FACULTY OF MANAGEMENT AND COMMERCE

NKUHLU CENTRE FOR ACCOUNTING STUDIES

YEAR: 2023

Management Accounting and Finance III

STRATEGY and BUSINESS MODELS

Course Code: AFM300E

Course Credit Value: 32

National Qualifications Framework (NQF) Level: 7

Name of Lecturer: B Mbathani

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TEXTBOOK

Financial Management: Correia:

Chapter 21

The content of this chapter provides a comprehensive view of strategy and various business
models, beyond the requirements of your syllabus. Please refer to the attached slides as
guidance of the content required and to the unit outcomes listed on page 6.

ASSESSMENT

You should not expect a pure theory question on strategy and business models, as this
topic lends itself towards application in a broader topic and question.

HANDOUTS

Slides: Chapter 21 (amended): Correia

CLASS EXAMPLES AND SELF STUDY EXAMPLES

Panther Ltd (Application of SWOT)

HAND IN TUTORIALS

Tutorial 1:
Integrated Report analysis

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SAICA COMPETENCY FRAMEWORK EXTRACTS

II-Strategy, Risk Management and Governance

II-1 Identifies and evaluates an entity’s strategies and makes

recommendations for improvement
II-1.1 Assesses whether management decisions align with the entity’s vision,
mission, values and mandate
Level I
Assesses the extent of the alignment:
 Explains how the entity’s context influences the definition of its overall objective; to provide
sustainable value to the entity and its stakeholders
 Identifies the overall objective of the entity
 Assesses the alignment of the entity’s vision, mission, values and mandate with the overall
objective defined
 Critiques the alignment of specific decisions and strategies with the entity’s vision, mission,
values and mandates (e.g. in areas such as Taxation)

II-1.2 Understands and evaluates the external influences on an entity’s strategy

Level I
Understands and evaluates the competitive environment and industry in which the entity operates
including –
 competitive positioning and strategies
 market forces

Analyses and evaluates the environment (both external and internal) by using relevant strategic
analysis tools, frameworks and models

Understands and evaluates the economic environment in which the entity operates and
understands the impact the social, natural and political environments have on the entity’s strategy

II-1.3 Understands and evaluates the internal influences on an entity’s strategy

Level I
Identifies (at a basic level) and is able to explain the internal factors that should be taken into
consideration in determining an entity’s strategies including the following:
 Identifies the key components of organisational behaviour, corporate culture and the impact on
the entity’s pursuit of its mission and strategies (e.g. tone of the entity’s leadership, human
resources policies, personnel selection and development, remuneration strategies, work
motivation and management–union relationships, accepted norms)
 Understands the importance of identifying appropriate measures of performance and linked
remuneration
 Entity level controls: Identifies the existence of tools such as a code of conduct, a code of
ethics, and training and reward systems used to communicate, reinforce and renew the entity’s
stated values

Evaluates, on a preliminary basis, the implications of these findings with regard to the entity’s
formulation and pursuit of its mission and strategies

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II-1.4 Understands and evaluates the business model of the entity in the context
of the entity’s vision, mission, values, mandate and overall objective
Level I
Understands and evaluates the business model of the entity and its role as the vehicle for the
implementation of the strategies of the entity in pursuit of the long-term value creation for the
stakeholders of the entity.

Evaluates the business model of the entity in terms of its key building blocks

Understands, in the context of an integrated report, the importance of the business model in
assessing the performance of the enterprise in the process of value creation

II-1.5 Identifies and evaluates opportunities and risks stemming from the strategy
Level I
Identifies and evaluates significant opportunities and risks associated with the entity’s external and
internal environments

Applies strategic analysis tools in the identification and analysis of opportunities and risks, and with
reference to external and internal factors that characterise the entity’s competitive environment and
strategic response thereto

Assesses the entity’s stakeholders’ risk tolerance and its balance with opportunity

Identifies information that will help assess opportunities and manage risk

Identifies significant environmental trends as well as legitimate needs and expectations of

stakeholders and assesses their implications for the entity in meeting its overall objectives

Identifies the entity’s material impact on environmental, economic and social systems and
consequently identifies any risks relating to the entity’s continuity

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Knowledge requirements supporting the aforementioned competencies:

II-Strategy, Risk Management and Governance

Level
Strategy
 Definition of strategy 1
 Definition of vision and mission 1
 Definition of mandate 1
 Definition of business model 1
 Analysis tools for assessing strategic focus: 2
 Porter’s five forces (barriers to entry, bargaining power of suppliers and
customers, competition and threat of substitutes)
 PESTEL
 Strengths, weaknesses, opportunities and threats (SWOT) analysis
 Resources/capitals (in terms of the International Integrated Reporting Framework): 2
financial, manufactured, intellectual, human, social and human relationships and
natural
 Competitive strategies: cost leadership, differentiation, focus (niche) 2
 Key stakeholders of an entity and their roles 3
 Using appropriate techniques (such as stakeholder mapping to identify key
stakeholders and their interests / needs)
o Shareholders and lenders
o Suppliers
o Customers
o Employees
o Public interest
 Management of stakeholders 2
 Managing conflicting stakeholder objectives
 Measuring stakeholder satisfaction
 Corporate social responsibility initiatives
 External and internal influences on an entity’s strategy 2
 Macro forces (economic, political, regulatory / legal, technological and competitive
environment)
 Internal influences (structures, systems and processes)
 Natural environment
 Corporate culture 1
 Analytical tools for assessing feasibility of strategies formulated 2
 Product-market matrix

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UNIT OUTCOMES

Please note that not all of the above competencies will be covered in this unit.

