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Final 2 March 2019, questions and answers
Strategic management (6112)
Addis Ababa University
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Strategic Business Leader Specimen 2 Examination Valid from September 2018 Exam Session Time allowed: 4 hours including reading, planning and reflective time This question paper is an integrated case study with one section containing a total of 100 marks and ALL tasks must be completed. All tasks contain Professional Skills marks which are included in the marks shown above Do NOT open this question paper until instructed the supervisor. You must NOT write in your answer booklet until instructed the supervisor. This question paper must not be removed from the examination hall. Strategic Business Leader Strategic Professional Essentials Examination The Association of Chartered Certified Accountants Introduction Rail Co is a public sector rail company responsible for delivering passenger rail services within Beeland. Rail Co is governed a supreme governing committee known as the Rail Co Trust Board. This board is responsible to the Ministry of Transport for ensuring that the Rail Co board of directors make the best use of public money and maintain effective and efficient services to the public. Figure 1 below shows the governance structure of Rail Co. Figure 1 Rail Co Trust Board Board of Directors Executive Committee SHE Committee Audit and Risk Committee Remunerations Committee NCG Committee The National Audit Authority (NAA) of Beeland is a national government audit authority with responsibility for evaluating and reporting to the government of Beeland on public spending, suggesting improvements to and benchmarking against the performance of a wide range of publicly funded organisations. The NAA also has a responsibility to advise on the value for money (VFM) obtained from publicly owned enterprises and on the performance of the boards of such organisations, including the senior executives of these boards. Rail Co has in the recent past received negative publicity in the media and from a variety of other sources relating to its poor services and performance. This has prompted the Minister for Transport of Beeland, to commission the NAA to undertake an urgent investigation of the issues facing Rail Co. The following exhibits provide information relevant to Rail Co. Exhibit 1: Website page for Rail Co leadership and governance. Exhibit 2: Transport report published in the Beeland Herald newspaper. Exhibit 3: Passenger survey results and performance analysis spreadsheet for Rail Co and its competitors (three years data). Exhibit 4: Rail Co board meeting minutes. Exhibit 5: Outline person specification and summary CVs for two candidates for the new chief executive position Exhibit 6: Ticket sales, passenger usage data and fraud analysis at stations in towns within Region 1 Beeland network prepared the financial controller of Rail Co. 2 It is now two months after the letter was sent the NAA to the chairperson of the Trust Board (Task 2b). 3 You are the chairperson of an ad hoc constituted the NCG of the Rail Co board. As a consequence of the NAA review and the recommendations of the Rail Co Trust Board, the Minister of Transport recommended that the chief executive of Rail Co should be removed from his position. Following the termination of the chief contract, the position has now been advertised both nationally and internationally and a person specification has been uploaded to the Rail Co website. In the last two weeks, two candidates have been shortlisted for final interview and a summary of their CVs is being reviewed the nominations and corporate governance (NCG) committee of Rail Co (Exhibit 5). Required: Following a review of the suitability of the shortlisted candidates against the outline person specification, you have been asked the chair of the NCG to do the following: (a) Write a report to the chair of the NCG which evaluates the suitability of the shortlisted candidates for the position of chief executive of Rail Co and recommend with justification, which candidate you consider to be the most suitable for the position. (8 marks) Professional skills marks are available for demonstrating commercial acumen skills in using your judgement to evaluate the relative merits of the two candidates. (2 marks) (b) Prepare two presentation slides, with accompanying notes, to explain to the NCG, the contribution which the chief executive should be expected to make in terms of talent management, to support the necessary change programme required at Rail Co. (6 marks) Professional skills marks are available for demonstrating communication skills in conveying relevant information in an appropriate tone to the NCG committee. (2 marks) (18 marks) It is now three months later. A new chief executive has been appointed and is working closely with the board of directors and the Rail Co Trust Board to improve performance. 