CIMA E1: Enterprise Operations Study Text 2013 - Webketoan

457 Pages·2013·4.7 MB·English

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OPERATIONAL
PAPER E1

ENTERPRISE OPERATIONS

SUITABLE FOR EXAMS UP TO SEPTEMBER 2014

Our text is designed to help you study effectively and efficiently.

In this edition we:

 Highlight the most important elements in the syllabus and the key skills you will need

 Signpost how each chapter links to the syllabus and the learning outcomes

 Provide lots of exam alerts explaining how what you're learning may be tested

 Include examples and questions to help you apply what you've learnt

 Emphasise key points in section summaries

 Test your knowledge of what you've studied in quick quizzes

 Examine your understanding in our exam question bank

 Reference all the important topics in the full index

ii

First edition 2009
Fifth edition June 2013

ISBN 9781 4453 7126 9
(Previous ISBN 9781 4453 9602 6)

eBook ISBN 9781 4453 7171 9

British Library Cataloguing-in-Publication Data
A catalogue record for this book
is available from the British Library

Published by BPP Learning Media Ltd
BPP House, Aldine Place
London W12 8AA

www.bpp.com/learningmedia

Printed in the United Kingdom by Polestar
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BPP Learning Media Ltd.

We are grateful to the Chartered Institute of
Management Accountants for permission to
reproduce past examination questions. The
suggested solutions in the exam answer bank have
been prepared by BPP Learning Media Ltd.

©
BPP Learning Media Ltd
2013

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iii

Contents

Page

Introduction

How our Study Text can help you pass
iv
Features in our Study Text
v
Streamlined studying
vi
Syllabus and learning outcomes
vii
Studying E1
xiii

The exam paper
xviii

Part A The global business environment
1
The social, political and economic context
3
2
Governance and regulation
39

Part B Information systems
3
The role of information systems
65
4
Systems implementation and business strategy
95

Part C Operations management
5
Operations management and the organisation
131

6
Quality management
159

7
Managing capacity and inventory
191

Part D Marketing
8
Marketing and business strategy
215
9
Marketing plans, branding and communications
243

10
Developments in marketing
277

Part E Managing human capital
11
Human resource management
303
12
Human resource practices
341

Objective test question bank
381

Objective test answer bank
383

Exam question bank
387

Exam answer bank
393

Index
419

Review form

iv
INTRODUCTION

How our Study Text can help you pass

Streamlined
studying

 We show you the best ways to study efficiently

 Our Text has been designed to ensure you can easily and quickly navigate

through it

 The different features in our Text emphasise important knowledge and

techniques

Exam expertise
 Studying E1 on page xiii introduces the key themes of the syllabus and

summarises how to pass

 We highlight throughout our Text how topics may be tested and what you’ll have

to do in the exam

 We help you see the complete picture of the syllabus, so that you can answer

questions that range across the whole syllabus

 Our Text covers the syllabus content – no more, no less

Regular review
 We frequently summarise the key knowledge you need

 We test what you’ve learnt by providing questions and quizzes throughout our

Text

Our other products

BPP Learning Media also offers these products for the E1 exam:

Practice and
Revision Kit

Providing lots more question practice and helpful guidance on how to pass the exam

Passcards
Summarising what you should know in visual, easy to remember, form

Success CDs
Covering the vital elements of the E1 syllabus in less than 90 minutes and also
containing exam hints to help you fine tune your strategy

i-Pass
Providing computer-based testing in a variety of formats, ideal for self-assessment

Interactive
Passcards

Allowing you to learn actively with a clear visual format summarising what you must
know

You can purchase these products by visiting www.bpp.com/cimamaterials

CIMA Distance Learning

BPP's distance learning packages provide flexibility and convenience, allowing you to study effectively, at
a pace that suits you, where and when you choose. There are four great distance learning packages
available.

