November 2007 Examinations Managerial Level Paper P4 – Organisational Management and Information Systems Question Paper 2 Examiner’s Brief Guide to the Paper 14 Examiner’s Answers 15 The answers published here have been written by the Examiner and should provide a helpful guide for both tutors and students. Published separately on the CIMA website (www.cimaglobal.com/students) from mid-February 2008 is a Post Examination Guide for this paper, which provides much valuable and complementary material including indicative mark information. © 2007 The Chartered Institute of Management Accountants. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recorded or otherwise, without the written permission of the publisher.

Business Management Pillar

Managerial Level Paper

P4 – Organisational Management and

Information Systems

21 November 2007 – Wednesday Afternoon Session

Instructions to candidates

You are allowed three hours to answer this question paper.

You are allowed 20 minutes reading time before the examination begins during which you should read the question paper and, if you wish, highlight and/or make notes on the question paper. However, you will not be allowed, under any circumstances, to open the answer book and start writing or use your calculator during the reading time.

You are strongly advised to carefully read ALL the question requirements before attempting the question concerned (that is all parts and/or sub-questions). The question requirements are highlighted in a dotted box.

ALL answers must be written in the answer book. Answers or notes written on the question paper will not be submitted for marking.

Answer the ONE compulsory question in Section A. This has fifteen sub-questions on pages 2 to 5.

Answer ALL six compulsory sub-questions in Section B on pages 6 and 7.

Answer ONE of the two questions in Section C on pages 8 to 11.

The list of verbs as published in the syllabus is given for reference on the inside back cover of this question paper.

Write your candidate number, the paper number and examination subject title in the spaces provided on the front of the answer book. Also write your contact ID and name in the space provided in the right hand margin and seal to close.

Tick the appropriate boxes on the front of the answer book to indicate which questions you have answered.

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© The Chartered Institute of Management Accountants 2007

P4 2 November 2007

SECTION A – 40 MARKS [the indicative time for answering this section is 72 minutes] ANSWER ALL FIFTEEN SUB-QUESTIONS

Instructions for answering Section A The answers to the fifteen sub-questions in Section A should ALL be written in your answer book. Your answers should be clearly numbered with the sub-question number and ruled off so the markers know which sub-question you are answering. For multiple choice questions you need only write the sub-question number and the answer option you have chosen. You do not need to start a new page for each sub-question. Each of the sub-questions numbered from 1.1 to 1.10 inclusive, given below, has only ONE correct answer. Each is worth two marks. Question One 1.1 Activities aimed at attracting a number of suitable candidates interested in joining an

organisation are called

A human relationship marketing.

B recruitment.

C selection.

D human capital harvesting.

(2 marks) 1.2 The expectations that the individual and the organisation have of one another is referred

to as

A a hygiene factor.

B a psychological contract.

C dual theory motivation.

D a person specification.

(2 marks)

1.3 Hammer and Champy identified the main themes of Business Process Re-engineering as

A process re-orientation, creative use of IT, ambition, and rule-breaking.

B effective process documentation, control, and incentive bonus schemes.

C documentation, a clear business ethos, and an investment in training.

D process review and enlightened HR practices.

(2 marks)

November 2007 3 P4

1.4 Within the context of information systems, the term “peripheral” refers to

A a hardware device that is added to expand functionality.

B an insignificant computer output.

C an outsourced staffing arrangement.

D an unnecessary systems operation.

(2 marks) 1.5 “Corrective” refers to a type of systems maintenance performed to

A remedy software defects.

B allow executive level unstructured decision-making.

C adjust applications to user preferences.

D prevent future operation delays.

(2 marks) 1.6 Larry Greiner’s staged organisational growth model depicts

A strategic stages in supply chain partnerships.

B market growth rate and product portfolio placement.

C organisational age and size, and stages of evolution and revolution.

D growth in market share and profitability.

(2 marks)

1.7 Optimised production technologies (OPT) is an operations management system which aims to

A improve distribution networks.

B improve supply sourcing alternatives.

C integrate operations and quality assurance.

D reduce production bottlenecks.

(2 marks)

1.8 An approach of producing goods or purchasing stock only when required is referred to as

A just-in-time.

B ad hoc.

C level capacity strategy.

D plan-do-check-act (PDCA) quality.

(2 marks)

Section A continues on the next page

P4 4 November 2007

1.9 When an organisation securely shares part of its private network with customers or other outside parties it is said to operate

A an internet.

B an intranet.

C an extranet.

D a joint venture.

(2 marks)

1.10 Intelligence, aptitudes and disposition are often factors identified in

A a job description.

B appraisal targets.

C a person specification.

D 360 degree documentation.

(2 marks)

(Total for sub-questions 1.1 to 1.10 = 20 marks)

Section A continues on the next page

November 2007 5 P4

Required: Each of the sub-questions numbered 1.11 to 1.15 below requires a brief written response. Each sub-question is worth 4 marks.

Your response should be in note form and must not exceed 50 words per sub-question.

1.11 Identify the reasons why an organisation might attempt to actively manage its relationship with its suppliers.

(4 marks) 1.12 For an organisation following a strategic approach to supply, describe the organisational

factors (“spokes in a wheel”) that need to be integrated, co-ordinated and developed.

(4 marks) 1.13 Explain how reliability (the same result for a repeated event) might be improved in

selection interviews.

(4 marks) 1.14 Explain the relationship between the approach to organisational change described in

Theory O (Beer and Nohria) and Theory Y individuals (McGregor).

(4 marks)

1.15 Describe the types of test that should be conducted before a new information system

goes “live”.

(4 marks)

(Total for sub-questions 1.11 to 1.15 = 20 marks)

(Total for Section A = 40 marks)

Reminder All answers to Section A must be written in your answer book.

Answers or notes to Section A written on the question paper will not be submitted for marking.

End of Section A

Section B starts on the next page

P4 6 November 2007

SECTION B – 30 MARKS [the indicative time for answering this section is 54 minutes] ANSWER ALL SIX SUB-QUESTIONS. EACH SUB-QUESTION IS WORTH 5 MARKS. Question Two

TF7 is a progressive manufacturing company, which is open to new approaches and willing to learn from good ideas wherever they are practiced. One of the first within its industry to invest heavily in new technology, TF7 runs its database over office-wide networks and links employees’ computers by wireless local area network (LAN) connections.

TF7 has, in the past, only dealt with wholesalers but, thanks to email links from a new Internet home page, it now receives a substantial number of enquiries from ultimate consumers of its products. TF7 feels that this will represent the majority of its business in the future.

In response to employees spending more time communicating with potential customers by email, TF7 is considering expanding its technology, including the connection of its database to a web server. This would enable potential customers to search for product specifications, availability, and delivery and price information for themselves. It would also allow customers to place orders and view shopping cart items through a browser facility. Before making such an investment, TF7 has commissioned management consultants to conduct an organisational review.