4 You are an internal auditor working for the audit and risk committee of Rail Co. The new chief executive asked the financial controller of Rail Co to produce a spreadsheet which analyses the ticket sales and rail usage station within the Beeland rail network and which also analyses the estimated levels of fraud occurring across the Rail Co network. Required: You have been asked the chair of the audit and risk committee to review the findings of the financial controller and present a report which requires you to do the following: (a) Analyse the information presented in the spreadsheet produced the financial controller, questioning any assumptions he may have made, and explain the implications of the findings for Rail Co. (8 marks) Professional skills marks are available for demonstrating scepticism skills in considering the information presented in the spreadsheet and reflecting on the impact on Rail revenues. (2 marks) (b) Recommend to the audit and risk committee, with justifications, suitable measures or safeguards which could be implemented Rail Co to reduce the levels of fraud occurring on the network. (8 marks) Professional skills marks are available for demonstrating commercial acumen skills in making sound recommendations for suitable measures and safeguards to reduce fraud. (2 marks) (20 marks) 4 5 You are a project manager working for the director of Projects and Infrastructure of Rail Co. The director of Projects and Infrastructure is putting forward a proposal to the board of directors of Rail Co for a project to invest in an online ticket sales system. The project should be fully operational within 12 months but would need to be undertaken an external firm of developers, as Rail Co does not possess the internal expertise. However, Rail Co would manage the project. Required: You have been asked the director of Projects and Infrastructure to write a business case to the board, in which you will: (a) Justify why the investment in online ticket sales could assist Rail Co in producing detailed and timely customer data to assist in customer relationship management. (8 marks) Professional skills marks are available for demonstrating evaluation skills in assessing the impact of online ticket sales on customer relationship management. (2 marks) (b) Produce a project initiation document (PID) which could be used Rail Co to assist in planning the implementation of an online ticket sales system. (8 marks) Professional skills marks are available for demonstrating communication skills in producing a PID to be used Rail Co. (2 marks) (20 marks) 5 Remuneration committee This committee is empowered under the articles of association of Rail Co to determine remuneration for directors. This responsibility reflects the business aim to provide independence of the process for remuneration and incentive schemes. Nomination and corporate governance (NCG) committee This committee reviews the size, structure and composition of the board and committees. The committee identifies and nominates candidates for appointment to the board and ensures that appropriate succession planning is in place. Rail Co Trust Board The Rail Co Trust Board is an independent statutory body, with powers vested the Government of Beeland in its members. The Trust Board consists of ten members, all of whom are appointed the Minister for Transport, for a fixed term of up to three years. Our board is accountable to the Rail Co Trust Board. The Trust Board is our supreme governing body which holds us to account for delivering what we promise. It sets us a range of performance targets each year and holds the board to account for its effective and efficient use of the funds allocated to Rail Co Government and the fare paying passengers. The board is also accountable to the Rail Co Trust Board for our health and safety performance. Our Chief Executive is personally accountable to the Government for Rail stewardship of the public funding it receives. 7 Exhibit 2 TRANSPORT REPORT The Beeland Herald most widely read Daily newspaper Gus Smidt, Transport Editor reports on the recently published customer survey results of Rail Co Despite evidence of a growth in passenger numbers (platform of about using the railway network in the last three years, revenue has hardly increased over the same period. Is Rail Co going off the rails? In its last two annual reports, Rail directors have highlighted the risk of significant numbers of passengers travelling without tickets. It has been suggested that this could be due to the fact that Rail Co does not operate ticket barriers at many of its stations. Rail Co relies on ticket inspectors operating on train services to check tickets, but evidence suggests that this can only catch a minority of those who evade paying for tickets. As a consequence of static sales, Rail Co has repeatedly increased its ticket prices more than inflation in the last three years and customers have complained bitterly and many are threatening to use their cars or other forms of public transport if Rail Co does not respond effectively. The latest annual customer survey results for Rail Co will not make comfortable reading for its Chief Executive John Rose, who predicted this time last year future is bright for Rail Rail Co, the company responsible for the transport of over of commuters to their daily work destinations throughout the country, appears to be losing the support of its loyal customers. This is despite an increasing population in Beeland and significant levels of government investment in its development. Although it has invested in new trains over the last five years, commuter trains are still overcrowded. Significantly, it has failed to invest in online ticket purchasing systems and commuters are increasingly unhappy that they are only able to purchase tickets from manned ticket offices within each station. Public perception of the organisation is at an low and questions will now be asked the Minister for Transport as to why revenue growth is stagnant and why customers are increasingly unhappy with its services. A further concern for Rail Co will be that staff turnover is at an high as stated in its latest annual report, which may be due to the fact that staff wages at