QUESTION 3Read the scenario below and answer the questions that follow.

P is an IT consultancy business based in Country M's capital city. P specialises in consultancy activities relating principally to database management and IT security. Since its formation in 2004, P has grown organically and has built a strong reputation within its two areas of specialisation.Competition is strong in the IT consultancy industry and P faces competition from a number of local and international IT consultancy businesses operating throughout Country M. P employs highly qualified and skilled IT staff, whose time is charged out to clients on an hourly basis. P's clients expect high quality service delivery and many also require P to be available to respond 24 hours a day, 7 days a week. P has been highly innovative in the last few years, with a number of its IT staff building upon their areas of expertise and knowledge to develop new opportunities in P's IT consultancy portfolio.These new consultancy activities are in the areas of big data and cyber security. P's five senior partners hold monthly meetings in which they discuss performance. At these meetings, the five senior partners mainly focus upon comparing actual performance versus budgeted performance for the revenues and profit generated by P. The partners also review the latest market share and client feedback information, based upon client surveys carried out each month. P's IT staff are paid an annual salary and individual bonuses are also paid, based upon a team manager's assessment of each individual's performance and achievement of targets throughout the year.It is rare that bonuses are not paid and most IT staff are not consulted directly by their team manager regarding their targets. The five senior partners receive a fixed salary and a bonus based upon the overall annual business profits. At a recent monthly meeting, the five senior partners discussed performance targets for P for 2015. One of the founding partners, who had recently returned from a conference attended by a range of consultancy businesses, expressed concern that P's existing performance information is not focused on the key activities of P's business. He believes that as a service business, P must focus upon a wider range of dimensions beyond just market share and financial performance.

Required

3.1 Explain four characteristics of a service business, using P to illustrate your answer and evaluate the current process used by the five senior partners when reviewing P's performance and the current process used to set targets. You should use Fitzgerald and Moon's 'Building Block Model' to assist in structuring your answer. (19)

3.2Recommend, with reasons, two suitable performance measures which could be used to assist P in measuring those areas of its business in which it must succeed, in order to remain competitive. (6)