Page 2 - OCS Workbook - Day 2 Suggested Solutions (May 2018)

CIMA MAY 2018 – OPERATIONAL CASE STUDY

Setting up the Beijing Fashion Week 2018 as a separate business unit

The two options you mentioned are to set up the project as either a cost centre or a profit centre.
Given that the project involves both costs (e.g. labour costs of marketing staff, cost of display
stands, etc) and revenues (e.g. revenue from additional sales made at the fashion show) that are
directly traceable to the fashion week, then it could be argued that a profit centre is most
appropriate.

A key issue is whether the Board expect to generate significant revenue from the tour or whether
it really is more about increasing brand awareness. If it expected that sales revenue generated
through additional sales will not cover the additional cost of resourcing the fashion week, then
the best the event can achieve (if no other revenue is traceable) would be a loss. For this reason it
could be argued that it would be better to view the tour as a cost centre.

Overall, the best option may be to have a profit centre and be careful how targets are set and
communicated.
Target setting
Key principles in target setting are as follows:

• Level of difficulty
If targets are considered to be too hard, then it could demotivate the team. On the other
hand, a target set too low could result in suboptimal performance.
For example, the target for sales of bags designed specifically for Chinese customers should
be challenging but realistic. This will be tricky as it is the first time Mansako has developed
such a range.
• Participation

Allowing Gill (the team manager) to participate in setting targets is likely to result in greater
motivation and ownership of the resulting targets by the team. The main risk is that Gill will
try to make the targets easier to ensure the team beats them.

• What should be included
If appraising the project then any costs and revenues traceable to the project should be
included.
However, if appraising the team, then only controllable factors should be used. For example,
it may be difficult to distinguish between new sales from Chinese customers that have arisen
because of the fashion week in contrast to extra growth that would have happened anyway.

In addition we need to be careful assigning responsibility for targets.
For example, if samples of new bags are not available due to production problems, then it
would be unfair to blame marketing staff if sales targets are not met as a result.

Measuring success
Key ways of measuring project success are as follows:
• Brand awareness and perception

A significant reason for doing the Fashion week is to boost brand awareness and perception in
China, so these should be primary measures of success.

The main problem with brand awareness is that the Mansako brand is already a premium
global brand.

58 KAPLAN PUBLISHING