MNG4801 EXAM PACK

JANUARY/FEBRUARY 2016 SUGGESTED MEMORANDUM QUESTION 1 1.1 Explain how the concepts of above average return, strategic competitiveness and competitive advantage are measurements of strategic success for Distell Group Limited. Do this by:  Describing each concept  Identifying two relevant examples per concept from the Integrated Report.  Critically discussing how these measurements are utilised Distell. SUGGESTED RESPONSE Success in strategic management is measured by the ability of an organisation to earn above average returns, strategic competitiveness and competitive advantage. Above average returns are returns in excess of what an investor expects to earn from other investments with a similar amount of risk. For example, if the market has an average 10% return on investment, a shareholder that expects above-average returns would be looking at investing in companies that offer returns from 20% and above. Returns refers to the income or profit that investors receive in exchange of investing in an organisation. EXAMPLES OF ABOVE-AVERAGE RETURN FROM THE INTEGRATED REPORT Strategic competitiveness is a type of strategy that certain organisations can plan to achieve their organisational goals even though there are a lot of competitors around them. Strategic competitiveness is an outcome achieved when an organisation successfully formulates and implements a value-creating strategy that cannot be duplicated or is too costly to imitate in the short-run by another entity or individual. It is what allows an organisation to gain an edge over its rivals and it enables an organisation to generate successful performance over an extended period of time. Strategic competitiveness comes from an organisation’s ability to 1 | P a g e perform activities more distinctively or more effectively than rivals. It is achieved when an organisation successfully formulates and implements a value creating strategy and other organisations are unable to duplicate it or find it too costly to imitate. EXAMPLES OF STRATEGIC COMPETITIVENESS FROM THE INTEGRATED REPORT Competitive advantage is a component of strategic competitiveness. It refers to the edge that an organisation has over its competitors. In order to have competitive advantage an organisation’s products or services must be of higher value as compared to those of its competitors. Should be based on the organizations resources, strengths or distinctive competencies relative to competitors, but must also be perceived as such by its customers Competitive advantage exists when an organisation is more profitable than its competitors. An organisation can achieve this in two ways: - By producing products and services that suit in value to those of competitors, and that allow it to retain customers for large period of time. - By producing products or services at a significantly lower cost than its competitors enabling it to get higher profit margins. Competitive advantage is achieved through combining resources, capabilities and core competencies to produce products and services of superior quality. Competitive advantage is associated with the ability to produce high quality products, the ability to innovate, responsiveness to customers and efficiency. EXAMPLES OF COMPETITIVE ADVANTAGE FROM THE INTEGRATED REPORT CRITICALLY DISCUSS HOW DISTELL UTILISED THESE MEASUREMENTS 1. ABOVE-AVERAGE RETURNS 2. STRATEGIC COMPETITIVENESS 3. COMPETITIVE ADVANTAGE QUESTION 1.2 2 | P a g e Explain the difference between wealth maximisation and profit maximisation. Support your answer with two examples of wealth maximisation from Integrate Report. [4] SG. P.37 SUGGESTED ANSWERS Wealth maximisation is the ability of a company to increase the market value of its common stock over time. The market value of the organisation is based on many factors like their good will, sales, services, quality of products, etc. It is the versatile goal of the company and highly recommended criterion for evaluating the performance of an organisation. This will help the organisation to increase their share in the market, attain leadership, maintain consumer satisfaction and many other benefits are also there. Profit maximisation is the capability of an organisation in producing maximum output with limited input or it uses minimum input from producing stated output. It is regarded as the foremost objective of the company. It is essential for the success, survival and growth of the company. Profit is a long term objective, but it has short-term perspective, i.e. one financial year. Profit maximisation implies that the profit of an organisation should be increased while wealth maximisation aims at accelerating the worth of the entity. Profit maximisation is the primary objective of the concern because profits acts as the measure of efficiency. On the other hand, wealth maximisation aim at increasing the value of stakeholders. COMPARISON CHART BASIS FOR COMPARISON PROFIT MAXIMISATION WEALTH MAXIMISATION Concept The main objective or concern is to earn a larger amount of profit. The ultimate goal or concern is to improve the market value of the organisational share. Emphasises Achieving short term objectives Achieving long term objectives Consideration of risks and uncertainty Ignores risks and uncertainty Considers both risk and uncertainty Advantage Acts as a yardstick for computing the operational efficiency of the entity. Enable an organisation to gain a large market share. Recognition of time pattern of returns No Yes