Financial Management 300 and BCTA

Introduction
Finance team for the year

Thabiso Madiba (lecturer)

C Ring 750

Hiresha Naidoo (lecturer)

C Ring 748

Chamain Seete (AT)

C Ring 753
 Beauty of finance

“Management’s job is not to see the company as it is

… but as it can become”.

- John W. Teeter (CEO, Greyhound Corp).

Future Holistic Value and

orientated overview growth

Footnote 3
Financial Accounting vs Management Accounting
Financial Accounting Management Accounting
• Information for external users • Information for internal users
• Generates “general purpose” • Generates “specific purpose”
financial statements statements & reports
• Reports on financial events in • Future orientated reports
the past
• Must conform with standards • Not subject to external
which are externally imposed standards
• Emphasises objective data • Uses subjective data

4
 Decision making, planning and control process

1. Identifying objectives
Decision making

2. The search for alternative courses of action

and Planning

/ strategies
Process

3. Select appropriate alternative courses of

action

4. Implementation of the decisions

5. Comparing actual and planned outcomes

Process
Control

6. Responding to divergences from plan

5
Define your “why”

Purpose

Potential

Believe
UNIT 1 - STRATEGY
 • Understand the theory underlying
strategy;
• Understand and evaluate an entity’s
strategy; and
Learning • Demonstrate a basic understanding
outcomes of the impact of sustainability on the
business decision-making.

(see detailed learning objectives &

assessment criteria in the module)
Defining strategy
• Definition: “Strategy is the direction
and scope of an organisation over
the long-term which achieves
competitive advantage for the entity
through its configuration of
resources within a changing
environment, to meet the needs of
the market and to fulfil stakeholder
expectations.”

• Two types of decisions: Short-term &

strategic decisions (long-term).

• In short = A managerial game plan for

running the organisation (roadmap).
Why do we have a strategy?

Things that could go wrong when a trip

is unplanned?
 Defining strategy
How did strategy come about?

Strategy: Competitive moves & business approaches to:

• Attract & please customers,
• Conduct operations,
• Grow the business,
• Compete successfully,
• Improve company’s financial & market performance and thus
• Achieve performance objectives.

Important that financial management decisions are aligned with

a company’s strategy.
Footnote 12
 Who participates in crafting
a company’s strategy
• CEO: Ultimate responsibility for leading the strategy-making, and
strategy-executing process.
• However, in most companies’ strategy is the product of more than
just the CEO’s work. Other senior executives (business heads, CFO,
vice-president for marketing, production etc.) have an influential
strategy-making role.
• The more a company’s operations cut across different
products/services, industries or geographical areas the more
strategic functions are delegated
• e.g. General Electric (employs over 300 000 people in business
ranging from jet engines to plastic, power generation equipment to
appliances, medical equipment to TV broadcasting).

Footnote 13
 Defining strategy

When developing the strategic plan:

The organisation asks the following 3 questions:

• Where do we want to go?

• Where are we now?
• How are we going to get there?

It is all about the how

Footnote 14
 Managerial process of crafting &
executing a strategy
Strategic management process

Phase 1: Developing the Phase 2: Setting Phase 3: Crafting the

vision objectives strategy

Revise as
needed in light of
actual performance, Phase 5: Monitoring
Phase 4: Implementing
changing conditions, developments,
and executing the
new opportunities, evaluating performance
strategy
and new ideas and making adjustments

15
Strategic Management Process
(all interlinked)
Where do we want to go? (PHASE 1 & 2)
• Developing a strategic vision of the company’s future direction
and focus.
• Setting objectives to measure progress toward achieving the
strategic vision.
Where are we now? (PHASE 3)
• Crafting a strategy to achieve the objectives.
How are we going to get there? (PHASE 4 & 5)
• Implementing and executing the strategy
• Evaluating performance, reviewing the situation & initiating
corrective adjustments in the mission, objectives and strategy in
light of the actual experience, changing conditions, new ideas etc.

