TOPICAL(unit wise) General - Unit 1 & 5 - 9707/11/M/J/14 - Discuss the usefulness and limitations of published accounts for business stakeholders in measuring the performance of a company. [20] • Published accounts are financial records of business transactions which provide essential information to groups within and externally to a business (e.g., internal managers, staff, shareholders, banks, etc.). • Published accounts give information on profitability, value of fixed assets, liquidity, growth/investment potential. • Interested stakeholders may use accounts and examine performance indicators such as net profit margin, level of sales, long-term liabilities. These provide indicators of performance and financial stability/strength – more than one year’s accounts may be examined. • While of potential value to an interested stakeholder, published accounts have limitations: ○ contain only information required by law ○ it is historic information ○ do not give details of each section of the business ○ may not include future budgets or financial plans ○ there may be ‘window dressing’ ○ qualitative factors such as internal health of the business not in the remit of published accounts Unit 1 & 5 – 9609/12/M/J/17 - Analyse how any one stakeholder group could use both an income statement and a statement of financial position. [8] Answers could include: • a review of the contents of Income Statements (cost of sales, gross profit, operating profit, profit for the year, retained earnings) and Statement of financial position (current assets, non-current assets, current liabilities, working capital, net assets, non-current liabilities, reserves and equity. • the statements contain important accounting information and assists the following: - informs decision-making – knowledge of profit level assists decisions on whether to invest in growth. - helps to monitor progress against targets / plans / budgets, assists comparisons with previous years’ performance. - identifies cash flows, identifies where costs need reducing and reserves increasing. Stakeholder groups (internal and external) such as Managers, Employees, Potential investors, Shareholders, Banks, Government will use these statements to make judgements about the financial strengths and weaknesses of particular businesses: • employees can review the progress of the business. • assists investors to decide to further invest, or not. • government can see if the correct amount of tax has been paid. • suppliers can assess the health of a business. • facilitates comparisons with other companies' results. • the quantitative information and measures contained within these statements assists internal and external stakeholders to take a view of the absolute and relative strength of a business. • these are metrics so, of course, have their limitations and answers may well question the level of usefulness, referring to some limitations – historic, inaccurate, misleading etc. – these comments could well act as a bridge into the answer to Section (b) of this question. 9609/13/O/N/17 – Analyse why primary market research could be more useful to a business than secondary market research. [8] It may well depend on the type of business and its requirement. Definitions may well be given of both types of market research. Primary research and its advantages will be described. Advantages/disadvantages of primary market research • Up-to-date information. • Relevant information – collected specifically for a business. • Examples such as evidence for pricing policy, extent and type of market/ customer demand. • A business has a higher level of control over how the information is collected. • Information can be kept hidden from competitors. Advantages/disadvantages of secondary market research • Information readily available. • Information relatively inexpensive. • Can be substantial information available. • Can be out-of-date information. • Information can be misleading. • Might not be specific to the business’ needs. 9609/13/O/N/17 - Discuss the advantages and disadvantages to a business of using focus groups to collect market information on a new product. [12] Answers may include: Define focus groups – a group of people asked about their views on a product. In this context, a new product, views gained on, for example, its price in relation to competition; its promotion/packaging; how it performs/might perform; pros/cons. Advantages of focus groups • Information considered to be more accurate than consumer surveys (interviews and questionnaires). • The discussion allows perceptions and opinions to be recorded. • More cost-effective than individual interviews. • Offer the opportunity to seek clarification of views. • Can provide ideas for improvement of a product. • Provide information about the reaction of consumers to design and message of the product. • Researcher can interact and stimulate the group. • Researcher can get information from non-verbal responses – facial expressions or body language. Disadvantages of focus groups • small groups may not be a good representation of the market population. • group discussions can be difficult to steer and control – time can be lost through non-relevant discussion. • respondents can feel peer pressure to give similar answers to questions. • the qualitative information produced can be difficult to analyse and present. \ • moderator bias may impact upon the outcome of a focus group. • Can be expensive to bring all participants together. Focus groups likely to be used in conjunction with other qualitative / quantitative methods but clearly do offer opportunities to gain important market information on a new product. However, there are limitations and potential disadvantages. 