Rail Co have not been rising with inflation and staff are coming under increased pressure from unhappy customers. These are, indeed, worrying developments for Rail Co, as its key stakeholders seemingly become increasingly frustrated with the lack of any meaningful response the Chief Executive, who yesterday refused to comment on the customer survey. However, in a statement made the Minister of Transport yesterday, he commented that although the customer survey results for Rail Co were he was confident that the situation would be addressed within the coming year. He announced that the newly appointed Chairperson of the Trust Board, the supreme governing committee responsible for the performance and governance of Rail Co, the full backing of the government of Beeland to undertake a thorough and effective review, and if necessary make changes to the management and organisation of Rail Rail Co receives an annual grant from the government of Beeland, funded general taxation of the population, to run the business efficiently and effectively. The government also sets Rail Co a number of performance targets to meet each year. These include key performance indicators on revenue growth, cost efficiency and customer satisfaction ratings. 8 Exhibit 4 Rail Co Board Meeting Minutes Board Members: Present: Henrik Kilde, John Rose, Helga Baum, Milo Strauss, Filip Axis, Felix Erikson, Salma Khan, Kim Lun, Anders Rosburg, Tomas Kline, Director of IT Apologies: None Absent: Harvey Flood Proceedings: Meeting called to order at 2:00pm Chairman, Henrik Kilde opening statement Henrik Kilde opened the meeting with the announcement that he had been informed the newly appointed Chairman of the Rail Co Trust Board that it had requested the National Audit Authority (NAA) to undertake a review of the operations and performance of Rail Co. He expressed his concern with this development but that the Board was expected to give its full cooperation to this investigation. John Rose, the Chief Executive, offered his full endorsement of the comments on supporting the investigations of Rail performance. He noted that in his 14 years as Chief Executive, he has witnessed many changes and that he was confident in the current performance of Rail Co and that the NAA would not identify any problems with Rail Co. Chief Report on customer survey results The Chairman opened the discussion with a statement of his disappointment with the latest customer survey results and asked the Chief Executive to present an overview of the key outcomes of the latest customer survey results. The primary focus of the presentation was that Rail Co had failed to meet a number of the key performance measures set the Trust Board for 2016. The Chief Executive did highlight that although the overall customer satisfaction target was not met, this was still at a very high level at He commented that when he took over as Chief Executive in 2002 customer satisfaction levels were at less than and to have achieved such high levels of customer satisfaction is a significant achievement for Rail Co. He also highlighted that levels of punctuality had increased in the last year and this was evidence that Rail investment in new trains had ensured a better service for its passengers. Rail motto of you there on time, in was clearly being achieved. He stated that he believed that the target growth for punctuality set the Trust Board for 2016 was unachievable and therefore should be ignored. The Chairman raised his concern that perception of the value for money of Rail tickets had declined from last year and asked the Board to consider whether this was a reflection of increasing ticket prices. The Finance Director agreed that this was a significant concern but the Chief Executive stated that he strongly believed that the majority of customers did not understand the concept of value for money and therefore this measure was flawed. Audit and Risk Committee Report provided Chair, Filip Axis: Filip Axis presented a briefing to the Board on the risks of customer fraud. He noted that this has been an ongoing concern for the last few years but has not been investigated in detail. Evidence suggested that more passengers are travelling on Rail network without tickets and a key factor is that approximately of Rail stations do not operate ticket barriers. Mr Axis referred to a recent meeting he had held with Jasper Edberg, the Asset Management Director, in which they had discussed the installation of ticket barriers at more of Rail stations to prevent customer fraud. The Finance Director was asked to present an analysis of the impact of potential fraud on Rail revenues at the next Board meeting. The Chief Executive disagreed that this was a significant risk to Rail Co and that the cost of installation of ticket barriers would far outweigh the benefits. He also stated that most customer fraud was unpreventable and that this measure would merely create more customer dissatisfaction. SHE Report provided Chair, Kim Lun: Kim Lun outlined the key issues discussed at a meeting she recently attended with Health and Safely Office (BHSO). She reported that the Head of the BHSO had expressed his concern with the increase in the number of 10 injuries to staff reported Rail Co in the last year. Kim Lun stated that she had assured the BHSO that a thorough investigation would be undertaken and that this needed to be commenced immediately. Kim Lun also noted that there had been a lack of investment in the training of staff in the last three years and that this was affecting staff morale and should be investigated the HR Director. The