Footnote 16
 Where do we want to go?
Mission, Vision and Strategy (interlinked)

• Vision, mission & objectives communicate the strategy

of the entity to its stakeholders.

• Vision: Portrays a company’s future business scope

(“where are we going?”)
• Mission: Describes a company’s present business &
purposes (“who we are, what we do, and why we are
here”)
• Objectives: What action steps does a company need
to take to achieve its vision?

Footnote 17
Where do we want to go?
Setting Objectives
Objectives:
 Specific: Precise attribute of the formulation sought;
 Measurable: Index or measure for determining the
progress;
 Attainable: The objective must be realistic;
 Relevant: Appropriate to the mission statement;
 Time Bound: Time frame in which it must be achieved.

o The act of setting objectives serves the purpose of converting the mission
into something specific to achieve
o Both long-term and short-term objectives
o Objectives are the “ends” and strategy is the “means” of achieving them.

Footnote 18
Where do we want to go?
Setting Objectives
Smart Goal Examples for Business

“Increase the organisation’s profits”

Specific: Increase revenue while cutting down on expenditure. Moving to a
more affordable premise that will cut rental by 7% will reduce the operational
costs.
Measurable: Increase sales over the next 3 months by signing in 5 more
potential clients.
Attainable: Improve current customer relationships and promote the
business through referrals, networking and through social networks. This will
help find more leads and therefore see to an increase in revenue for the
business.
Relevant: Moving to a cheaper premises will reduce the operational cost of
the business and give room to the growth of profits.
Time-bound: Increased profit by the end of the coming three months.

Footnote https://stevens-tate.com/articles/5-smart-goal-examples/ (more examples) 19

Where do we want to go?
Generic competitive strategies
Generic competitive General characteristics
strategies
Low-cost provider Overall lower costs than rivals, broad spectrum
strategy of customers, price-sensitive buyers
Broad differentiation Differentiate product/service from rivals, broad
strategy spectrum of customers
Focused differentiation Narrow buyer segment (niche market), but
strategy customised attributes
Focused low-cost Narrow buyer segment (niche market),
strategy outperforms rivals with lower costs
Best-cost provider Value for money, middle ground between low
strategy cost and differentiation
Footnote 20
Where do we want to go?
Generic competitive strategies
Capitec
Nandos

Low-cost Broad
PEP provider differentiation BMW

Best-cost
provider
Focused low- Focused
cost differentiation

- Harley-Davidson
Safair
Spur - Rolex
Footnote 21
Strategic Management Process
(all interlinked)
Where do we want to go? (PHASE 1 & 2)
• Developing a strategic vision of the company’s future direction
and focus.
• Setting objectives to measure progress toward achieving the
strategic vision.
Where are we now? (PHASE 3)
• Crafting a strategy to achieve the objectives.
How are we going to get there? (PHASE 4 & 5)
• Implementing and executing the strategy
• Evaluating performance, reviewing the situation & initiating
corrective adjustments in the mission, objectives and strategy in
light of the actual experience, changing conditions, new ideas etc.

Footnote 22
 Where are we now?
Strategic Analysis: Swot Analysis

A critical assessment of the

strengths, weaknesses,
opportunities and threats
(SWOT analysis) in relation to
the internal and external forces,
which impact positively or
negatively on the company’s
performance.

A company should focus on

strategies and decisions that
will make the most of its
strengths and avoid decisions
that will bring to the fore the
weaknesses while defending
against threats
 Where are we now?
Strategic Analysis: Swot Analysis

STRENGTHS WEAKNESSES

Characteristics of a business Characteristics of a business which is

which give it advantage over its a disadvantage compared to its
competitors competitors

OPPORTUNITIES THREATS

Elements in company’s external Elements in company’s external

environment that allow it to environment that could endanger
formulate & implement strategies the integrity & profitability of the
to increase profitability business