9609/12/F/M/18 – Define the term ‘random sampling’. [2] Random sampling is a sampling method in which members of the population are chosen at random (1). All members of a group or population have an equal chance of being selected (2). 9609/12/F/M/18 - Briefly explain two benefits of using quota sampling when carrying out market research. [3] • It ensures that the sample is chosen to be representative of all the strata in the population. • It is quicker to collect information from a quota sample as less individuals need to be contacted therefore results can be processed more rapidly to give the company information to act on. • Easier and more practical to collect information from a small number of individuals rather than a larger random sample especially when the whole population is large and spread over wide geographic region therefore keeping down costs and speeding up research. • It is cheaper to collect data from a smaller number of people as less researchers are needed therefore the cost of wages is reduced. • Allows more detailed information to be collected and analysed in the time allowed because the quality of interviewing can be better as there are less people to question. Unit 4 & 5 – 9609/12/O/N/17 - Discuss why both the finance department and the operations department of a car manufacturing company should be involved in new product development. [12] New product development clearly involves finance and the finance department will be involved in issues such as: • allocating resources for new product development. • major finance required for car design and development. • to support innovative technology, design and production. • cost and value management, financial planning for new product platforms. New product development clearly is a concern of operations management and the operations department will be involved in issues such as: • significant investment likely to meet different customer demands e.g. fuel conservation, environmentally friendly vehicles. • respond to new competitive models. • cars have a relatively short product life-cycle and models may be at the decline stage. • A new focus on customer required performance in safety, reliability, fuel consumption, speed, driver and passenger experience. Clearly there needs to be synergy between the operations and finance departments of a car manufacturing company if the company is to produce cars that match the demands of customers in a very competitive industry and which are cost effective and financially viable. There needs to be synergy between the engineers and the management accountants. Strong answers may well make an evaluative point that collaboration between more than these two departments is required e.g. role of marketing department. 9707/12/O/N/15 - Define the term ‘intellectual capital’. [2] Intellectual capital is defined as the amount by which the market value of a company exceeds its tangible assets (physical and financial) – the collective knowledge and skills of a company. 9707/12/O/N/14 - Explain the interrelationships that exist between marketing and other departments within a business. [8] As a business activity, marketing has important links with other functional departments, e.g. finance and H.R.M. In order to achieve marketing objectives such as increased sales and profits, a marketing department will have a significant influence on the work of other departments. Market research data may have a key role in new product development and sales forecasts will impact on operations department as it plans for capacity and inventory levels. H.R. departments will have to ensure appropriate levels of staff are in post in production and sales to meet the marketing forecasts. Finance departments will need to support a planned marketing budget and use marketing data to devise operational budgets and cash flow forecasts. 9707/12/O/N/15 - Briefly explain how the input of capital (including intellectual capital) can contribute to the effectiveness of business operations. [3] As a resource input, capital (along with land and labour) can potentially make a very significant contribution to the effectiveness of business operations: – Capital in the form of tools, machinery, computers and other equipment makes a significant contribution to the production of goods and services. – Capital in the form of investment monies may well determine the extent and the ‘cutting edge’ quality of the equipment used and hence the effectiveness of the final products or services in a competitive market. – Intellectual capital is the intangible bank of expertise, skills and competencies within a business that can give the production process a distinctive competitive edge. 9707/13/O/N/15 - Discuss the view that business success is more likely if the operations department works closely with the marketing, finance and human resource management departments. [20] Good candidates may well at some stage define ‘business success’ and should be rewarded (profitability, growth, brand, recognition). There may also be some discussion of ways in which an operations department