Chief Executive stated that although the HR Director was not a board member, his own opinion was that training levels were satisfactory and that there was no evidence to suggest that staff morale was low. He pointed to evidence in the customer survey report which indicated an annual growth in customer satisfaction levels in relation to staff helpfulness and attitude. Other business: 1. The IT Director made a short presentation on the use of online booking systems other rail businesses. The presentation outlined that a number of other national train operators offered online booking facilities and evidence suggested that this had positively impacted upon revenue growth and customer satisfaction in all of these businesses. Most of the Board expressed enthusiastic interest in this potential development. The Chief Executive expressed his concern that investment in online booking facilities was merely a reaction to the current challenges to Rail Co. He suggested that improvements to training of ticket office staff would be a better investment opportunity and far less costly to Rail Co. He commented that online ticket facilities went against the traditional values of customer service focus of Rail Co. 2. The Chairman informed the Board that the HR Director was currently in a meeting with the Head of the Beeland Rail Workers Union (BRWU) to discuss its recent demands for an above inflation rate pay increase for its workers. The Chairman expressed concern at this development, as any threat of strike action could have serious damaging consequences on the public perception of Rail Co. The Chief Executive stated that it was important for Rail Co to take a firm stand against any pressure from the unions for an increase in staff pay. He commented that the unions were merely taking advantage of the latest survey results to put the Board under pressure to increase levels of pay for its members. He stated that he had instructed the HR Director not to make any comment to the media on these developments. His opinion was that the media were responsible for stirring up the interest of the unions and that the media were not an important stakeholder. Meeting adjourned at 4:30pm. Minutes submitted Secretary, Joanna Vonn. 11 Summarised CV Candidate B Summarised CV Candidate A PROFESSIONAL EXPERIENCE PROFESSIONAL EXPERIENCE Chief executive of JPS Express, the largest passenger train service operating company in Jayland. Chief executive of Beeland Oil, a multinational oil and gas company Chief executive of BV Plc, the third largest engine manufacturer for the aviation industry, based in Ceeland. Finance director of Ceeland Rail EXPERIENCE and DUTIES: EXPERIENCE and DUTIES: Developing strategy and mission and carrying it through with confidence and vigour. Responsible for all aspects of human performance management and development and driving enterprise human talent development. Working on development lifecycle projects including several complex systems infrastructure investments. Close liaison with national government regulators and rail interest groups. Producing informative, presentations for senior management. Regular liaison with external suppliers, the media and the public. Planning strategic business objectives and implementing systems to monitor on performance against key performance indicators. Responsible for driving the growth of revenue and increased operational efficiency. Interpreting financial data and drawing conclusions. Identify skills gaps and providing advice on hiring strategies. Liaising with key strategic suppliers and customers to define KPIs. Reviewing, monitoring and authorisation of all budget expenditure. Motivating and providing strong leadership to all departments. KEY SKILLS and COMPETENCIES KEY SKILLS and COMPETENCIES Ensuring that everything works to the highest possible professional standards with a focus on strong internal control. A commitment to customer focus and driving improved performance. A proven track record in change leadership including the successful management and leadership of the privatisation of V Trains in 2013. A charismatic leader with a successful track record in managing cultural change from a public sector to private sector environment. A commitment to building and maintaining close relationships with external bodies, staff, the media, customers and the public. An enterprising and creative thinker, with a commercial eye, exceptional financial acumen and highly effective leadership skills. 13 Decisive and forward thinking, with strong vision and strategic capability. Ability to network and liaise with stakeholders at every level, particularly customers and strategic suppliers. Experience of project management in a highly complex engineering environment. A proven track record of successful leadership and growth, operating within highly competitive markets. Motivational and credible with highly effective interpersonal skills. Highly commercial and committed to quality and innovation. Operationally strong, financially aware and commercially astute. Exhibit 6 In i t i al d at a o n s t at i o n s i n Reg i o n 1 B eel an d n et w o r k A n al y s i s o f f r au d i n f o r m at i o n b as ed o n 2016 an al y s i s To w n A B C D E F G H I J Mo n t h l y Es t i m at ed Ti c k et Po p u l at i o n t i c k et s s o l d r ai l w ay u s er s b ar r i er p er t o w n to town p er t o w n y 21 y 17 n 28 n 26 y 35 y 28 n 30 y 23 n 16 y 20 Es t i m at ed mo n t h l y t i c k et s al es p er town 29820 33150 30800 50700 25900 32480 54900 20010 23040 29400 Var i an c e b et w een t i c k et s Fr au d Es t i m