The consultants have produced a draft report in which they outline a number of interim findings, including the following:

• TF7 should gain significant benefits over its rivals through its existing database operations.

• TF7 should consider developing further the interconnection of applications so long as contingency plans are made for the potential of systems failure.

• Although there has been considerable expenditure on hardware, TF7 now needs to invest in software applications.

• TF7’s management information systems and executive information systems are undeveloped to the detriment of the company both operationally and strategically.

• Culturally, TF7 needs to adjust fully from business to business trading (B2B) to business to consumer trading (B2C).

• Currently training is conducted by TF7’s own staff. The staff training programme needs to be reviewed to take account of new skill requirements demanded by new working practices. In-house training should continue but a mixture of TF7 trainers (and managers) and specialist providers should deliver a programme designed by TF7’s Human Resources Department. The effectiveness of staff training events needs to be more carefully assessed.

• The experiment of using quality circles, which has recently been piloted, is unique within the industry and is worth developing further.

You work in TF7’s technical department and report directly to the Chief Executive, who has asked for a series of brief notes so that he is prepared when discussing the draft report with the management consultants.

The requirement and instructions for this question are on the opposite page

November 2007 7 P4

Instructions Use a separate page of your answer book for each sub-question (meaning that your notes are contained on no more than six pages in total). Your notes can take any form so long as they comply with the page limit and might include diagrams, tables, sentences or bullet points, etc.

Required:

Provide appropriate briefing notes for the Chief Executive for each of the following issues:

(a) Describe the benefits TF7 should be enjoying as part of its current database operations.

(5 marks)

(b) Explain the value of good management information systems and executive information systems.

(5 marks)

(c) Explain what issues TF7 needs to be aware of when adjusting from business to business trading (B2B) to business to consumer trading (B2C).

(5 marks)

(d) Explain how TF7 can assess the effectiveness of staff training events.

(5 marks)

(e) Identify the advantages that TF7 might achieve by using specialist providers as well as its own staff in delivering a training programme.

(5 marks)

(f) Describe the ways in which TF7 might encourage the development of the use of quality circles.

(5 marks)

(Total for Question Two = 30 marks)

(Total for Section B = 30 marks)

End of Section B

Section C starts on the next page

P4 8 November 2007

SECTION C – 30 MARKS [Indicative time for answering this question is 54 minutes] ANSWER ONE QUESTION ONLY Question Three The country of Chapterland has twelve regions, each with a democratically elected regional government responsible for education, law and order. (Other public services are provided directly by the Chapterland government.) SW1 is the country’s biggest region. Following last year’s election, SW1 has a new regional government that wishes to simplify the several pay structures that exist in the education and law and order services as well as increase employee flexibility and productivity.

A detailed investigation by SW1’s new regional government indicates that:

• Employee groups performing similar activities in different public services are paid on different pay scales and all have different annual leave, maternity leave and sickness entitlements.

• Pay scales and conditions of service have developed over time as a result of national negotiations between representatives of regional employers (including SW1) and respective national trade unions.

• All university lecturers have the same fixed holidays, meaning no teaching takes place for five weeks of the year. In addition, weekend working is prohibited under current terms and conditions of service.

• Police officers receive generous allowances to assist in paying for their accommodation costs.

• Traffic wardens (who act as police enforcement officers for motoring regulations and deal with traffic related issues) receive allowances for laundering their uniforms and replacing their footwear.

• ‘Pay for performance’ schemes do not operate. • The unions have traditionally conducted negotiations collectively at a national level.

It is the regional government’s intention that in future:

• A new unified pay scheme will be introduced and will incorporate a performance management system. Basic pay will be reduced but high bonus payments for hitting performance targets will be possible.

• Promotion policy will be based on achievement of individual targets instead of length of service and loyalty.

• More flexible working will be expected from all groups.

SW1’s regional government instructed a negotiating team to meet with regional union representatives collectively in order to persuade them to abandon nationally negotiated contracts, and give up certain benefits. In return, SW1 is prepared to offer “one-off” payments to compensate staff. Although regional bargaining such as this has never been tried in Chapterland, the national government has indicated that it supports SW1’s ideas.

The negotiating team has met many times with the regional union groups over the past ten months but progress has been slow. It is clear that, although agreement is close for all other groups, the university lecturers’ union is reluctant to recommend to its members changes to the current nationally negotiated pay and conditions. This is halting any overall agreement.

Question three and the requirement continues on the opposite page

November 2007 9 P4

SW1’s regional government is frustrated by this slow progress and has instructed the negotiating team to meet with regional union groups separately to agree the size of the one-off payments for their respective groups. The regional university lecturers’ union is to be made a “final” offer and, if rejected, SW1 will write to all lecturers personally offering them a new contract of employment with different conditions of service. As an incentive, those lecturers accepting a new contract within 30 days will receive a small payment immediately. Those not signing a new contract will be considered to have resigned from their jobs. The local regional newspaper finds out about these plans and the headlines in the evening newspaper reads “SW1 government’s unethical plans”.

Required: (a) Evaluate the way in which resistance to change is being managed by SW1’s regional

government. (10 marks)

(b) Discuss the ethical issues associated with the regional government’s attempts to alter pay and conditions.

(10 marks)

(c) Discuss the possible difficulties for SW1 in operating a reward scheme based upon achievement of performance targets. Note: Your answer should include both design and operational issues.

(10 marks)

(Total for Question Three = 30 marks)

Section C continues on the next page

P4 10 November 2007

Question Four 4QX is a large exclusive hotel set in an area of outstanding natural beauty. The hotel is a little remote due to the relatively poor transport network. It is located ten miles away from the region’s main centre Old Town (the castle ruins of which attract a few tourists during holiday periods). The hotel has attained a high national star rating and specialises in offering executive conference facilities. Unsurprisingly therefore, it caters mainly for corporate guests.

It is a requirement of the hotel rating system that 4QX has, amongst other things, sports and leisure facilities to an approved standard. In order to attain this standard it has, within the last two years, installed a sports and fitness centre (“the centre”), employing fully qualified staff to give instruction and assistance. (Facilities include a small indoor heated swimming pool, an extensively equipped gymnasium, a spa bath and a steam room.) Due to legislation, children under the age of 16 staying in the hotel cannot use the pool without adult supervision or the gymnasium without the supervision of a suitably qualified member of staff. The centre is costly to maintain and underused.

The hotel’s manager is currently drawing up a business plan for the hotel and is reviewing all areas of operation. In discussions with sport and fitness centre staff, a proposal has emerged to offer the facility to carefully selected non-guests at certain times of the day in order to bring in some revenue. This could be in the form of annual membership fees (the manager’s preferred idea) or a “pay-as-you-go” charge. The discussions with staff confirm a number of facts:

• The local economy is extremely healthy. The local population is relatively affluent with high levels of disposable income.

