational risks

Operational risks relate to potential losses arising from normal business operations. Accordingly they
affect day to day running of operations and business systems. These are management by risk
management level and mitigated by internal control system.

TASK 2

PART A

Statement on secrecy options

Business case

The R&D staff have made a discovery of new sink method that will enable SHC to product CAS4 at lower
unit costs and higher volumes and at lower rate of environmental emissions than competitors which use
existing production technology.

When considering options us as board decided that we should go ahead with the transformation of
production facilities without letting the competitors to use the technology. This strengthens our
strategic position.

The business case for this option is overwhelming. By implementing sink method SHC would be able to
gain substantial competitive advantage in the industry. SHC will place itself in monopoly is short term
and dominant in long term. It will give SHC pricing power leading to higher profits. Existing shareholder
expect significant increase in their value of shareholdings.

Ethical arguments

In addition to this overwhelming business case there is also ethical case for secrecy option. SHC
recognizes that it is moral duty of SHC to increase the value of shareholders who have risked their
money for long time in SHC. This is an important part in agency relationship that SHC board serves in
best interests of shareholders. Reduction in shareholder value will be considered as abuse to agency
relationship. Hence to comply with agency relationship board considers the secrecy option to be ethical.
This options ensure optimal shareholder value. This option will also protect the employee’s welfare in
hometown of SHC and demonstrating commitment to community. This will help retention of employees
and local recruitment.

PART B

Statement on licensing option

Business case
After the discovery of new sink method SHC board has been in very difficult business and ethical
decision and after lengthy discussion your board decided to pursue the licensing option and I would like
to explain the reasons why.

In terms of business case I would like to explain to shareholders that the secrecy option may give us
substantial competitive advantage but it has number of risks. Because of the speed of secrecy option to
be implemented it would have large increase in our borrowing leading to substantial change in our
financial structure and increased liquidity problems and make us more exposed to interest risk.

The second risk with secrecy option is the security of sink method technology. If sink process will leak or
discovered by our competitors our lack of legally binding patent may mean that we could not stop them
proceeding with the technology of us.

Along with risks it would have advantages too. The royalties from licensing can be used to gain
competitive advantage over years. The improvement sharing agreement will ensure that sink method
will be improved leading to improvement of production at faster rate than secrecy option.

Ethical Arguments

In addition to business case there is also strong ethical case for the decision. As a good corporate citizen
SHC incorporates the needs and impact of wide stakeholders. Your board recognizes that our decision
may have effect on wide variety of stakeholder’s not just shareholders. If licensed then environmental
emissions from competitors can also be reduced which will benefit most people and ensuring our
commitment to community.

The licensing option will allow competitors their employee’s shareholders to survive. It is a
compassionate act and mercy over other competitors.

TASK 3

PART A

Expected returns from each option

NOTES

This is the overall expected returns from each option after taking into account all revenue and costs as
well as external cost of finance. It represents expected amount that could be distributed to shareholders
after all finance cost. If the company objective to maximize shareholder wealth then SHC should go with
secrecy option.

Differences in options
Area Secrecy option Licensing option
Duration Foreseeable future 20 years
Inflows Generating 68m p.a. from y4 Generating 5mp.a from y2
capital 95m today , falling to 10m p.a. 2m today , falling to 1m p.a.
by y 4 thereafter
 DF 12% 14%

Notes

This is key data in determining NPV of each option. The secrecy option take four years before returns are
maximized but lasts for foreseeable future. On the other hand the licensing option take two years
before returns are maximized but lasts for only 20 years of license agreement.

It can be seen as both options require ongoing and initial investment but secrecy option requires
significantly higher capital investment however the returns are higher in secrecy option.

DF are used to take account of time value of money. The higher the factor the lower is this figure and
hence lower NPV. The secrecy option uses 12 % due to new debt reducing overall cost of capital.
Because the interest is tax deductible and result in lower tax bill for SHC this is lower than 14% cots for
licensing option of using internally generated funds.

PART B

Board hand out

Project benefits

Project benefits can fall into categories as explained below:

Observable benefits

These benefits are often intangible and difficult measure. Their value is often determined by views of
independent qualified observers. For example the ability to attract more abled staff etc.

Measureable benefits

These type of benefits can be objectively measured but it cannot be reliably estimated how the measure
will change. Sometimes the direction of change can be estimated and value of change cannot be and
sometimes value of change can be estimated but direction can’t be. For example the number of rivals
leaving the market.

Quantifiable benefits

These benefits can be reliably forecast in advance. The forecasting may be based upon historical data,
testing and benchmarking against industry experience. The financial value of these quantifiable benefits
may be difficult to forecast as they may be external to company or financial value may be variable. For
example reduction in environmental emissions.

Financial benefits

These are quantifiable benefits that can be given an objective financial value either in terms of revenue
increase or cost reduction. For example extra sales.

Determination of financial value of project

Task 4

PART A

Balridge performance excellence

Use of performance excellence

Firstly it should be noted that business blog may be creating bias towards this measure and exaggerating
the issue and SHC should consider wide opinions before full commitment to this process. Balridge is the
only one way of assessing performance excellence and we need to consider other measures too.
Business blogs says that this vital component for government founding but we are not seeking
government funding and it may be that other finance providers may not use this framework. The
BAldridge framework considers following elements in assessing performance excellence.

Leadership

SHC shows strong leadership from top. Strategic decisions are made from wider stakeholder perspective
and there appears to be focus on objectives of constant innovation, ethical behavior and community
support. There is good corporate governance on board with equal balance of executive and non-
executive members. Functional areas are covered well with no evidence of disputes.

Strategy

We have strong strategic position and strong competitive advantage. The discovery of new sink method
should provide evidence of focus on constant innovation. The strategy is supported by strong action
plans and past strategy implementation has suggested strong success of company.

Customers

We have regular briefings and discussion groups with customers. But this is one area where we may
need to provide more evidence of excellence. We need to show that we are measuring customer
satisfaction, segmenting customers, improving customers, retention and effectively dealing with
customer complaints. The sales and marketing staff should work to provide evidence on this.

Measurement, analysis and knowledge management

We benchmark ourselves against the industry averages. We have regular briefings and discussion groups
and discovery of sink method should provide strong evidence of knowledge management.

Workforce

Our history provide evidence of our workforce management. We have always sought to engage,
improve and empower our employees. The impact of job redesign is already an early consideration
provide further evidence of focus on workforce management. We have best staff in the world but we
should look at measures which evidence this.
Operations

We should be able to exhibit that SHC operations are strong. We have history of successful innovation
and the discovery of new sink method should provide evidence of strong operational management.
There is also good decision making process as well as good support resources such as HR.

Results

The market, existing and potential investors should be aware of our strong financial results. We should
be able to supplement this with non-financial benchmarks which shows that we are ahead of industry in
most measures. We may need to supplement this with wider results such as customer satisfaction and
workforce engagement but should be done with evidence.

PART B

Voluntary disclosures

Voluntary disclosures are an effective way of redressing the information asymmetry that exists between
the management and investors. Voluntary disclosures provide clear picture of state of company.

 More information helps investors decide whether the company matches with their risks,
strategy and ethical criteria’s.
 Make annual report more forward looking because quantitative content are often backward
looking.
 There is a considerable amount of qualitative information that cannot be conveyed through
numbers.