could add to business success through greater efficiencies, innovation, flexibility, e.g. new production methods, use of new technological developments. This question, however, suggests that business success may well depend on cross departmental co-operation and identifies 3 departments with which an operations department could co-operate. The contribution of other departments could include: – Finance – supporting increased levels of expenditure on research and development – using profits to invest in new machines – finance the launch of more new products. – HRM – supporting a culture of democratic working – sharing of ideas – developing appropriate leadership and management styles in the business – recruit appropriate staff – creative thinkers – providing appropriate rewards. – Marketing – focus on market intelligence – close to customers and competitors – have effective marketing objectives and so provide appropriate market intelligence and effective marketing of products and services to support the operations department Different departments thus may well work closely together to achieve corporate flexible and innovative objectives and so increase business success. 9609/13/M/J/16 - Explain why efficiency is important to a manufacturing business. [5] Efficiency is producing output at the highest ratio of output to input (‘doing the thing right’) and should be the concern of all businesses and business operations. Answers could include: • Some definition of efficiency given • A concern for efficiency is at the heart of objectives such as survival, high productivity, profitability, growth, market share • To be successful a business needs to be efficient in the deployment of all resources – land, labour and capitalisation • Inefficiency can result in high costs leading to un-competitiveness and loss of market share • The transformation operations process needs to add value – inefficiencies will reduce value added • A manufacturing business will need to focus on input resource efficiencies and will be concerned with the most efficient production methods and waste reduction in order to control and improve costs. This requires a focus on capital, labour and land deployment, not just at the operations level but throughout the business. 9609/12/O/N/16 - Discuss factors that could determine the success of a business that has decided to set up an online shop to sell beauty products. [12] • Is there a need for an effective marketing/promotion/advertising strategy? • The need for an effective distribution /policy strategy • Is there room for one more entrant where prices, quality, and product features may be similar? • Can a differentiated offer be made – specialise in one area – e.g. anti-ageing cream, beauty soap/cream etc.? • Can a value for money offer be made? • How valuable (profit margins) might your customers be? – is there room for growth? • Can you provide an online shop (website) that contains the following features? – clear order form – speed of payment – security – quality product catalogue – ease of navigation • Are processes of ordering, logistics, accounting, marketing and sales integrated? • Does the business really understand the particular demands and aspects of ecommerce/online retailing, e.g. speedy guaranteed delivery – returns policy? A considerable number of factors particular to online retailing of beauty products plus more generic factors – is this the right move to make? – does the business understand customer behaviour and has it prepared and planned appropriately? NB: the candidate taking the approach of advantages / disadvantages of deciding to set up an online shop can be awarded up to 5 marks. 9609/13/O/N/18 – Analyse the importance to a business of having clear marketing objectives. [8] • Marketing objectives set out what a business wants to achieve from its marketing activities. • They need to be consistent with the overall aims and objectives of the business. • They need to provide a clear focus for the marketing department. • Examples include: market share – brand identity – launch new products – new advertising campaign. • They need to be clearly communicated to all departments in the organisation. • If they are clear and realistic, they will provide a clear sense of direction to the organisation and the marketing department, eg to become the market leader. • If clear, they can be progress monitored. • They will form the basis of a marketing strategy for a business. 9609/13/O/N/18 - Discuss the view that marketing objectives will not be achieved without a close relationship between the marketing, finance and operations departments of a business. [12] • Marketing objectives can include increasing market share, developing and promoting new products, entering a new market and can only be achieved with cooperation with other functional departments. • Other departments will support and be coordinated by marketing. Finance • Marketing will have to work within the budget agreed at corporate level and specified by finance – e.g. the amount of money allocated to marketing to market a product – and finance will use the sales forecasts of marketing to devise cash flow forecasts. Operations • Market research data will be important in new product planning, sales forecasts will affect capacity utilisation decisions and marketing will attempt to keep operations customer orientated. Evaluative comments