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Through pre-recorded online lectures it provides you with the classroom
experience via the web with the tutor guidance and support you’d expect from
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Basics Plus
A guided self study package containing a wealth of rich e-learning and physical
content

Basics Online
A guided self study package containing a wealth of rich e-learning content

You can find out more about these packages by visiting www.bpp.com/cimadistancelearning

INTRODUCTION
v

Features in our Study Text

Section Introductions explain how the section fits into the chapter

Key Terms are the core vocabulary you need to learn

Key Points are points that you have to know, ideas or calculations that will be the
foundations of your answers

Exam Alerts show you how subjects are likely to be tested

Exam Skills are the key skills you will need to demonstrate in the exam, linked to
question requirements

Formulae To Learn are formulae you must remember in the exam

Exam Formulae are formulae you will be given in the exam

Examples show how theory is put into practice

Questions give you the practice you need to test your understanding of what you’ve
learnt

Case Studies link what you’ve learnt with the real-world business environment

Links show how the syllabus overlaps with other parts of the qualification, including
Knowledge Brought Forward that you need to remember from previous exams

Website References link to material that will enhance your understanding of what
you’re studying

Further Reading will give you a wider perspective on the subjects you’re covering

Section Summaries allow you to review each section

KEY POINT

CASE STUDY

KEY TERM

vi
INTRODUCTION

Streamlined studying

What you should do
In order to

Read the Chapter and Section Introductions
See why topics need to be studied and map your
way through the chapter

Go quickly through the explanations
Gain the depth of knowledge and understanding
that you'll need

Highlight the Key Points, Key Terms and Formulae
To Learn

Make sure you know the basics that you can't do
without in the exam

Focus on the Exam Skills and Exam Alerts
Know how you'll be tested and what you'll have to
do

Work through the Examples and Case Studies
See how what you've learnt applies in practice

Prepare Answers to the Questions
See if you can apply what you've learnt in
practice

Revisit the Section Summaries in the Chapter
Roundup

Remind you of, and reinforce, what you've learnt

Answer the Quick Quiz
Find out if there are any gaps in your knowledge

Answer the Question(s) in the Exam Question Bank
Practise what you've learnt in depth

Should I take notes?

Brief notes may help you remember what you’re learning. You should use the notes format that’s most
helpful to you (lists, diagrams, mindmaps).

Further help

BPP Learning Media’s Learning to Learn Accountancy provides lots more helpful guidance on studying. It
is designed to be used both at the outset of your CIMA studies and throughout the process of learning
accountancy. It can help you focus your studies on the subject and exam, enabling you to acquire
knowledge, practise and revise efficiently and effectively.

INTRODUCTION
vii

Syllabus and learning outcomes

Paper E1 Enterprise Operations

The syllabus comprises:

Topic and Study Weighting

%
A
The Global Business Environment
20
B
Information Systems
20
C
Operations Management
20
D
Marketing
20
E
Managing Human Capital
20

Learning Outcomes

Lead
Component
Syllabus content

A
The Global Business Environment

1
Explain the
social, political
and economic
context of
business.

(a)
Explain the emergence of
major economies in Asia
and Latin America

(b)
Explain the emergence and
importance of outsourcing
and offshoring

(c)
Explain the impact of
international
macroeconomic
developments (eg long-
term shifts in trade
balances), on the
organisation’s competitive
environment.


Cross-cultural management and
different forms of business
organisation.


Emerging market multinationals.


Liberalisation and economic
nationalism.


Outsourcing and offshoring.


Major economic systems including
US, European and transition
economies.


National account balances
(especially from international
trade), monetary policy and their
impact on markets.

2
Analyse the
relationship
between the
internal
governance of
the firm and
external
sources of
governance
and regulation.

(a)
Explain the principles and
purpose of corporate social
responsibility and the
principles of good
corporate governance in an
international context

(b)
Analyse relationships
among business, society
and government in
national and regional
contexts

(c)
Apply tools of country and
political risk analysis

(d)
Discuss the nature of
regulation and its impact
on the firm.


Corporate governance, including
stakeholders and the role of
government.


Principles of corporate social
responsibility and the scope for
international variation, eg between
developed and developing
economies.


Business-government relations in
developed and developing
economies.


Regulation in the national and
international context and its impact
on the firm.


Role of institutions and governance
in economic growth.


Corporate political activity in
developed and developing markets.