• Professional groups are used to paying annual membership fees for the local theatre, a nearby golf club (the manager is also a member and has contacts there), and substantial fees for their children’s activities (for example dance academies and junior football teams, etc.)

• Old Town has a public swimming pool that is dated but almost of Olympic standards. It is used mainly by school children in the day and by a swimming club in the evenings. Taking advantage of government tax incentives to help keep the population fit and healthy, a privately operated, female only, health and beauty facility has recently opened in Old Town. Beyond these facilities, little else in the way of sports and fitness provision exists in the region.

The manager explains that:

• the hotel is unlikely to upgrade the centre’s facilities any further in the short term, despite the fact that new, more sophisticated fitness equipment is coming onto the market all the time.

• any promotional budget to attract members would be limited. • an estimate of additional revenue potential is needed to complete the business plan.

The requirement for this question is on the opposite page

November 2007 11 P4

Required:

(a) Explain the importance of the centre understanding its external (or macro) environment and identify the most significant influences in that external environment that are relevant to the centre.

(10 marks)

(b) Explain how the centre should undertake market segmentation and describe the most likely segmentation variables that will be identified by such a process.

(10 marks)(c) Explain how the centre’s income potential can be estimated.

(10 marks)

(Total for Question Four = 30 marks)

(Total marks for Section C = 30 marks)

End of Question Paper

P4 12 November 2007

LIST OF VERBS USED IN THE QUESTION REQUIREMENTS A list of the learning objectives and verbs that appear in the syllabus and in the question requirements for each question in this paper. It is important that you answer the question according to the definition of the verb.

LEARNING OBJECTIVE VERBS USED DEFINITION

1 KNOWLEDGE

What you are expected to know. List Make a list of State Express, fully or clearly, the details of/facts of Define Give the exact meaning of

2 COMPREHENSION What you are expected to understand. Describe Communicate the key features

Distinguish Highlight the differences between Explain Make clear or intelligible/State the meaning of Identify Recognise, establish or select after

consideration Illustrate Use an example to describe or explain

something

3 APPLICATION How you are expected to apply your knowledge. Apply

Calculate/compute To put to practical use To ascertain or reckon mathematically

Demonstrate To prove with certainty or to exhibit by practical means

Prepare To make or get ready for use Reconcile To make or prove consistent/compatible Solve Find an answer to Tabulate Arrange in a table

4 ANALYSIS How you are expected to analyse the detail of what you have learned.

Analyse Categorise

Examine in detail the structure of Place into a defined class or division

Compare and contrast Show the similarities and/or differences between

Construct To build up or compile Discuss To examine in detail by argument Interpret To translate into intelligible or familiar terms Produce To create or bring into existence

5 EVALUATION How you are expected to use your learning to evaluate, make decisions or recommendations.

Advise Evaluate Recommend

To counsel, inform or notify To appraise or assess the value of To advise on a course of action

November 2007 13 P4

The Examiner for OMIS offers to future candidates and to lecturers using this booklet for study purposes, the following background and guidance on the questions included in this examination paper. Section A – compulsory Question One in total accounts for 40% of the paper (for the second time) and tests topics in all five sections of the syllabus. Question One sub-questions 1.1 to 1.10 tests candidates’ knowledge of a wide variety of topics within the syllabus through the use of objective test questions (OTQ) in a conventional “multiple choice” format. Question One sub-questions 1.11 to 1.15 provides further brief testing through limited word responses. Responses for each sub question are expected to conform to the word limit indicated of 50 words. (Responses beyond this limit are not marked). These sub questions (valued at 4 marks each) test knowledge and understanding. Sub questions 1.11 and 1.12 test aspects of Operations Management (learning outcomes C (vii) and (viii)), while 1.13 and 1.15 test learning outcomes E (ii) and (iii) of Managing Human Capital, and sub question 1.14 tests Change Management (learning outcome B (ii)). Section B – compulsory Question Two represents 30% of the paper and tests topics from all areas (apart from Change Management). The question takes the familiar form of a common workplace related scenario (in this case a progressive manufacturing company) from which all sub questions are drawn. All sub questions require an application of knowledge to the scenario. Question two parts (a) and (b) tests candidates’ knowledge and understanding through the application of thinking from Information Systems (A (i) and (ii)). Part (c) involves a part testing of Marketing (learning outcome D (iv)), parts (d) and (e) Managing Human Capital (learning outcome E (iii)) and finally part (f) Operations Management (learning outcome C (v)). Responses for each sub question are expected on a single side of A4 and in a form that might include a few sentences and bullet points. This limit simulates a real life scenario in which accuracy, brevity and clarity are called for and also hopefully prevents candidates from spending a disproportionate amount of time on each sub question. Responses beyond the limit indicated are not marked. Section C – one question from two Candidates have a choice of one question from two in Section C, which again accounts for 30% of the paper (as it did in May 2007). These questions part test several aspects of the syllabus topics. Both questions involve the use of business scenarios as contexts and involve three equally weighted sub questions that require the application of knowledge and understanding to the scenario. Question Three requires an application of knowledge and understanding to the scenario of a newly elected government attempting to bring about change in pay and conditions for its workforce and involving a number of ethical issues (so part testing Change Management (B(iii) and Managing Human Capital E(iii)). Question Four tests candidates’ understanding of issues associated with Marketing (learning outcomes D(iv) and (ii)). and involves the potential marketing of a sports and leisure facility within a hotel and certain issues associated with it.

P4 14 November 2007

The Examiner's Answers for Organisational Management and Information Systems

SECTION A

Answer to Question One

1.1 B

1.2 B

1.3 A

1.4 A

1.5 A

1.6 C

1.7 D

1.8 A

1.9 C

1.10 C

1.11 • Dependency (even greater dependency if few suppliers or the raw material is crucial to

final product);

• To influence quality and price;

• To gain relative competitive advantage;

• To ensure suppliers are performing well;

• To establish long-term relationships and continuity of supply.

November 2007 15 P4

1.12 Cousins’ strategic supply wheel: ‘spokes’: • Organisational structure affects interactions and controls;

• Relationship portfolio (with suppliers and their nature);

• Cost/benefit analysis (rational decision-making);

• Appropriate skills/competencies to implement strategy;

• Performance measures (internal/external): monitoring and control. 1.13 Reliability = repeatability of outcome

• Structured pre-determined interview format (equal time allocations, identical questions,

identical ordering of sequence);

• Standard paperwork (application forms, scoring grids, person specs);

• Avoid first impressions/gut reactions; • Put candidates at ease, ensure conducive environment. 1.14 Theory Y people: • Help establish and contribute to clear goals; • Enjoy clear responsibility/autonomy. Theory O approach: • “Shared” with staff; • Encourages individual learning/support. Relationship: • Staff commitment; • O view staff as Y. But O allows flexibility where goals unclear; Y is faster but less effective (?)