might include There needs to be alignment between marketing objectives and the activities of all functional departments if marketing objectives are to be achieved – Finance and Operations but also HR. Unit 1 - Business and its environment 9707/12/M/J/14 - Explain why the objectives of a business could change over time. [5] – Business objectives are the stated, measurable targets of how to achieve aims and a sense of purpose. – Business objectives may include: survival, growth, profit, maximisation, sales growth, ethical and socially responsible objectives. – Business objectives may change for several reasons, including: ○ initial objectives achieved (e.g. survival). ○ competitive environment changes. ○ technology might change product design. ○ new management and leadership. ○ new opportunities arise. ○ internal/external growth may lead to a revision of mission/purpose and objectives. ○ economic recession – external constraints. ○ becomes more ethical. 9707/12/M/J/14 - Define the term ‘value added’. Value added can be defined as the difference in the production process between the cost of raw materials and the price the finished goods are sold for – a key business objective – the degree of value added to inputs. Value added can also be defined in a marketing context – e.g. U.S.P. 9707/13/M/J/14 - Discuss the advantages and drawbacks for a business of setting corporate responsibility objectives. [20] Corporate responsibility is said to operate when a company decides to go beyond normal business market principles and creates wealth in ways that avoid harm to, or protect, or enhance social assets. There is recognition that there is a multiplicity of stakeholders not just shareholders. Social and environmental concerns and objectives are integrated with business concerns and objectives. Advantages are said to be: – Companies exercise their moral duty to promote social justice. – It is good business practice. – Such approaches can become powerful competitive advantages. – It encourages greater loyalty from customers. – It enhances the reputation of the business. – It affects the bottom line-increases profitability. – Contributes to company and environmental sustainability. – Companies have a duty to correct any adverse social impacts caused. Drawbacks are said to be: – Costs are imposed that make businesses less efficient and this will subtract from overall social welfare. – It is unfair to shareholders as profits that belong to them are diverted to social projects. – The market is likely to allocate resources more efficiently than political pressures – ‘the business of business’ should be business and the making of profits. – Accountability should be only to shareholders. – Customers will have to pay higher prices. – Leads to lack of business focus and is often done for negative reasons as a defensive measure rather than for positive reasons. 9707/13/M/J/14 - Explain how the main differences between the legal structures of sole traders and public limited companies affect the way such businesses are financed. [8] – Sole traders have sole responsibility for raising business finance such as own capital, bank overdrafts and loans and have unlimited liability. Likely to mean severe restrictions on the amount of finance that can be raised. The formation of a limited company could lead to greater access to funds and would limit personal liability. – Public limited companies have the legal right to sell shares to the public and thus have the potential to raise significant initial and new investment capital. Likely to be large businesses and more able to access alternative funding sources. – Each has its own distinctive features and each will have particular access routes for short, medium and long term sources of finance. – Each will have different internal and external financial requirements and sources. 9707/11/O/N/14 - Explain the importance of a mission statement to the employees of a public limited company. [5] A mission statement is a statement of the core business, purpose and focus of an organisation – designed to resonate with internal and external stakeholders. Mission statements are considered to be important for employees of a business in that it provides the context for worker activity. The goals and philosophies in a mission statement may serve to direct and motivate a workforce. Mission statements may well reflect the beliefs and vision of senior management and is designed to inspire employees and support distinctive organisational cultures. P.L.Cs tend to be large and therefore need to make their overall aims and values clear to employees (could be a very large number of employees) and the mission statement provides an important reference point for them. Can provide a sense of purpose in large businesses (P.L.Cs) – e.g. sense of shared values. 