at ed f r au d so l d v Pr ev en t ab l e f o r eac h due to poor p r o j ec t ed Sp en d Es t i m at ed t o w n (b as ed i n t er n al c o n t r o l an n u al f r au d p er t i c k et f r au d t i c k et (b as ed o n t o t al o n t o t al (b as ed o n so l d p er m o n t h p o p u l at i o n ) t o t al p o p u l at i o n ) s al es p o p u l at i o n ) 1820 59 107380 2150 38 81700 3,903,953 8800 44 387200 7,470,856 14700 51 749700 900 56 50400 1480 52 76960 10,456,776 17900 56 1002400 1010 61 61610 5,298,752 11040 48 529920 2400 62 148800 3196070 A s s u m ed av er ag e p er c en t ag e o f u n p r ev en t ab l e f r au d Reg i o n 1 Tot al an n ual p r ev en t ab l e f r aud i n Regi on 1: Ex t r ap o l at e f o r 20 r eg i o n s 27,130,338 542,606,752 No t e: There are 20 identifiable regions within the Beeland passenger service network. For this analysis assume that all regions are of similar size and structure. End of Question Paper 14 Strategic Professional Essentials Examination Strategic Business Leader Specimen 2 Exam Answers For the Strategic Professional Examinations it is not always possible to publish suggested answers which comprehensively cover all the valid points which candidates might make. Credit will be given to candidates for points not included in the suggested answers, but which, nevertheless, are relevant to the requirements. In addition, in this integrated case study examination candidates may points made in other questions or parts of questions as long as these are made in the specific context of the requirements of the question being answered. The suggested answers presented below inevitably give much more detail than would be expected from most candidates under examination conditions, and include most of the obvious points evidenced from the case information. The answers are therefore intended to provide a structure of the approach required from candidates, and cover the range and depth of knowledge relating to each task which might be demonstrated the most well prepared and able candidates. They are also intended to support revision and tuition for future examinations. 1 (a) Briefing Paper FAO: Rail Co Trust Board The agency relationship of the parties involved in Rail Co and their rights and responsibilities Rail Co is what would be called a devolved government body operating within the public sector. In terms of strategic purpose, Rail Co exists to implement government policy in regard of passenger rail services. Therefore, its organisational objectives will largely be determined the political leaders of Beeland. Ultimately it is the responsibility of the chief executive of Rail Co to report to the government of Beeland (through the Rail Co Trust Board) on Rail stewardship of the public funding it receives. The main parties involved in the agency relationship of Rail Co are the government, in the form of the Ministry for Transport of Beeland as the principal and the Rail Co Trust Board and the board of directors, comprising a mix of executive and officers, acting as the agents. As stated above, ultimately the chief executive of Rail Co is responsible to the government for Rail management and stewardship of the public funding it receives. It is important to note that the way in which Rail Co is regulated and governed is focused on value for money rather than on the achievement of profits. There is also a further agency relationship within Rail Co, in that the Rail Co board of directors is accountable to the Rail Co Trust Board. It is the responsibility of the Rail Co Trust Board to set a range of performance targets each year and to hold the Rail Co board to account for the effective and efficient use of the funds allocated government and the fare paying passengers. A further aspect of the agency relationship in Rail Co is that the ultimate principal is the taxpayer and the customers, in that it is he or she who pays for the rail service and Rail Co exists for their benefit. It is the ultimate responsibility of the board of Rail Co to ensure that Rail Co carries out its passenger services on behalf of those who fund the activity (mainly taxpayers) and those who use and pay for the services (rail passengers). Funders (i. taxpayers) and customers are sometimes the same people (for instance, taxpayers who commute on Rail trains) but sometimes they are not, and this could give rise to disagreements on how much is spent and on what particular provisions. Rail Co has a responsibility to all of its principals to deliver its services efficiently, effectively and offering good value for money. As is evidenced in the recent article in the Beeland Herald, many customers are not satisfied with the value for money offered Rail Co. It is the responsibility of the Rail Co Trust Board to ensure that the key outcomes of Rail Co are delivered setting a range of performance targets, against which performance is measured periodically. (b) The role and value of the directors on the board of Rail Co or public sector organisations must also be directed and controlled appropriately, as the decisions and actions of a few individuals can affect many individuals, groups and organisations which have little or no influence over them. Public sector organisations, such as Rail Co, have a duty to serve the government, but must act in a way that treats stakeholders fairly. The directors (NEDs) are not employees of the company and are not involved in its running. The directors usually receive a flat fee for their services, and are engaged under a contract for service. The role of NEDs is to provide a balancing influence on the