Footnote 24
 Where are we now?
Strategic Analysis: Swot Analysis
(laundry list)
STRENGTHS: WEAKNESSES
• Good reputation among customers • Poor reputation among customers
• IT capabilities and systems • Weak brand name
• Leadership & management skills • Old plant & outdated technology
• Financial resources • Absence of skills & poor management

Application NB!!!
• Research & development • Low employee morale
capabilities • Poor R&D capabilities
• Valuable physical assets • Lack of patent protection
• Valuable intangible assets • Lack of access to key distribution
• Access to economies of scale channels
• Cost advantage from proprietary • Cash flow problems (weak balance
know-how sheet)
• Market dominance/leader • Narrow product line
• Access to distribution networks • Over dependence on CEO
• Advertising campaigns • Lack of capital to finance
• Valuable alliances expansion
Footnote 25
Where are we now?
Strategic Analysis: Swot Analysis
(laundry list)
OPPORTUNITIES: THREATS:
• Unfulfilled customer needs • Emergence of substitute products
• Enter new markets or segments • New market entrants
• Faster market growth • Slower market growth

Application NB!!!
• Technological innovation • New regulations
• Loosening of regulations • Increased trade barriers
• Removal of international trade • Shift in consumer tastes away
barriers from the entity’s products
• Demographic change • Technological advances
• Social or lifestyle change • Demographic changes
• Economic upswing • Economic downturn

Footnote 26
Where are we now?
Strategic Analysis: Swot Analysis
Strengths:
Consider strengths from an internal and consumer perspective.
 What advantages does the company have?
 What unique resources does the company have that others do not?
 What is the company’s unique selling proposition?
 What positive consumer perception does the company have?
 What low-cost resources does the company have access to that others do
not?
Weaknesses:
Consider weaknesses from an internal and consumer perspective.
 What does the company not do well?
 What weaknesses do consumers see in the company?
 What factors contribute to a weaker brand image?

Footnote 27
Where are we now?
Strategic Analysis: Swot Analysis
Opportunities:
Consider opportunities from an external perspective.
 What good opportunities are available in the marketplace?
 What are some trends that the company can capitalise on?
 Are there any changes in technology/markets that the company can take
advantage of?
 Are there any changes in lifestyle, social patterns, etc., that your company can
take advantage of?
Threats:
Consider threats from an external perspective.
 What obstacles does your company face?
 What are your competitors doing better than you?
 Is a change in technology threatening the position of your company?
 What threats do your weaknesses put you at risk of?
 Do changes in lifestyle, social patterns, etc., pose a threat to your company?

Footnote 28
 Where are we now?
PESTEL Analysis & Porters 5 Forces

Purpose:
 To determine how prevailing conditions or developments in the external
environment may create opportunities or threats to the industry or
company itself.
 Management frequently uses models to help them make sense of the
environment of their organisations:

PESTEL ANALYSIS PORTERS FIVE FORCES

Footnote 30
SW OT & PESTLE
 Where are we now?
PESTEL Analysis
PESTEL FACTOR Laundry list of ideas
POLITICAL Taxation policy; employment laws; company laws; health &
safety laws; environmental regulations; consumer protection;
competition regulation; trade restrictions & tariffs; political
instability

Application
ECONOMIC Economic growth; interest rates; exchange rates; inflation
rate, unemployment rate
SOCIAL Health consciousness; population growth rate; age
distribution; career attitudes; emphasis on safety;
demographics; lifestyle changes (e.g.: single households).
TECHNOLOGICAL Research and development activity; automation; technological
incentives; rate of technological change.
ENVIRONMENTAL Weather, climate change, pollution, sustainability, natural
disasters
LEGAL
Footnote Laws, regulations, licenses, permits and changes thereof.
32
 Where are we now?
Porters 5 Forces

Most influential analytical model

for assessing the nature of
competition in an industry is
Michael Porter’s Five Forces
Model.