P4 16 November 2007

1.15

Purpose Realistic Test system logic (maybe with

artificial data)

Contrived How the system reacts to many unusual/unexpected events (for example miscodings, unrealistic data)

Volume (capacity) Coping with large capacity

User acceptance/readiness Confirm system

completeness, satisfaction and user preparedness

Integration Compatibility with other

systems

November 2007 17 P4

SECTION B The answers that follow are fuller and more comprehensive than would have been expected from a well-prepared candidate. They have been written in this way to aid teaching, study and revision for tutors and candidates alike. Answer to Question Two Requirement (a) Background Apparently TF7 is levering significant benefits through its database operation compared with its rivals. A database is a collection of structured data held in data files and completely independent of any one application, meaning that when data is integrated a single file system emerges. The main aim of a database is to provide one common dataset for a wide variety of users and their information needs. Likely benefits The main benefits are likely to include: Basis of new ways of operating TF7’s database experience represents a “stepping stone” to web-based operations. Such operations will allow both customer and supplier easy access and free staff to work from flexible locations (for example home or at the premises of potential customers). Without the cultural acceptance and knowledge of databases such a development might be more problematic. Increased trading potential By moving to database operations the potential for introducing web database technology is readily apparent, so potentially opening up facilities for customer searches and, in turn, increased trading possibilities. Cost reduction There should be reduced net data storage costs. This will only apply however, so long as these cost savings outweigh the additional costs of operating a database management system (DBMS). (Rather than reduce the overall budget, it is more likely that these savings will take the form of released staff time that can be put to other activities.) Waste elimination Data is only stored once. The database operations will prohibit data being duplicated. This will involve the elimination of data redundancy and the potential for inconsistencies of the same data are eliminated. Data reliability Without database operations, data integrity can be compromised in a number of ways (for example human error, software bugs, natural disasters, errors arising from data being transmitted from one computer to another and so on.). These difficulties are eliminated. Meet user needs User needs can be catered for under a database operation, specifically: • Data independence. A single data source can be accessed by a number of different users

at the same time. Without database operations, it is down to individual users to generate the necessary data.

• Privacy can be provided by DBMS software through sophisticated security so preventing

unauthorised access and data alteration or destruction. It may be that access and privacy can be enhanced under such an approach.

P4 18 November 2007

Requirement (b) Management information systems (MIS) MIS provide managers with information to monitor and control the organisation’s activities. MIS collect and process data to produce management reports to a range of managers (typically middle managers) who can use it for decision making, planning, programme implementation, and control. Such systems support operations and managerial decision-making. This enables middle managers to report matters of significance more appropriately to senior level managers. MIS can be manual but in this case are likely to be computer generated and are often based upon report-producing packages that use information from the same source as the data processing systems. The value of having good MIS includes: • Potentially more effective operations and improved management control;

• More complete information available to managers to improve decision making;

• Improved satisfaction and motivation amongst managers;

• Better information leading to improved budgetary control, stock control, improved forecasting and so on;

• Maintaining a competitive advantage over rival companies who do not make this investment

Executive information systems (EIS) EIS is a computer based system intended to support the information and decision needs of top-level executives through easy access to both internal and external strategic information. An EIS will contain powerful software for supporting the types of high-risk, unstructured decisions that are made by strategic-level managers. EIS help analyse, compare and highlight trends in important areas so identifying strengths, weaknesses and external opportunities and threats. The value of having good EIS includes: • Ability to make informed, potentially significant decisions of strategic significance;

• Maintaining a competitive advantage over rival companies who do not make this investment;

• Improved ability to recognise opportunities or external challenges;

• Ability to track key performance indicators (KPIs) meaning that monitoring and control at strategic level is more effective.

Requirement (c) TF7 will increasingly be bypassing intermediary organisations, such as wholesalers, and dealing directly with the ultimate customer as part of a process of moving forward within the value chain (“forward integration”). Some of the issuesTF7 need to be aware of include: Complexity of new relationships A greater diversity and number of customers to deal with, thanks to the marketing opportunities arising from the web. This makes fostering customer relationships and customer care more demanding. A need for constant system enhancement There will be a need to monitor, maintain and enhance TF7’s web based operations in order to keep its new customers satisfied. If TF7 is successful then TF7’s competitors may similarly begin web trading, meaning that in order to maintain its competitive advantage TF7 needs to

November 2007 19 P4

constantly improve its software and levels of customer satisfaction. This will require greater resources. Adjustment to TF7’s marketing mix In business to consumer (B2C) marketing, the purchaser makes purchasing decisions for personal rather than organisational reasons. B2C purchasing decisions will be made more on economic/task factors alone (price, delivery, location, quality, reliability, customer care, after care and so on.). Many non-task factors (personal risk or gain, previous decisions, politics, those influencing the purchaser perception and so on.) will become relevant. There is a need therefore to reconsider TF7’s marketing mix and where appropriate, adjust product features, promotional effort and price (place has already been adjusted). Focus on new customers Fewer people are involved in the buying decision, possibly only the end-users. There is a need to reconsider how to satisfy these customers’ needs and wants more fully. (With B2B there will also be initiators, influencers and buyers to consider.) Review of the skills of TF7’s workforce There will need to be a re-skilling of the workforce in order to cope with these differing requirements. How those skills are acquired is an HR issue and may involve outside recruitment or a programme of retraining for existing staff. Other HR considerations also apply which will involve a review of individual job roles, job content and skills mix. (For example, the use of sales representatives. Visiting wholesalers may be of less importance than dedicated customer help lines arising from e-trading.) Requirement (d) Staff training events must specify clear learning outcomes. TF7 can use these learning outcomes in the following ways: Before the event is run TF7 can see that learning outcomes are appropriate in achieving organisational needs. (In this case issues of whether the training will equip the workforce with the appropriate skills to support the database developments and B2C trading more generally.) If they are not appropriate, then the learning outcomes should be adjusted and the training events modified as appropriate. After the event is run For such an assessment, Kirkpatrick (1998) identified the following (interconnected) levels at which training can be evaluated: • Reaction: the participants’ opinions of the training;

• Learning: the extent to which participants have learned as a result of the process;

• Behaviour: the extent to which behaviour and attitudes have changed following training;

• Results: the benefits resulting directly from the training (for example better customer relations, better quality management and executive decision-making, and so on.).