board of directors and help to minimise conflicts of interest. The Higgs Report, published in 2003, summarised their role as: to to to to contribute to the strategic plan scrutinise the performance of the executive directors provide an external perspective on risk management deal with people issues, such as the future shape of the board and resolution of conflicts. Importantly, the NEDs should have high ethical standards and act with integrity and probity. Their main role is to support the executive directors of Rail Co and monitor its conduct, demonstrating a willingness to listen, question, debate and challenge. It is recognised as best practice that a company should have more directors than executive directors. This is the case for Rail Co, as can be seen from its structure highlighted on the Rail Co website. The NEDs of Rail Co are responsible 17 for running the four board committees which are set up to monitor the performance of Rail Co in key areas such as health and safety and audit and risk management The NEDs are also responsible for setting and reviewing the remuneration and evaluating the corporate governance structure and activities of Rail Co and ensuring that the board is adequately governed, structured and staffed. This is particularly relevant and important to a public sector company such as Rail Co, where transparency and public scrutiny are prevalent. The chairman of Rail Co is also a director and plays a key role in the business. The chairman has the ultimate role of leading the board, whilst the chief executive leads the business. Therefore, the roles of chairman and chief executive are complementary and interlinked. The NEDs of Rail Co can add value to the business : broadening the horizons and experience of existing executive directors, particularly if they come from a wide range of both public and private sector organisations. facilitating the of ideas, particularly in terms of business strategy and planning. playing a vital part to play in appraising and commenting on Rail achievement of value for money and advising on strategies to improve this. A team of executive and directors needs to be made up of people with business acumen and experience. directors should be able to fill the gaps in expertise not available in the executive team and provide independent and objective scrutiny to the direction of such organisations in the public interest. 2 (a) To: The Rail Co Trust Board From: Audit analyst, National Audit Authority Date: A report on the customer satisfaction performance of Rail Co and the relative performance of Rail Co with its competitors over the last three years An evaluation of the customer satisfaction survey results Percentage satisfied Overall satisfaction with your journey Satisfaction with ticket buying facilities Availability of staff of staff Reliability of service Value for money for price of the ticket 2016 2015 2014 87 60 62 75 84 50 90 64 65 73 81 56 92 65 70 77 86 57 Actual change 2015 to 2016 Trust Board Trust Board target for 2016 target Target growth achieved? on 2015 No No No Yes No No In analysing the results of the customer satisfaction survey, as indicated in the key performance measures highlighted in Appendix 3, these clearly show that overall customer satisfaction of Rail services has declined in 2016. Overall satisfaction has decreased on 2015 results, and, notably, this is significantly below the target of a increase for the year, as set the Rail Co Trust Board. This is a key indicator for Rail Co as it demonstrates whether the services provided are effective in the eyes of its customers. Although is still high, it does reflect a growing dissatisfaction from the point of view of the customers as a continued trend. This needs to be reversed. Customers are also clearly not happy with the ticket purchasing facilities offered at the train stations, with a decrease in satisfaction from 2015. Again, the Rail Co Trust Board target of a increase on 2015 has not been met. One customer feedback comment highlights customer frustration with the lack of online facilities, is very frustrating and often, I use my car instead of going train as it is more convenient than queuing to buy a train Other national rail operators do offer online ticket buying facilities and it would appear that its absence in Rail Co is a cause for concern, as customers are becoming increasingly unhappy with having to queue for tickets at stations. The measure of staff helpfulness and attitude is the only performance target met Rail Co in 2016. This is positive, as it indicates staff commitment and attitude and could be an indicator of successful staff management policies at Rail Co. The availability of staff has declined and thus clearly not achieved the target set the Rail Co Trust Board, indicating a possible problem with adequacy of staffing levels or levels of absenteeism. The perception of the reliability of service has improved from 2015 which is a positive outcome. This could be due to increased investment in new trains. However, if this is considered in conjunction with the results of the competitor analysis, it is evident that in fact, the punctuality of Rail services is in fact decreasing year on year. These measures appear to be at odds, but it must be noted that the perception of reliability could include other factors, other than trains being on time to their destination. For example, reliability could include reliability of staff on the trains or reliability of trains stopping at the correct stations. One of the most important measures is perception of value for money of the price they pay