Footnote 33
Where are we now?
Porters 5 Forces
 Rivalry within the industry is high when:
• Many competitors of a similar size
• Industry growth rate is low, so that current
companies have to compete aggressively in order

Application
to grow market share
• High exit barriers
• Low switching costs
• Companies produce/offer similar products/services
• Products/services are perishable

Footnote 34
Where are we now?
Porters 5 Forces (laundry list)
 Threat of new entrants – This indicates the ease with which new firms can
enter the market of a particular industry. If barriers to entry (list below) are
high, it is not easy for a new entrant to enter the market
Barriers to entry:
• Cost advantage
• Economies of scale
• Access to technology & specialized know-how

Application
• Strong brand names / brand loyalty
• High initial capital requirements
• Access to raw materials and distribution channels
• Regulatory & legal restrictions
• Customer switching costs
• Retaliation from existing industry players

High barriers to entry = low threat of new entrants = high profits

Footnote 35
 Where are we now?
Porters 5 Forces (laundry list)

 Threat of substitute products/services depends on:

Application
• Buyers’ willingness to substitute
• Relative price and performance of substitutes
• Customers’ loyalty
• Cost of switching to substitutes.

Footnote 35
 Where are we now?
Porters 5 Forces (laundry list)
 Bargaining power of suppliers will be high when:
• Cost of switching to an alternative supplier is high

Application
• Small number of suppliers relative to buyers
• Resource they supply is scarce / substitutes are unavailable
• Differentiated, highly valued products
• Suppliers threaten to integrate forward into the industry

Supplier Customer/Buyer

Footnote 36
 Where are we now?
Porters 5 Forces (laundry list)
 Bargaining power of customers/buyers

- When is Bargaining Power of Buyers High/Strong?

 There are fewer buyers relative to that of suppliers
 The switching costs of the buyer are low
 If the buyer is able to backward integrate

Application
 The buyer purchases product in bulk (high volume)
 The buyer is able to get similar product/services from other
suppliers
 The buyer purchases the majority of the seller’s products
 Product is not differentiated (standardized offering)
 Buyers are well informed about suppliers’ products, prices and cost

Footnote 37
 Where are we now?
Porters 5 Forces

Footnote 33
 Sustainability & Strategy
Not a silo approach
Watch: https://www.youtube.com/watch?v=SMumitTXq0A
Read: Clicks Integrated Report – Page 48 - 56
 See pages 1.43 – 1.44 in Correia (tenth edition)
 UN Sustainable Development Goals (SDGs): 17 SDGs
achieved by 2030
 Set targets for each goal and indicators to monitor progress
 Contribution by a company to the achievement of these goals
represents a company’s responsibilities to society.

Footnote 39
 Sustainability & Strategy

Footnote 40
 Strategic choice
Stakeholder analysis
 Definition: Person, group, organisation or system who affects or can
be affected by an organisations’ actions/strategy.

Stakeholders include amongst others:

 Internal stakeholders: Employees, management, owners/founders
 External stakeholders: Communities, government, pressure groups
 Connected stakeholders: Customers, suppliers, trade unions,
financiers.

• When determining an entity’s strategies and objectives, consider the

impact of the various stakeholders:
 Power of the stakeholder to influence/change strategy & objectives
 Interest of the stakeholder in the strategy/objectives
Footnote 41
 Strategic choice
Stakeholder analysis
Stakeholder Interests Power /
Influence
Management Remuneration, job Decision maker,
(including directors) security, status, job resignation
satisfaction
Internal

Employees Remuneration, job Level of work

security, job performance (quality),
satisfaction, safety industrial action,
resignation

Footnote 42
 Strategic choice
Stakeholder analysis
Stakeholder Interests Influence
Share- Return on capital invested, risk Director appointments, sells
holders exposure shares
Providers of Interest on capital repayment Withdraw debt facility, enforce
debt finance loan covenants, force
liquidation
Customers Quality, value for money, Reputation, legal claims,
Connected

service repeat business or move to a

competitor
Suppliers Payment, profitability, future Non-supply, inferior
business service/quality, high prices,
withdraw credit facility
Advisors Payment, future business, Withhold advice, inferior
adding value service
Competitors Reputation, associations, Rivalry, strategic alliances,
Footnote New developments takeover 43
 Strategic choice
Stakeholder analysis
Stakeholder Interests Influence
Government (local & Legal operations, tax Laws & regulations,
national, including tax collection, job taxes
authorities) creation