9707/11/O/N/14 - Explain the weaknesses of ‘family owned’ businesses. [8] The inherent strengths of family owned businesses – businesses where the voting majority is in the hands of the controlling family – are many for example: • family dedicated to business – work hard to build and grow the company and re-invest profits and • there is pride and focus in reputation and quality of product and maintain good relations with external stakeholders. But, the weaknesses often outweigh the strengths, weaknesses such as: • complexity of different roles played by family members and governance problems – different motives and strategies from different family members • too much informality, not enough clear business practices and procedures – with growth may come significant conflict • neglect of strategic management, succession planning, lack of external management expertise • plus, family owned businesses may have poor cost control, poor cash flow, poor management • means that the majority of family owned businesses are not sustainable • discipline difficulties i.e. reluctance to discipline or sack family members • family arguments might be brought into the work situation. 9707/11/O/N/14 - Discuss why some businesses do not set a growth objective. [12] It is often assumed that one of the main objectives of a business is to grow – this may not be the case. There may be reasons why a business cannot grow and reasons why a business does not want to grow: • Businesses may not have the option to set growth as an objective – they may operate in a niche market. • Limited capital may prevent growth. • Businesses may be family businesses with neither the ambition nor the capacity to grow. • Businesses do not have to grow to become (more) successful. • They can exploit their advantages – a small business has manoeuvrability – it can act and react fast. • They can grow through outsourcing or joint ventures. • Businesses can give customers the satisfaction of personal interacting and thus retain their competitive advantage. • Non-pecuniary benefits – being one’s own boss, flexibility are first order issues for small business owners. • Businesses often content to exploit entrepreneurial skills and competences in a selected restricted area of business. • The nature and composition of many businesses (e.g., small shops, solicitors, accountants, restaurants, small-scale manufacturing, means that they do not seek growth. • Businesses survive and succeed by remaining small and supply to large businesses. • Might be new/small business; growth is not yet an appropriate aim. • Shareholders might not want a company to grow. 9707/12/O/N/14 - Explain the aims of a ‘social enterprise’ organisation. [8] • A business with mainly social objectives that reinvests profits into benefiting society, rather than maximising returns to owners. • Have distinctive aims and objectives – while sharing some characteristics of other types of organisation – they rely on the market and sales for income – but they have a sense of social mission and have social ownership structures. • They seek to use business solutions to achieve public good – and operate in a wide range of areas, e.g. health and social care, transport, childcare in U.K. • So they have social and business aims (often referred to as “double bottom line”, or some add environmental aims and are referred to as “triple bottom line”. • They have economic objectives – profit to reinvest. • They have social objectives – provide jobs and support communities, often disadvantaged sections of communities. 9707/12/O/N/14 - Discuss the importance of ‘business enterprise’ in your country. [12] • Business enterprise defined as initiatives concerned with taking risks and setting up businesses making things happen – business opportunities are identified and calculated risks are taken. • Those who take risks and show enterprise called entrepreneurs – they make a major contribution to the development of business enterprise in a country – seize initiatives – add value, create jobs – make profits – contribute to social investment via taxation. • Business enterprise(s) considered to be important in that: • Jobs are created. • Economic growth – increased living standards – tax revenues for governments to spend on infrastructure. • Businesses grow, expand, diversify and support a more developed economy. • Adds dynamism to an economy – increased use of I.T. and new technology. • Helps improve international competitiveness – exports. • Helps achieve social cohesion in a country and supply important social goods. • Economic development comes from economic growth which is significantly supported by business enterprise – countries become industrialised and modernised through sustained business enterprise activity. 9707/13/O/N/14 - With the aid of two examples, explain how the objectives of one group of business stakeholders could conflict with those of another group. – Different stakeholders have different expectations, aspirations, and perceptions of what businesses should do and how they should act, e.g. owners, managers, employees, shareholders, suppliers, governments, communities. – Conflict between stakeholders can occur in most kinds of business forms, e.g. partnership, plc, family owned, public corporation. – Conflict can occur over a range of issues such as: profit/dividend distribution, compensation, investment decisions, social responsibility, product/service prices, location and environmental concerns. 9707/13/O/N/14 - Explain the strengths and weaknesses of a ‘co-operative’ legal structure for business. [8] – These are joint ownership organisations – consumer, producer, agricultural worker co-operatives – member owned – meet common economic, social and cultural needs of members. Strengths: – Easy to set up. – Open membership. – Democratic management. – Shared objectives. – More responsible to communities and customers. – Share surplus. – Limited liability. Weaknesses: – Likely limited resources. – Management can be inefficient. – Disputes and differences can occur. – Longer decision-making process. – Lack of capital. – Mass of members may lose interest. 