This listing might usefully be adopted as a framework for assessing the effectiveness of staff training. Participant reaction to the training All participants should be required to complete a standardised questionnaire once the event has been concluded. These should be completed soon afterwards but only once a period of reflection has taken place. To avoid undue influence, these questionnaires should be administered by someone other than the event trainer (possibly another HR professional) and returns should be anonymous. Participants should be specifically asked if the learning outcomes of the event were achieved. Summarised information arising from this process should be reported officially to some forum and fed back to individual tutors in order that they might amend future provision.

P4 20 November 2007

A forum of participant representatives or a focus group could be assembled to explore the effectiveness of events in a less formalised way that will encourage discussion. Note: It should be acknowledged that participants (who may concentrate on the process) may

not always be the best source of assessing effectiveness (or training outcomes). Learning A judgement of whether learning has occurred could be received from managers of the participants. Alternatively, selected past participants could be tested in some way in order to confirm the degree that lasting learning has taken place. Behaviour Again, the managers/immediate supervisors of the participants exposed to training could make a judgement of whether behaviour and/or attitudes have changed positively. Results The results could be assessed by the determination of key performance indicators and measures. These could be reported over time to ensure that ratios of performance are improving. One enhancement might be to identify a control group that is not exposed to the training and then compare the results arising from this group with those who have undertaken training. Requirement (e) Organisational training can potentially be provided in a number of ways, principally through use of: • In-house expertise: employees who are either trainers or managers used for the purpose;

• External trainers (who have specialist, probably industry wide expertise);

• Open learning: carefully designed stand alone packages that employees can access in a flexible way.

Inevitably each will have corresponding advantages and disadvantages. The management consultants recommend that in-house training should continue but a mixture of TF7 trainers (and managers) and specialist providers should deliver the programme. A programme designed by TF7’s Human Resources department means that it will be tailor made to the organisation’s specific needs and control over material, course content and timing can be assured. Main advantages • It may be possible to compare and contrast the effectiveness of using either in-house

expertise or external trainers. In this way the performance of external providers can be assessed and the desirability of TF7 employing trainers directly can be considered,

• TF7 trainers (and managers) may not have the external exposure or specialist skills or knowledge to deliver the training to an appropriate standard. Conversely, external trainers may not understand the organisational culture or local working practices. In combination, the use of both should ensure that such difficulties are overcome and the relative strengths of each can be maximised.

• In-house trainers have an opportunity to learn from external trainers, so contributing to their personal development and developing future potential for delivery in-house.

• The overall training budget can be maximised by using in-house trainers (and expert sessions from their own senior managers or technical staff) to deliver aspects for which they have the necessary expertise and the more costly external providers for other elements.

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• This “mixed economy” approach has the potential to both incorporate work-based projects whilst allowing participants to be exposed to outside influences and theoretical underpinning.

• The differing perspectives of each group should enrich programme delivery and add interest for participants.

Requirement (f) The Japanese management concept Quality Circles (QCs) stems from a desire for organisational improvement and relies upon high employee involvement. QCs are small groups of staff that meet regularly with a brief to work as a team to identify, investigate, analyse and solve work-related problems or tasks. The consultants have concluded that the use of QCs by TF7 is unique within the industry and is “worth developing further”. Development might take a number of forms, some of which are described below: Extend the pilot (to show that TF7is serious about QCs) So far, quality circles appear to be at an experimental stage and have recently been piloted. The pilot should be extended more widely. This would indicate to its staff that it is serious about this approach to quality improvement. Ensure management support Management support for QCs is necessary at all levels within TF7. This should be done through stressing their benefits (including improved communication, management awareness of employee job-related concerns, improved motivation and so on.). HR strategies should be adjusted accordingly, for example by making the effective operation of QCs a performance target for all managers, by adjusting the reward package to reflect QCs, etc. Ensure support of the rest of the workforce The support of the workforce is vital as they operate the circles. This should be done through raising awareness of their benefits, both organisationally and from a personal perspective (including increased power, opportunities to recognise individual contributions and a vehicle for personal growth and development through attaining new skills such as decision-making.) The employee job requirement and reward package might also be adjusted to reflect QCs. Commit sufficient resources If QCs are to be successful, there will need to be the commitment of sufficient resources including time and finance. Time is required to train workers, to meet regularly and to investigate, implement and embed improvements into normal working practices. There will also be financial costs associated with such a time commitment. (Additionally, most organisations implementing QCs identify a need to hire an external consultant initially.) Provide appropriate support systems for QCs Existing systems should be adapted to compliment and support the operation of QCs (for example by integrating the problem solving capacity of QCs as part of a cohesive HR training programme). Other systems such as reporting and reward and recognition systems will need to be established. Provide guidelines Appropriate guidelines on the operation of QCs should be established. These might include ways of encouraging participation, scope of operation, numbers of staff per circle and the correct composition. QCs should be interdisciplinary to provide an expertise mix and ensure that participants obtain a better perspective of the whole of TF7 and their part within it.

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Embed QCs within the culture of TF7 This will involve recognising a need for organisational improvement, a concern for quality and the valuing of employees and their problem solving capability. There will also need to be an acceptance of the need to devolve authority and responsibility to the operational level. The introduction of new systems and practices as part of QCs should help engineer a cultural acceptance.

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SECTION C The answers that follow are fuller and more comprehensive than would have been expected from a well-prepared candidate. They have been written in this way to aid teaching, study and revision for tutors and candidates alike. Answer to Question Three Requirement (a) Background Many organisations wishing to operate more effectively focus their attention on their most valuable (and possibly expensive) resource: their human resource. The change programme identified by SW1’s regional government is consistent with such a philosophy. The regional government possibly believes that it can lever improved organisational performance by examining issues such as workforce flexibility, remuneration and incentives. The closer linking of rewards and performance might encourage employees to be more productive (assuming they are motivated by financial inducements). In addition, resources can be better targeted to recognise individual effort and achievement, which might improve both staff morale and retention. Such initiatives could promote greater employee involvement and commitment and lead to improved quality and customer service. The regional government’s employees may welcome the introduction of a well designed and implemented scheme that links pay to performance so long as the new system and the way in which it is introduced is viewed as being “fair”. SW1’s regional government would be advised therefore to demonstrate fairness in its dealings and put effort into “selling” the change. Potential approaches Initial apathy or hostility to the regional government’s proposals can be dealt with potentially in a number of ways: • by ignoring the concerns and implementing a new scheme (forcing through the changes

in spite of staff reservations);

• by compromising in some way so as to give staff something of what they want by adjusting the new proposed scheme;

• by collaborating with staff to develop an alternative joint scheme. Initial approach and implications Kotter and Schlesinger (1979) identified six main methods (strategies) for dealing with resistance to change including “negotiation and agreement”: the initial method chosen by SW1’s new government. This approach is particularly suitable where it is felt necessary to compensate those losing out because of the change. In this case staff (as represented by their union groups) are being encouraged to move away from nationally negotiated terms and conditions of service, and work more flexibly and productively in future. It is proposed that they are compensated with a small “one off” payment in return. Conceptually the financial inducement for foregoing existing benefits appears to be the “fair” approach. Generally successful negotiation and agreement occurs where both sides can feel to have gained something of value (a “win/win” situation). This may in general help avoid major longer-term problems in the future. On the downside this approach can be financially expensive. Where little goodwill exists between the respective parties the process may be protracted and can be potentially bruising. In this case the process has gone on longer than the new regional government feels is acceptable (ten months so far). This may possibly indicate some distrust of the new government by union groups, most likely the University Lecturers’ union.

