use with the current video. A full set of E1 ExPress notes can be downloaded free
of charge at www.theexpgroup.com. CIMA Paper E1. Enterprise Operations.
Chapter 3 to 4 extract from our ExPress notes for use with the current video. A full set of E1 ExPress notes can be downloaded free of charge at www.theexpgroup.com.
Notes CIMA Paper E1 Enterprise Operations
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ExPress Notes CIMA E1 Enterprise Operations
Contents About ExPress Notes
3
1.
The Global Business Environment
7
2.
Internal & External Governance and Regulation
11
3.
Information Systems
15
4.
Operations Management
21
5.
Marketing
27
6.
Human Capital
33
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ExPress Notes CIMA E1 Enterprise Operations
Chapter 3
Information Systems
KEY KNOWLEDGE Information Systems
Raw data is just a collection of data such as figures. It needs to be processed by way of an information system to provide suitable management information. Information systems can range from a relatively simple Excel spreadsheet through to a sophisticated purpose built database.
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ExPress Notes CIMA E1 Enterprise Operations
Good information is “ACCURATE” using the following pneumonic: Accurate Complete Cost-beneficial Understandable Relevant Adaptable Timely Easy to use
There are both internal users (e.g. management) and external users (e.g. shareholders or banks) of information.
KEY KNOWLEDGE Porter’s 5 Forces
Information Systems can be used by an organisation to improve its performance and market position. Using Porter’s 5 Forces model as an illustration: This model examines the role of 5 forces close to an organisation that impact on its ability to make a profit and hence how attractive a particular market or industry is. There are 5 forces as follows:
Entrants
Suppliers
Competition
Customers
Substitute
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ExPress Notes CIMA E1 Enterprise Operations
1. Threat of substitute products
If there are similar products, a customer will be more likely to switch rather than stay with a product when there are price rises (elastic demand). An advanced IS infrastructure could help an organisation identify new innovative substitute products. 2. Competitive rivalry The rivalry will depend on the number and strength of competitors, economies of scale and exit barriers. Advanced IT systems for stock control for example can help with reducing cost of manufacture compared to competitors. 3. Threat of new entrants Markets generating high returns will attract new entrants which in turn could reduce industry profits. Barriers to entry such as government licenses (mobile phone operators) are important in reducing the threat of new entrants. 4. Power of customers The stronger the power of the customer the more pressure it can place on the company. Issues to consider include the size of the customer relative to the firm’s customer base, switching costs and availability of substitute products. An advanced CRM system can help the relationships with customers. 5. Power of suppliers Suppliers of materials and services can exercise power over an organisation. This depends on the level of differentiation of the product, presence of substitute products, etc. Compare the power of Intel supplying computer chips to the computer industry vs. a sugar producer supplying sugar to a soft drinks manufacturer.
KEY KNOWLEDGE Customer Relationship Management Systems (CRM)
An emerging trend in a lot of organisations is the establishment of sophisticated CRM systems. These aim to ensure that the customer relationship is developed and information is shared across the various business functions such as customer service, marketing and product design and innovation.
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ExPress Notes CIMA E1 Enterprise Operations
KEY KNOWLEDGE Virtual Organisations
The growth of the internet and advancement of e-relationships has driven the virtual organisation. These organisations utilise relationships with external organisations to undertake work that would previously have been performed in-house. This is more than outsourcing an individual component of the business and in some situations can involve the majority of the business being performed by 3rd party providers outside of the organisation. For example, the key components of product design, product manufacture, product delivery and corporate branding can all be performed by entities that are external to the “host organisation”.
KEY KNOWLEDGE Emerging Trends – Social Networking
More and more companies are building and maintaining relationships by way of social media networks such as Facebook, LinkedIn and Twitter. These enable companies to develop relationships with large numbers of people but need a different approach when compared to the more traditional relationship methods. As a result companies should have a defined social networking strategy.
KEY KNOWLEDGE Costs & Benefits of Information Systems
Both costs and benefits of Information Systems can be either tangible (e.g. cost of hardware and software) or intangible (e.g. distraction to the staff during training period). Generally, it can be argues that costs of IS implementation are easier to identify than the benefits.
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ExPress Notes CIMA E1 Enterprise Operations
KEY KNOWLEDGE System Changeover Methods
4 methods Direct
Parallel
Pilot
Phased
Direct: the users stop using the old system and immediately switch over to the new version. Parallel: the old and new systems are run together in parallel. Once the new system has been performing satisfactorily the switch to the new system can be made. Pilot: the new system is tested in part of the business. Phased: the new system is introduced in phases. Dealing with change management. When introducing new systems two models of change management that can be used are Lewin’s models:
KEY KNOWLEDGE Lewin’s change models
1. Unfreezing, Moving, Refreezing Unfreezing Shows the need for change and gets people “ready” for change.
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Moving The actual change occurs here.