Industry associations Members’ rights Lobby government,

External

& trade unions legal action,

industrial action
Local community, Environmental Publicity,
public at large, interest protection, job demonstrations,
groups. creation, social lobby government
responsibility
Footnote 44
 Strategic choice
Mendelow’s power-interest matrix
Stakeholder level of interest
Low High
Low

A
B
Stakeholder power

Minimal effort
(monitor) Keep informed

D
C manage closely (key
High

Keep satisfied players)

Footnote 46
Building blocks of a business model
Business Model = how a company creates, delivers & captures
value (i.e., generates revenue, profitability & value)

Value Customer Customer

proposition segments relationships

Key Key
Channels
activities resources

Cost Revenue
Key partners
structure streams
Footnote 46
Building blocks of a business model
Customer segments
 The customer segment that the company is targeting
 i.e., similar interests or profiles
 Segment customers according to gender, age, purchasing patterns,
geography, socioeconomic status, interests etc.

Value propositions
 Why do customers select a product/service over another? This can be
achieved in several ways (including, inter alia):
(1) Quality of performance (2) Customisation
(3) Hassle-free installation and operation (4) Design
(5) Brand and status (6) Price
(7) Cost reduction / value added in other areas (8) Risk reduction
(9) Convenience and usability (10) Accessibility

Footnote 47
Building blocks of a business model
Channel
 How does a company reach its customers?
 This refers to how a company communicates and distributes its products.

Producer Producer Producer Producer Producer

Agent/Broker Agent/Broker

Direct channel
Wholesaler Wholesaler

Retailer Retailer Retailer

Consumers Consumers Consumers Consumers Consumers

Footnote 48
Indirect channels
Building blocks of a business model

Customer relationships
- Manner in which a company sets up its relationships with its customers
- Important to understand the type of relationship that customers demand
from a company.
- What categories of customer relationships exist?
 Individual personal assistance
 General personal assistance
 Automated services
 Communities
 Co-creation and open source

Footnote 49
Building blocks of a business model

Revenue streams
- A company needs to decide on the nature of its revenue streams.
- What type of pricing scheme will a customer segment demand or
appreciate?
 Transaction, Usage fee, Subscription fee, Renting, Licensing,
Brokerage, Advertising etc

Key resources
- Key resources that a company owns, or controls will enable it to offer
a value proposition to its customers.
- Key resources enable a company to manufacture products, distribute
products and engage effectively with customers.

Footnote 50
Building blocks of a business model

Key activities
- Relates to the actions a company takes to ensure success

Key partnerships
- The word partner is used to indicate a key stakeholder, supplier, or
customer.

Cost structure
- Fixed vs variable costs
- Economies of scale

Footnote 51
Building blocks of a business model
Examples of questions

52
 Strategic implementation
How are we going to get there?
Strategy implementation includes: designing the
organisation's structure, allocating resources, developing
information and decision process, and managing human
resources, including such areas as the reward system,
approaches to leadership, and staffing.

Evaluating performance includes: reviewing the situation &

initiating corrective adjustments in the mission, objectives and
strategy in light of the actual experience, changing conditions,
new ideas etc.

Footnote 53
Strategic implementation
How are we going to get there?

 In most entities it is the role of the accountants to monitor and report

progress against performance targets. The techniques used include:
• Standard cost variance analysis
• Budgets and budgetary control
• Divisional financial performance measures such as ROI, RI, EVA

Process of managing strategy is ongoing – nothing is final and all

prior actions are subject to modification.

Footnote 54
Next steps:

Next lecture
• Guest lecturer – practical class

Objective test
• Will be released on 20 February 2025

Footnote 55