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Second phase approach and implications With progress being slow, SW1’s government has altered its influencing strategy from “negotiation and agreement” to what Kotter and Schlesinger (1979) might term “manipulation and co-optation” or “explicit and implicit coercion”. • Manipulation and co-optation involves presenting partial or misleading information and

“buying off” key players. Whilst there is no suggestion of misleading information being used, offering terms separately to the unions more amenable to the proposal is divisive. Some groups (such as the University Lecturers’ union, or the general public) might feel that manipulation and “sweeteners” are being used unfairly to bulldoze obstacles in the way of a speedy resolution.

• Explicit/implicit coercion involves using actual or threatened force to bring about change.

In this case SW1’s government is making the University trade union a “final” settlement offer, and appealing to their members directly. Offering a time-limited cash payment and threatening termination of employment for resistors is indisputably a strategy of explicit coercion.

SW1’s government is obviously trying to expedite the implementation of its policies, however there are a number of dangers associated with their change in approach. Manipulation and co-optation may hasten the process but experience shows that normally future problems arise if the people involved feel they have been manipulated. Explicit/implicit coercion involves the potential risk of making a situation more difficult, especially if trade unions are in a position to provide opposition and protection. This more radical approach potentially raises not only ethical but also legal problems (dependent upon national industrial relations legislation in Chapterland). There is also a higher risk that this will make staff less loyal, committed and willing to be flexible thereby frustrating further future attempts to improve productivity. In addition: • Other trade unions may feel sympathy for the University lecturers’ union and will refuse to

allow them to be isolated in the way that SW1’s government is attempting.

• It is also likely that trade unions at a national level, opposition political parties and other groups might oppose SW1’s government and its methods.

• The reputation of SW1’ government as an employer might be tarnished and it may be difficult to recruit successfully from outside in future.

• The trust between University Lecturers and the regional government is likely to be irreparably damaged as a result of these actions.

Note: A framework suggested by Kotter and Schlesinger (1979) has been used here in order to evaluate the change management approach. Other theories and frameworks are also relevant and will receive appropriate credit in the marking of scripts. Requirement (b) Ethics and change Ethics involves morality and what the individual considers to be “right”. Ethics applies in most fields and can be seen most clearly in areas such as religion and medicine. Business and management are also subject to ethical considerations. Relating this thinking to the scenario issues of what constitutes a “proper” or moral way to bring about change applies. Such judgments are inevitably personal but are set within the context of what individual organisations or society as a whole generally believes to be “right”.

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In overview: Initial approach As far as can be ascertained from the scenario the initial method chosen by SW1’s new government of negotiation and agreement appears to raise few ethical concerns. Negotiation and agreement suggests dialogue, compromise and compensation to those losing out because of the change. In overview: Second phase approach SW1’s government change in approach from “negotiation and agreement” to the more extreme “manipulation and co-optation” or “explicit and implicit coercion” however raises a number of significant issues. Analysis of detailed ethical issues Applying an ethical framework to the way in which SW1’s government is attempting to alter pay and conditions, the following detailed issues arise in the sense of what some would describe as “fairness” or “rightness”. Talks with regional union representatives. Some may believe that locally (in this case regionally) determined pay and conditions through negotiation are ethical and fair as employers are in the best position to determine detailed issues taking account of local conditions. Alternatively, others may believe that locally determined agreements are inappropriate and that it is “fairer” to conduct such discussions at a national level where regional employers are less able to exercise undue and unethical influence on individual trade unions and individuals. (Although new to Chapterland, the national government is apparently supportive of the initiative. National trade unions alternatively may believe that “unity is strength” and take the opposite view). Compensation package. The abandonment of nationally negotiated contracts in return for a small “one off” payment to existing post holders may also be considered unfair. Later post holders will not enjoy certain benefits (whatever they may be) “sold” once and for all by existing post holders. Individual negotiation. The regional unions apparently prefer to conduct negotiations collectively, and the negotiating team has met “many times” in this way. The instruction to the negotiating team to meet with union groups separately may be seen as unfair and divisive. It has been “custom and practice” (an accepted way of operating) to meet as a group and this has happened over the past ten months. SW1’s regional government is undoubtedly breaking “custom and practice” in a way that might be seen as high handed and unethical. Sidelining the regional University lecturers’ union. The intention to write to individual lecturers to make an offer directly if the trade union declines a “final” settlement offer is ethically questionable. The trade unions are legitimate representatives of individuals and clearly have been used as a vehicle for collective bargaining so far. This development may not be seen as morally defensible to many observers. Issuing ultimatums. The ultimatum to lecturers to accept a new contract of employment within 30 days or terminate their employment within SW1 is clearly threatening behaviour by a heavy-handed management. This development would certainly be viewed as unethical by many observers, including the local newspaper.

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Requirement (c) The principles of a reward scheme based upon achievement of performance targets involve: • setting clear goals,

• providing proper feedback, and

• rewarding effort appropriately. For the groups identified within this case this is feasible. (So for example police officers could earn cash bonuses for meeting targets in a number of areas such as crime detection figures, and so on) The fact that it is feasible does not mean that it is straightforward. A number of possible difficulties are associated with such a scheme including: • Cost of the overall scheme. Obviously SW1’s government cannot leave the total scheme

cost open, otherwise it may be writing an “open cheque”. Conversely, financial constraints by the use of budgets or ‘quotas’ to restrict the amount of awards may act as a source of dissatisfaction.

• Corruption of existing systems. If the pay system is linked to the appraisal process then appraisals may cease to be a positive developmental process and become more defensive and confrontational.

• The fairness of rewards. The entire employment relationship is built on a ‘wage-effort bargain’. Rewards must be commensurate with effort and attainment. If bonuses are relatively small they may not change behaviour, similarly if they are difficult to achieve they may not motivate staff. (Consistent with expectancy theory.)