After studying the required readings and supporting lecture material you should be able
to:

Explain the concept strategy in relaton to financial management and management accounting
discilplines;

Understand the terms and related concepts with regards to an entity’s mission, vision, strategies
and strategic plan;

Understand what and how external and internal influences affect the development of an entitiy’s
strategy;

Evaluate an entity’s ability to manage its organisational performance in accordance with its
strategies;

Evaluate an entity’s performance measurement and reporting strategy;

Describe the strategic planning process;

Apply different models in analysing, choosing and implementing different strategies;

Understands, in the context of an integrated report, the importance of the business model in
assessing the performance of the enterprise in the process of value creation.

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International Integarted Reporting Framework – 6 Capitals Illustrated

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Self study Questions

Panther Ltd (‘Panther’)

Motorctcles are one of the most affordable types of transport in many parts of the world. For
most of the world’s population, they are also the most common type of motor vehicle. There are
around 200 million motor cycles (including mopeds, scooters, motorosed bicycles and other
powered two- and three wheelers), in use worldwide. This amounts to approximately 33
motorcycles per 1 000 people compared to 590 million motor cars or about 91 per 1 000 people.
Most of the motor cycles (58%) are in the developing countries of Asia, while 33% of cars (195
million) are concentrated in the USA and Japan. In 2006 China had 54 million motorcycles in
use and an annual production of 22 million motor cycles.

Panther Ltd (‘Panther’) is a South African wholesale distribution company. The company trades
under the name Panther and is liscensed by a Japanese motorcycle manufacturer. The
company imports Panther cycles from Japan and sells them to motorcycle retailers in South
Africa using an outsourced road delivery chain. The company has experienced strong growth in
South Africa, but has lost sales to new market entrants, mainly from China in the last few years.

Internattionally there has been conflicting reports about the motorcycle industry:

‘The Suzuki Motor Corporation has funded new production facilities in the Phillipines in an
investment of 2.1 billion Yen (about 19 million Euros). The new motorcycle plant will start
operating in 2012 under the Phillipines Incoroprated business. The new plant should increase
Suzuki’s production from 85 000 units produced from April 2010 to March 2011 and give it a
larger share of the Phillipines motorcycle market which registered 760 000 units in 2010.
That is a year-on-year growth of approximately 19%. Suzuki’s new production plant will have a
capacity of about 200 000 units per year’ (Alison, 2011).

‘According to statistical data released by by ANCMA, Italy’s motorcycle indutry’s reporting body,
the total sales of motorcycles and scooters fell by 24.17% compared to 2009. Even with multiple
rounds of government interventions, amouting to 131 million Euro on new purchases and OEM
discounting and financing deals affecting about 65% of sales, every month of last year revealed
double digit losses except January and February. December represented by far the worst,
dropping 46.4%, compared to the same growth in 2009.’ (Motorcycle Market Watch, 2011).

‘Growth in Mexico’s motor cycle market is picking up pace as commuters in the country’s
congested cities increasingly opt to bypass traffic or save money on fuel. Motor cycle sales in
the first quarter of this year rose 26% from the same period in 2011 to 107 619 units, according
to the Mexican Automobile Industry Association, or AMIA. Mexico is among the top ten
automobile and light truck producers in the world, turning out a record 2.6 million units last year,
and exporting 2.1 million of those. But the more than 500 000 motor cycles sold in Mexico in
each year are either imported whole or assembled locally, using imported parts.’ (Office of
Mexico-Japan 2012).

A recent market survey by an independent research company revealed that the new entrants in
the South African market, gained exposure by the flrxible credit terms to motor cycle retailers.
Most motor cycle reatailers are small businesses, with limited working capital infra-structure.
Favourable credit terms are therefore of immense value to them. The research company
determined that the credit terms of the strongest competitor are payment in 90 days with a 5%
discount or payment of the net amount in 180 days (5/90 net 180).

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Panther is currently offering a discount of 2% if payment is made in 30 days or payment of the
net amount in 90 days (2/30 net 90). Panther’s annual sales were R10 million with bad debts
amounting to 5% of total sales. At present 20% of the customers take advantage of the 2%
discount and there are no cash sales. The Research company has suggested that Companies’
adopt credit termsmsimilar to those of the strongest competitor.

Required:

Prepare a report to the directors detailing the strategic position of the company, by way
of a SWOT analysis, suggesting an appropriate course of action and competitive strategy
to regain the company’s lost market share.

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