Country and political risk.

viii
INTRODUCTION

Learning Outcomes

Lead
Component
Syllabus content

B
Information Systems

1
Discuss the
wider business
context within
which
information
systems
operate.

(a)
Identify the value of
information and
information systems
organisations

(b)
Discuss the reasons for
organisations’ increased
dependence on information
systems

(c)
Discuss the transformation
of organisations through
technology


The role of information systems in
organisations.


Emerging information system
trends in organisations (eg
Enterprise-wide systems;
knowledge management systems;
customer relationship management
systems, eg E-business, Web 2.0
tools).


Information technology enabled
transformation; the emergence of
new forms of organisation.


Geographically dispersed (virtual)
teams; role of information systems
in virtual teams and challenges for
virtual collaboration.

2
Analyse how
information
systems can
be
implemented
in support of
the
organisation’s
strategy.

(a)
Discuss ways for
overcoming problems in
information system
implementation

(b)
Discuss ways of organising
and managing information
system activities in the
context of the wider
organisation.


Assessing the costs and benefits of
information systems; criteria for
evaluating information systems.


Privacy and security.


System changeover methods (ie
direct, parallel, pilot and phased).


Information system implementation
as a change management process;
avoiding problems of non-usage
and resistance.


Information system outsourcing
(different types of sourcing
strategies; client-vendor
relationships).


Aligning information systems with
business strategy (eg strategic
importance of information systems;
information systems for
competitive advantage; information
systems for competitive necessity).

INTRODUCTION
ix

Learning Outcomes

Lead
Component
Syllabus content

C
Operations management

1
Explain the
relationship of
operations
management
to other
aspects of the
organisation’s
operations.

(a)
Explain the shift from
price-based to relational
procurement and
operations

(b)
Explain the relationship of
operations and supply
management to the
competitiveness of the firm

(c)
Explain the particular
issues surrounding
operations management in
services

(d)
Explain the importance of
sustainability in operations
management.


Supply chain management as a
strategic process.


An overview of operations strategy
and its importance to the firm.


Supply chains in competition with
each other; role of supply
networks; demand networks as an
evolution of supply chains.


Design of products/services and
processes and how this relates to
operations and supply.


The concept of sustainability in
operations management.

2
Apply tools
and
techniques of
operations
management.

(a)
Apply contemporary
thinking in quality
management

(b)
Explain process design

(c)
Apply tools and concepts
of lean management

(d)
Illustrate a plan for the
implementation of a
quality programme

(e)
Describe ways to manage
relationships with
suppliers.


Different methods of quality
measurement (eg Servqual).


Approaches to quality
management, including Total
Quality Management (TQM),
various British and European
Union systems as well as
statistical control processes.


External quality standards.


Systems used in operations
management: Manufacturing
Resource Planning II (MRPII);
Optimized Production Techniques
(OPT) and Enterprise Resource
Planning (ERP).


Use of process maps to present the
flow of information and product
across supply chains and
networks.


Methods for managing inventory,
including continuous inventory
systems (eg Economic Order
Quantity, EOQ), periodic inventory
systems and the ABC system
(Note: ABC is not an acronym; A
refers to high value, B to medium
and C to low value inventory).


Methods of managing operational
capacity in product and service
delivery (eg use of queuing theory,
forecasting, flexible manufacturing
systems).

x
INTRODUCTION

Learning Outcomes

Lead
Component
Syllabus content


Application of lean techniques to
services.


Practices of continuous
improvement (eg Quality circles,
Kaizen, 5S, 6 Sigma).


The characteristics of lean
production.


Criticisms and limitations of lean
production.


Developing relationships with
suppliers, including the use of
supply portfolios.

D
Marketing

1
Explain
developments
in marketing.

(a)
Explain the marketing
concept, and the
alternatives to it

(b)
Describe the marketing
environment of a range
of organisations

(c)
Explain marketing in a
not-for-profit context

(d)
Explain the social context
of marketing behaviour

(e)
Describe theories of
consumer behaviour.


The marketing concept as a business
philosophy.


The marketing environment,
including societal, economic,
technological, political and legal
factors affecting marketing.