• The fairness of the system. The fairness of the system must be recognised by those

involved in its operation but this might be difficult to achieve in practice. An individual's contribution needs to be measured but this may not be possible where team working is “the norm”. Under such circumstances, team bonuses might be paid. One problem is that there may be unrest if “free-riders” who do not contribute fully to the team receive the same bonus. Alternatively, if individual bonuses are paid the scheme might impede effective team working by encouraging competition where co-operation is needed. Awards need to be applied in a consistent, fair and transparent manner. Negative behaviour may arise if certain groups (for example traffic wardens) believe that other groups (for example the police) have a scheme that is more leniently applied or where it is easier to “hit” targets.

• The ability of individuals to exercise influence. Individuals need to have some control over reaching performance targets. If hitting a target is primarily the result of events outside of the control of the individual there will be difficulties (for example the performance of the economy might be the main determinant of student numbers, not lecturer performance). Under these conditions individuals may become frustrated and demotivated because, irrespective of their effort, the targets may remain elusive. Otley’s work (1987) into behaviour and accounting control indicated that if targets are not met a demoralising effect might occur whereby there is a dramatic fall-off in performance. The scheme may be counter productive if this happens and may cause a decline rather than an increase in productivity.

• Agreement of appropriate goals that indicate performance. Relatively straightforward

judgements over performance can be made where tasks involve workers producing tangible, consistent outputs and where there are few variables affecting productivity. Where this is not the case there are difficulties sometimes involving basic issues such as what constitutes an output measure of performance. For example, in the case of university lecturers, opinion may differ as to the relative importance of increasing student numbers, getting students to pass examinations, challenging students, educating students, preparing students for the next stage of their career and so on. As such, those

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within SW1’ government who decide upon these issues assume great importance (whether politicians or managers or some other groups, or some combination). Any measures devised would need to be agreed by the relevant trade union groups as being appropriate. If no such agreement is reached then the whole scheme may be discredited.

• Identifying SMART indicators of performance. Employees need to be aware of the levels

of performance they need to attain with absolute certainty. Indicators that are not SMART may invalidate the whole scheme (SMART being specific, measurable, achievable, realistic and time bound targets). The identification of straightforward SMART indicators may be very difficult in practice however.

• The reliability of measurements. Goals need to be translated into tangible targets and

performance needs to be recorded accurately and reliably. This raises issues of who collects the data and how. For the scheme to be viewed as fair and workable, as many elements of subjectivity in measurement as possible should be eliminated. This might involve quite complex and potentially expensive recording mechanisms.

• Getting robust measures. Workers may manipulate “results” if they are inappropriate or

difficult to measure in order that cash bonuses are payable. Undesirable behaviour may result from the indicators of performance themselves. For example, if traffic wardens wear pedometers to confirm the extent to which they “walked their beat” each day, it may encourage aimless wandering around. Alternatively, if the target is the number of parking infringement tickets issued, wardens issue them unfairly leading to many later disputes with motorists to be sorted out by someone else.

• The effectiveness of managers. How the outcomes of performance are communicated to

employees and by whom, could be a problem especially where “results” are disputed. If managers perform the task, it may be time-consuming, expensive to administer and may lead to a deterioration of working relationships. Experience shows that schemes such as this can be time-consuming to implement and manage and might also result in a substantial change to an organisation’s culture.

Answer to Question Four Requirement (a) The importance The external (or macro) environment of 4QX’s sports and fitness centre is of significance because it contains a number of influences that are important when developing a marketing or business plan. Market research must show an awareness of these factors as they may affect supply and demand for a product or service. It should be remembered that these same factors would apply to any organisation developing or operating in the sports and fitness industry. What is important for 4QX is that it recognises these factors and acts upon them in a more appropriate way than its competitors or potential competitors in order to gain an advantage. Traditionally, these influences are identified and considered according to a STEP (or PEST) framework that involves societal (or socio-cultural), technical, economic and political/legal dimensions. Political/legal include government stability, regulations, taxation policies, etc., as well as the various legislation dealing with (for instance) competition, employment, health and safety. Economic factors include levels of inflation, employment, interest rates and disposable income, etc. Socio-cultural issues take account of demographic trends, income distribution, life-style changes and attitudes to work, leisure, consumerism, and so on.

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Technological includes national spending on research, the rate of new discoveries and developments, the speed of technology transfer and rates of obsolescence, and so on. More recently, this framework has been developed to give a PESTLE categorisation reflecting political, economic, socio-cultural, technological, legal and environmental factors. Either framework should be helpful when understanding the factors facing 4QX’s sports and fitness centre as part of a business planning process. Note: Alternatively a candidate might generate similar points without using such a framework.# Significant influences A number of factors can be speculated upon. However, based on what is known from the scenario the following influences are of significance: Political/Legal • There are some important health and safety requirements in place. Specifically, children

under the age of 16 cannot use swimming pools unless supervised by an adult. In addition, children cannot use gymnasiums without the supervision of a suitably qualified person. This legislation translates as a restriction on 4QX. However, management is already well aware of the laws and would probably segment its market accordingly (see requirement (b)).

• Government tax incentives exist to encourage providers so that the population becomes

or stays fit and healthy. This is positive from 4QX’s point of view. Such incentives should be investigated and reflected in the business plan.

Economic • The economic factors appear favourable. The local economy is extremely healthy and the

local population is relatively affluent with high levels of disposable income. This being the case, there should not be a difficulty in affording the centre’s fees so long as the fee level is not set unduly high.

Socio-cultural • In terms of attitudes to leisure and fees, professional groups within the population are

used to paying annual membership fees for the theatre and for golf. In addition, a market exists for charging substantial fees for their children’s activities. This is obviously a positive trend, making fee paying assumptions reasonable when developing a business plan.

• The centre is a little remote due to the relatively poor transport network in the region, so it

is not known whether people would be prepared to travel to it or not. (The fact that people are relatively affluent might suggest that they can afford their own transport, hence this might not be a difficulty.)

Technological • New, increasingly sophisticated fitness equipment is coming onto the market all the time,

so although the hotel installed the most modern sports and fitness centre two years ago, it may already be out of date. The fact that the manager has ruled out further expenditure may be a difficulty if the ladies health and fitness centre boasts superior facilities or if another competitor emerges with more state of the art equipment.

Alternatively, the dated equipment may not put off potential members when taking account of the “augmented” package offered by 4QX. This package includes an indoor heated swimming pool, a Spa bath, a steam room and (potentially) access to the hotel bar in a building that commands a hotel star rating and a degree of exclusivity. The likelihood of this alternative thinking proving correct is, of course, an interpretation of a further factor; socio-cultural attitudes.

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Requirement (b) The practical issues associated with segmentation suggest that a narrowing down of potential segments should take place in order to establish a viable, practical focus on potential customers. Marketing wisdom suggests that since the purpose of segmentation is to identify target markets, segments must be: • Measurable. (Meaning that abstract segmentation by “personality” for example might be

elusive and difficult to measure. A segment identified as “those with a belief in healthy living” might present difficulties in measurement.)