Refreezing Stabilising the situation to the new approach.
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ExPress Notes CIMA E1 Enterprise Operations
Change can only happen once people have been “unfrozen” and existing ideas and misconceptions have melted. 2. Force field analysis
Driving forces (pushing for change)
Restraining forces (resisting change)
Current state
Desired state
The length of the arrow represents the time duration of the force and the thickness of the arrow represents the strength of the force. There are driving forces pushing for change and forces resisting change. To encourage change, change agents should strengthen driving forces and reduce restraining forces.
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ExPress Notes CIMA E1 Enterprise Operations
Chapter 4
Operations Management
KEY KNOWLEDGE Operations Management
Operations management refers to processes required to successfully produce and deliver a product or service. It includes purchasing, production and delivery. There are various models which look at the way an organisation is structured and its operations can be managed. These include:
KEY KNOWLEDGE Mintzberg’s Organigram
This shows organisations made up of 5 “building blocks” including the operating core (the workers undertaking the day to day operations) through to the Strategic Apex (the owners or directors that decide on the strategic direction).
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ExPress Notes CIMA E1 Enterprise Operations
KEY KNOWLEDGE Porter’s Value Chain
Support
Strategic Choice to Purchase Some Activities From Outside Suppliers
Support Activities
Firm Infrastructure Human Resource Management Technological Development
Primary Activities
Service
Marketing & Sales
Outbound Logistics
Operations
Inbound Logistics
Primary
Procurement
The value chain was introduced by Porter and represents an approach to looking at the development of competitive advantage within an organisation. All organisations consist of
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ExPress Notes CIMA E1 Enterprise Operations
activities which “link” together to develop the value of a business. Together these activities represent the value chain. The value chain represents a series of activities that both create and build value. Combined they represent the total value delivered by an organisation. The “margin” in the diagram is the added value (the difference between the total value of the activities and the cost of performing them). Primary activities: related with production. Support activities: provide the background for the effectiveness of the organisation (e.g. HRM)
KEY KNOWLEDGE Operations Management Systems
There are a number of systems available for Operations Management. These include:
Material Requirement Planning (MRP)
• Used for planning materials including Raw Materials, WIP and Finished Goods.
Manufacturing • Extends MRP to include for example Resourse Planning financial and labour resources needed for MRP. II (MRP II) Enterprise • Extends MRP II to integrate all data Resource Planning from the organisation including for example HR and Sales & Marketing. (ERP)
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ExPress Notes CIMA E1 Enterprise Operations
KEY KNOWLEDGE The Supply Chain
The supply chain represents the process from obtaining the raw materials to delivering the final product to the customer. Supply chain management is the management of the supply chain so as to optimize the effectiveness of the supply chain. An efficient management of the supply chain can offer organisations the possibility of a competitive advantage.
KEY KNOWLEDGE Inventory Management
Inventory management is vital for an organisation as it needs to ensure the key components of satisfying customer demined with suitable stock levels whilst at the same time not tying up excessive amounts of cash in high stock levels. Common approaches to inventory management include:
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Continuous Inventory
•A new order is made once inventory levels fall to a certain level.
Period Inventory System
•Inventory is reviewed at certain times and reordered as apporoporate.
ABC System
•Clasifying inventory into A, B or C categories. Category A is vital and must not experience stockouts whilst category C is rarely used and not as important
Just‐in‐TIme System
•Inventory is delivered "just in time" and it is not necessary to hold inventory.
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ExPress Notes CIMA E1 Enterprise Operations
KEY KNOWLEDGE Quality
The traditional approach to “quality” was based on “checking”. For example, checking the final output to the customer. More modern day approaches encompass Total Quality Management (TQM) and the principle of “getting it right first time”.
Quality circles
Six Sigma
TQM
Kaizen
5‐S Practice
Quality Circles – a group of people from all areas of the business that meet to discuss quality issues. Kaizen – the Japanese term for “continuous improvement”. 5-S Practice – part of the Kaizen approach and the name originates from 5 Japanese words beginning with S which translate to Sort, Organise, Clean, Standardise and Discipline.
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ExPress Notes CIMA E1 Enterprise Operations
Six Sigma – a quality programme created by Motorola in the 1980s which aims to reduce the number of faults in a process.
KEY KNOWLEDGE Benchmarking
Benchmarking is the process of identifying the “best in class” and then ascertaining what this best-in-class unit does well and then replicating it where possible so as to improve the performance of the unit you are reviewing. The three most common types of benchmarking are:
Internal
Competitive
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Functional
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