for a ticket. This has decreased significantly compared with 2015 This is a significant negative change in customer perception and one 18 (b) The Rail Co Trust Board Beeland Dear Chairman The following is our report on the effectiveness of internal controls of Rail Co based on the evidence I have been able to collect and analyse. Having thoroughly reviewed the Rail Co performance data, the recent board meeting minutes of Rail Co and the transport report in the Beeland Herald, a number of internal control weaknesses can be highlighted. First, there appears to be a serious weakness in the control of passengers accessing trains without tickets. This is referred to in the Beeland Herald transport report, where it is mentioned that this issue had already been raised in the last two annual reports. This creates a significant business risk which does not seem to have been acted upon or mitigated the Rail Co board. It has been highlighted for over two years that Rail Co believes that significant numbers of passengers are travelling on Rail network without tickets. A key internal control weakness would appear to be that approximately of Rail stations do not operate ticket barriers, allowing the potential for customer ticket fraud. This potentially will have seriously damaging consequences on the performance of Rail Co in that revenues are not being optimised. Second, there appears to be a weakness in staff management and safety procedures, in that there has been an increase in the number of injuries to staff reported Rail Co in the last year. This is evidenced in the recent performance information analysed one of my colleagues in Exhibit 3. Although Kim Lun has assured the BHSO that a thorough investigation would be undertaken immediately, it indicates that Rail Co has potential weaknesses in safety procedures and also in staff training procedures. The performance statistics indicate that Rail Co has lower levels of training than its competitors and Kim Lun director) has noted that there had been a lack of investment in the training of staff in the last three years, which is also a key internal control weakness and one which could seriously impede the performance of Rail Co. Staff who are not appropriately trained are more likely to have accidents and to make mistakes. Again, this will have serious repercussions on the overall performance of Rail Co and could have seriously damaging impact upon reputation if serious injuries occur. A further internal control weakness could be seen as the lack of investment in online booking systems. Several other national train operators offer online booking facilities and evidence suggested that this had positively impacted upon revenue growth and customer satisfaction in all of these businesses (Appendix 3). Lack of focus upon IT investment and development in key strategic information systems could be seen as an internal control weakness and could hamper the performance of Rail Co. A further internal control weakness could be the current pay structure. Poorly paid staff who are dissatisfied will leave or may take strike action. HR policies on fair pay could be considered to be weak if they are not commensurate with the expected pay rate. Throughout the board meeting, there is evidence of the chief inability to react to these key internal weaknesses effectively and it would seem that in some cases, this reluctance and inactivity could have seriously damaging consequences for Rail Co. In a number of cases, there is evidence of a failure to achieve his fiduciary duty to the trustee of Rail Co. First, his comments in relation to Rail performance are inaccurate and reflect his own opinion, based on historic performance and not the actual performance in 2016. Clearly, some narrow aspects of performance have improved, but it is not in line with competitors and customer expectations in the current climate. His comment that the target for punctuality set the Trust Board was unachievable and not relevant is highly inappropriate and shows a breach of his fiduciary duty to the trustees. It is his role as chief executive to ensure that these targets are achievable and they cannot simply be ignored. Also, his statement that customers do not understand value for money demonstrates his lack of understanding of the perception of this critical measure. It is wrong for him to make such a sweeping and unjust statement and could seriously damage the reputation of Rail Co if these views were made public. His response to the investment in ticket barriers is unfounded and demonstrates a lack of understanding of a key internal control weakness in relation to the potential level of fraud in Rail Co. He had made a significant judgement founded upon no evidence of costs outweighing the benefits and his assessment that most fraud being unpreventable is and incorrect. Again, his lack of understanding of such an important issue is a failure of his fiduciary duty. His comment that there is no evidence to suggest that staff morale is low is incorrect, as staff turnover is increasing, strongly indicating low morale. He pointed to evidence in the customer survey report which indicated an annual growth in customer satisfaction levels in relation to staff helpfulness and attitude but this is not linked to staff training in any way. His logic is flawed and his attitude towards staff and adequate training could be seriously damaging to Rail Co. The CE also commented that online ticket facilities went against the traditional values of customer service focus of Rail Co. His reluctance to invest in such technology could prove to be