• Accessible. (The segment must be “reached” by the centre through (for instance) promotion without any undue difficulty.)

• Substantial. (The likely revenue streams from the segment must outweigh the effort in reaching the segment or segments.)

Use available expertise The challenge for the centre is to identify the significant bases for segmentation and then access these segments through marketing efforts. This is far from an objective process and in practice is inevitably a matter of judgement. This process should be carried out using the thoughts and ideas of all the sports and fitness centre staff. The apparently positive discussions so far are a good sign. The group might begin considering the issue of segmentation by simply identifying potential segments. A second stage could then follow with the elimination of those that appear impractical or undesirable. Identifying the potential services that could be offered In this case the centre’s distinctive offering is its gymnasium, which is described as both extensive and fully equipped. This will have an appeal to those who are interested in fitness primarily. “Serious” swimmers by comparison would not be interested in the centre’s small pool. The pool itself does not appear to be an obvious attraction in itself. (The serious swimmer is already catered for at the public baths, which are nearing Olympic standard.) The centre’s single Spa bath and steam room are also limited in themselves but (along with the pool) usefully augment the basic product of the fitness centre. Taking account of potential alternative providers It may be a good idea to identify potential competitors and to speculate as to the groups they are currently targeting and those they may target in the future. In this way, an unexploited segment of market might usefully be identified and targeted by the centre. In this particular case, the local providers of fitness and leisure, the public swimming pool and the health and beauty facility already target specific segments (serious swimmers, children and females respectively). It would not be desirable to offer exactly the same services to the same segment. Segmentation variables Market segments might relate to geographical area, age, gender, income, occupation, social class, lifestyle and so. The centre might identify the following key variables: • Geographical area: The target is the regional market as it is unlikely that few, if any,

potential customers would travel a distance to use the centre’s facilities. The region is remote and has relatively poor transport links, suggesting that potential customers in the region should have their own transport. An alternative segment might be the tourists visiting the area. Business from tourists would lead to irregular trading patterns (none outside the holiday season) and require potentially more intense advertising effort than that directed at regional customers.

• Age: Prohibitive legislation excludes those under the age of 16 as a viable segment as additional supervision costs would be required. Encouraging the use of the centre by children would in any case be inconsistent with the image the hotel wants to project

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(namely exclusivity and with an appeal to business executives). In addition, local children currently have access to the public swimming pool in Old Town.

• Gender: The choices to be made in terms of gender are to focus marketing on males, females or both. It is known that a privately operated, female only, health and beauty facility exists locally. By implication, it could be speculated that nothing, other than the public baths, exists for men. The most fruitful potential segment would therefore be men.

• Income: The aim of the centre is to generate income rather than to fulfil a social function within the local community. Those with an ability to pay either membership fees or highly priced one off fees represent a natural target. The fact that those accessing the hotel would need their own transport reinforces this requirement. In terms of social class and lifestyle, affluent, professional groups are used to fee-paying membership and would represent a likely good fit with the existing clientele of the hotel.

In short, the market segment that the centre should focus on is local men in professional or well-paid employment. There would be a need to limit membership in order to guard against overcrowding and also maintain the idea of “exclusivity”. Requirement (c) Background If the sports and leisure facility were treated as a profit centre, it would show a large loss. Hotel management cannot disinvest in it however, as they wish to maintain their current hotel star rating. Any additional revenue that the facility can generate would therefore be welcomed and offset overall hotel costs. The manager wants to estimate this revenue potential for business planning purposes. Traditional approaches The estimation of revenue potential will not, in this instance, follow some of the “traditional” approaches. (There is no sales force to seek opinions from or estimates based on past sales analysis.) The sports and leisure centre’s staff do, however, have some insights which could be useful, and they should be involved in the process suggested below. A marketing approach Taking on a marketing perspective will provide one approach to estimating the revenue potential. This approach suggests that revenue will be determined by a combination of factors, mainly the effectiveness and level of commitment to promotion (financial and otherwise), and the price of the service. (Both promotion and price represent variables within the overall marketing mix.) In terms of promotion and pricing: • The manager has made clear that any promotional budget would be limited (but no figure

is quoted). This means that any promotional effort would need to be both carefully determined and as cost effective as possible.

• An annual membership fee is the manager’s preferred choice and this is consistent with the charging structure of other facilities in the region. The fee should reflect the exclusive image of the hotel. As the facilities offered are limited, a maximum number of potential members should be considered and agreed upon as appropriate.

The potential revenue under such an approach will be a product of the calculation

Annual fee x Potential members. The potential will only be achieved however, if promotional effectiveness is maximised, so the sensitivity of the calculation should be considered. Once an estimate is arrived at, using this thinking, some expert opinion might be sought to validate or critically appraise any assumptions made.

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Fee level The annual fee might be set by reference to: • Fees charged by hotels in other regions for a comparable membership; • Membership fees for other clubs and facilities. The attractiveness of the membership to the centre for a range of fee rates arising from this analysis might be tested through a limited market survey. (The design of a standard questionnaire format could be used to canvass the views of a sample of those who form the market segment.) Number of members Potential member numbers will have a ceiling of a “safe” upper limit based upon a need for exclusivity and an avoidance of overcrowding. Beyond this optimistic and pessimistic membership take up might be calculated. Potential collaboration The local golf club represent an excellent potential source of expert opinion on the suitability of fee rates. Collaboration with the club in promotional activities is also a possibility (provided that the golf club does not see the centre as a rival for membership fees). It is likely that a segmentation process has taken place at the golf club and that both and the centre are targeting a similar segment. This being the case, collaboration between the centre and the golf club has potential for the following: • Promoting the centre at the golf club (which could be reciprocated by promoting the club

at the centre). This would prove a low cost promotional tactic.

• Offering dual membership of both the club and the centre for an appropriate (mutually agreed) fee.

• Accessing the golf club membership register in order to conduct a market survey and/or target promotional efforts. (Assuming that passing on this data does not infringe legislative requirements or ethical considerations over data protection.)

The impact of competition Finally, it should be recognised that future actions by competitors might adversely affect income projections. (For example, if the market is price sensitive the competition may cut prices, alternatively, they may increase their promotional effort, or augment their service, and so on.) In addition, new providers entering the market might impact on income levels adversely. This being the case, income projections should be undertaken for both “best case” and “worst case” conditions. If competitor action is significant, the centre might choose to concentrate on another market segment. Alternatively, it might adjust its marketing mix by: • Investing more heavily in promotional activity;

• Adjusting the membership fee (price) or capacity figures;

• Making a case to hotel management to enhance the leisure facilities still further (product). (It is however, noted that the manager has indicated that this is unlikely.)

Under such conditions, income projections may need to be adjusted.

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