Marketing in not-for-profit
organisations (ie charities, non-
governmental organisations; the
public sector).


Theories of consumer behaviour (eg
social interaction theory), as well as
factors affecting buying decisions,
types of buying behaviour and stages
in the buying process.


Social marketing and corporate
social responsibility.

2
Apply tools
and
techniques
used in
support of the
organisation’s
marketing.

(a)
Explain the relationships
between market
research, market
segmentation, targeting
and positioning

(b)
Apply tools within each
area of the marketing
mix

(c)
Describe the business
contexts within which
marketing principles can
be applied

(d)
Describe the market
planning process

(e)
Explain the role of
branding and brand
equity.


Market research, including data
gathering techniques and methods of
analysis.


Segmentation and targeting of
markets, and positioning of products
within markets.


How business to business (B2B)
marketing differs from business to
consumer (B2C) marketing in its
different forms (ie consumer
marketing, services marketing, direct
marketing, interactive marketing, e-
marketing, internal marketing).


Promotional tools and the promotion
mix.


The ‘service extension’ to the
marketing mix.

INTRODUCTION
xi

Learning Outcomes

Lead
Component
Syllabus content


Devising and implementing a pricing
strategy.


Experiential marketing.


Marketing communications,
including viral, guerrilla and other
indirect forms of marketing.


Distribution channels and methods
for marketing campaigns.


The role of marketing in the business
plan of the organisation.


Brand image and brand value.


Product development and
product/service life-cycles.


Internal marketing as the process of
training and motivating employees
so as to support the organisation’s
external marketing activities.


The differences and similarities in
the marketing of products, services
and experiences.


Product portfolios and the product
mix.

E
Managing human capital

1
Explain the
relationship of
Human
Resources
(HR) to the
organisation’s
operations.

(a)
Explain how HR theories
and activities can
contribute to the success
of the organisation

(b)
Explain the importance of
ethical behaviour in
business generally and for
the line manager and their
activities.


Theories of Human Resource
Management relating to ability,
motivation and opportunity.


The psychological contract and its
importance to retention.


The relationship of the employee to
other elements of the business.


Personal business ethics and the
fundamental principles (Part A) of
the CIMA Code of Ethics for
Professional Accountants.

2
Discuss the
activities
associated
with the
management
of human
capital.

(a)
Explain the HR activities
associated with developing
the ability of employees

(b)
Discuss the HR activities
associated with the
motivation of employees

(c)
Describe the HR activities
associated with improving
the opportunities for
employees to contribute to
the firm


Practices associated with recruiting
and developing appropriate
abilities including recruitment and
selection of staff using different
recruitment channels (ie
interviews, assessment centres,
intelligence tests, aptitude tests,
psychometric tests).


Issues relating to fair and legal
employment practices (eg
recruitment, dismissal,
redundancy, and ways of
managing these).

xii
INTRODUCTION

Learning Outcomes

Lead
Component
Syllabus content

(d)
Discuss the importance of
the line manager in the
implementation of HR
practices

(e)
Prepare an HR plan
appropriate to a team.


The distinction between
development and training and the
tools available to develop and train
staff.


The design and implementation of
induction programmes.


Practices related to motivation
including issues in the design of
reward systems (eg the role of
incentives, the utility of
performance-related pay,
arrangements for knowledge
workers, flexible work
arrangements).


The importance of appraisals, their
conduct and their relationship to
the reward system.


Practices related to the creation of
opportunities for employees to
contribute to the organisation
including job design,
communications, involvement
procedures and appropriate
elements of negotiating and
bargaining.


Problems in implementing an HR
plan appropriate to a team and
ways to manage this.


HR in different organisational
forms (eg project based, virtual or
networked firms) and different
organisational contexts.


Preparation of an HR plan (eg
forecasting personnel
requirements; retention, absence
and leave, wastage).

INTRODUCTION
xiii

Studying E1

1 What's E1 about

E1 explores several discrete subjects which all affect how organisations operate. However, please note
that exam questions are likely to cover more than one of these subjects. You should therefore appreciate
the various links between them.