seriously damaging to Rail performance. It is clear that customers are not happy with ticket buying facilities and should this continue more will use other means of transport. To delay this decision could be damaging to Rail Co, should customers continue to choose other forms of transport to commute. The chief attitude towards the unions could be severely damaging to Rail Co, should the unions decide to take strike action. The CE commented that the unions were merely taking advantage of the latest survey results to put the board under pressure to increase levels of pay for its members. Although Rail Co must negotiate with the unions, to take an aggressive stance could be His comment relating to the media as an unimportant stakeholder is incorrect as adverse media reports about Rail Co are a potential reputational risk to the organisation. 20 In conclusion, my overall opinion is that the comments made the chief executive demonstrate a number of serious failures and weaknesses in his fiduciary duty to the principals and trustees of Rail Co. I have grave concerns regarding his awareness of the current situation facing Rail Co and his abilities to respond effectively to the changes which will be required in the coming months. Yours sincerely Assistant auditor, NAA 3 (a) To: Chair of the Nominations Committee From: Chair of Date: Subject: A review of the candidates for chief executive of Rail Co Introduction The outline person specification sets out some very clear criteria for the role of CE in Rail Co, specifically the requirement for demonstration of experience at CE level in a similar organisation. Obviously an understanding of the rail industry is also an important factor to consider. Also, in a high profile public sector environment, an ability to operate successfully in a complex political environment and to manage the complex relationships with multiple stakeholders will be a key factor. Importantly, in this role of CE in Rail Co, it is clear that many changes need to be made in the near future to address its current failures and to achieve the targets and expectations of its key stakeholders and therefore the new CE should have the skills and abilities to manage and lead a dynamic change programme at Rail Co. Candidate A Candidate A clearly has a significant amount of experience as a CE, having worked at this level since As a CE of a multinational oil company, he will have significant experience of managing a highly complex business environment and multiple stakeholder influences, including government. Additionally, his recent CE experience is within the rail industry working for JPS Express in Jayland. Notably, he led the privatisation of JPS trains in 2013, therefore he has experience of working in the public sector environment prior to 2013. He has clear experience of working with the government and regulatory authorities, which will be a key skill in Rail Co in managing the relationship with the Trust Board and the Minister of Transport. His ability to build and maintain relationships with external bodies, staff and the media would appear to be a highly positive capability and one which is highly desirable in the current operating climate of Rail Co. Notably, Candidate A demonstrates key skills in change leadership and human performance management. It is clear that a change programme will need to be carried out the new CE in a number of key areas, including the improvement in the performance of human resources and key strategic project investments. Candidate A has a proven track record in change leadership and in managing complex projects and these will be key attributes. In addition, his focus upon strong internal control is a key competence required at this present time. Candidate B Candidate B also has a number of very positive attributes. Currently, he is not working within the rail industry, but does work for a very large aviation company which will clearly require many key leadership skills. Although he has not worked as a CE for quite as long as Candidate A, notably he has worked in the rail industry previously as a finance director for Ceeland Rail. Therefore he will have an excellent knowledge of the financial management requirements of Rail Co. His obvious skills and experience in financial management would be a hugely positive influence for Rail Co. His focus on KPIs and developing strategies for revenue growth and operational efficiency would be hugely positive for Rail Co. However, his experiences focus largely upon financial management which, although critically important to Rail Co, may be rather too narrow and not sufficiently focused upon the change leadership requirements of Rail Co. There is also limited evidence of managing stakeholder relationships in a complex environment such as Rail Co, particular the relationship with government and regulatory bodies. Also, there is little evidence of his abilities to lead change. Recommendation Both candidates have a wide range of skills and experience and both would bring very positive attributes to Rail Co. Overall, taking into consideration the current requirements of Rail Co and the likely changes which will need to be undertaken the newly appointed CE in the near future, then my recommendation would be to appoint Candidate A. He has all of the relevant public sector experience, together with his experience of managing complex stakeholder relationships and his change leadership experience. 21
Final 2 March 2019, questions and answers
Course: Strategic management (6112)
University: Addis Ababa University
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