1.1 The global business environment

In Chapter 1 we introduce the setting within which all organisations compete – the global economy. We
begin by looking at the main influences on the international environment including the major economic
systems of the world, and how nations develop their economy and industry. Following on from this we
shall study the different types of businesses and the cultural considerations multinational companies
have to think about when managing business units in several countries.

The focus of Chapter 2 is on how governments affect their economies through economic policy and
regulation. The chapter also looks at non-legal regulation, in the form of corporate governance and
corporate social responsibility, which are becoming increasingly important to all business organisations.

1.2 Information systems

You are not expected to become an information systems (IS) expert, but the syllabus does require you to
appreciate the role IS plays in organisations. This includes the various types of system and the role
systems play in transforming how organisations operate and the types of business they do. These areas
are all covered in Chapter 3.

Chapter 4 is primarily concerned with how organisations implement new systems. However, you should
also understand the importance of organisations aligning their information systems with their overall
business strategy.

1.3 Operations management

Operations are the main activities of an organisation. They are ‘what it does’, and it is the subject of
Chapters 5, 6 and 7.

We begin by studying how operations develop around a value chain and how organisations join together
to form supply chains and networks. Quality is an important issue for all businesses, whether in terms of
products or services, and we shall see how quality can be measured and managed to ensure the
customer is satisfied. Finally, we shall find out how organisations can balance their inputs (inventory) and
outputs (products and services) with changing demand levels.

1.4 Marketing

Marketing is about communicating the organisation’s sales messages to the customer. It forms a major
part of its business strategy and is the subject of Chapters 8, 9 and 10. We shall firstly study the
marketing environment and see how a marketing strategy and plan are put together. Following on from
this, our study looks into how the marketing message is communicated to the customer and the
important issue of corporate branding.

The syllabus also covers several smaller areas of marketing. These include; consumer behaviour,
marketing not-for-profit organisations, marketing an organisation’s message to its employees (internal
marketing) and how corporate social responsibility affects how an organisation markets its products and
services. We shall cover all these areas in full as well.

xiv
INTRODUCTION

1.5 Managing human capital

Many believe that an organisation’s employees are its main asset and they should be carefully managed
to get the best out of them. The E1 syllabus looks at all aspects of managing employees to maximise their
potential. Motivation, remuneration, appraisals and various types of working arrangement are all
important to this end and are covered in Chapters 11 and 12. We shall also look into what constitutes
good HR practice and the importance of employees acting ethically.

2 What's required

You will face a variety of questions in the E1 exam. Each type of question tests a different skill and you
must be confident in answering each of them.

20% of the marks are for objective test questions, such as those requiring a short written answer or the
selection of one correct answer from a choice of four. These questions test your ability to make quick
decisions and write succinctly.

When answering multiple choice questions try to eliminate any obviously wrong answers first before
considering the others.

A further 30% of the marks are available for answering five short answer questions which are based
around a single scenario. These test your ability to assimilate information quickly and either apply
theoretical knowledge or provide a brief analysis or evaluation.

It is always a good idea to list a few bullet points as a plan for each question, covering what you want to
say. This helps to focus your mind on the subject and your answers on the question.

The final 50% of the marks are awarded for answering one or two compulsory questions, each of which
may be related to a scenario. These scenarios will not necessarily be any longer than those in the short
answer questions, but your answers must be in more depth to earn the majority of the marks available.

Always produce an answer plan, including any models or theory that you need to mention. A good tip for
answering questions that require you to, for example,’ explain five advantages of…’ is to produce a bullet
list which you then use to provide the headings in your answer. Add some good explanation to this and
you’ll be well on your way to passing.

What the examiner means

The table below has been prepared by CIMA to help you interpret the syllabus and learning outcomes and
the meaning of exam questions.

You will see that there are 5 levels of Learning objective, ranging from Knowledge to Evaluation, reflecting
the level of skill you will be expected to demonstrate. CIMA Certificate subjects were constrained to levels
1 to 3, but in CIMA’s Professional qualification the entire hierarchy will be used.

At the start of each chapter in your study text is a topic list relating the coverage in the chapter to the
level of skill you may be called on to demonstrate in the exam.