9707/13/O/N/14 - Discuss how ethics may influence the activities of a business. [12] – Business ethics are concerned with how businesses treat the environment, work with staff and suppliers to build a responsible company, relate to local communities and produce a viable, sustainable company and adds value socially as well as economically. – Business ethics now part of the language of business, customers demand more and management is trained to deliver more. – May mean that a business makes explicit provision for ethical behaviour and ethical performance. – Might mean additional costs. – More monitoring (e.g. of suppliers). – May mean new and different practices, e.g. waste disposal – treatment of additional/ different shareholders. – May be seen as part of brand building and reputational protection (USP). – May be a source of additional investment for ethical investors. – So positive and negative implications – becoming a necessity rather than a discretionary approach to business decisions. 9707/11/M/J/15 – Define the term ‘franchise’. [2] A franchise can be defined as a business that has the right to use the name, logo and trading systems of an existing, successful business – (the use of a successful business model under licence.) 9707/11/M/J/15 – Briefly explain two benefits for an entrepreneur of becoming a franchisee. [3] Benefits of operating a franchised business could include: – reduced risk of business failure. – dealing with an established brand/product. – advice/training available from franchisor. – marketing and advertising initiated and funded by franchisor. – quality assured supplies guaranteed. – market segment/area protected by the franchisor. – easier to obtain loan finance. 9707/12/M/J/15 - Define the term ‘social enterprise’. [2] A social enterprise has been defined as a business with primarily social objectives whose surpluses are reinvested in the business or the community, rather than providing profits for shareholders or owners. 9707/12/M/J/15 - Briefly explain two ways in which the objectives of a social enterprise might be similar to those of other types of business. [3] – It is a business that seeks to make a surplus/profit – It is concerned with being efficient and effective. – It will likely face competition from other businesses in the same market or industry. – It uses business principles and processes to achieve its objectives. – It will have concerns for its workforce – It will aim to deliver quality goods and services. – It is of course committed to social/environmental responsibility as can be other businesses. 9707/13/M/J/15 - Define the term ‘stakeholder’. [2] A stakeholder can be defined as people, groups of people, or organisations that can be affected by an organisation or have an interest in the actions and activities of that organisation. Examples can be credited: in addition to a partial definition can justify a second mark. Examples only are to be given 1 mark max. 9707/13/M/J/15 - Briefly explain two ways a public limited company is accountable to its shareholders. [3] – accountability for the general direction and performance of the company. – accountability for the financial performance of the company (share price and dividends). – accountability for compliance with legal requirements, eg employment laws, health and safety, taxation, equality etc. (these may be cited as separate and specific examples of accountability). – accountability for the image, reputation of the company. – requirement to hold an AGM 9707/11/O/N/15 - Explain why a business might not behave ethically. [8] Ethics is concerned with moral guidelines. A business may decide to act in compliance with the law but go no further. – it may decide that its business is the business of making profits, producing goods and services, and employing people – not ethical/social responsibility activities – a business may decide it cannot afford to be ethical – the aim is survival, growth and profitability – if that requires compromises on employee terms and conditions, or treatment of suppliers for example, then so be it! – a low priority may be given to any objective or activity that is not directly contributing to the bottom line – the pressure to establish more positive ethical standards may be relatively weak in the business (by Government or pressure groups) – a business may be a business in an ethically under-developed industry or country with few ethical objectives or aspirations 9707/11/O/N/15 - Discuss, with examples, how unethical business behaviour could damage the reputation of a company. [12] Candidates can either give theoretical examples of unethical business practices and/or provide actual examples of companies suffering reputational damage due to unethical or alleged unethical conduct (e.g. Enron, News of the World, or own country examples). Candidates may well discuss different types of unethical business behaviour such as: – poor working conditions for employees or suppliers – dishonest sales techniques – environmentally unfriendly production methods – bribery and corrupt operating policies – misleading financial reports Such unethical business practices could lead to: – loss of trust in the company by customers and employees – legal action may result, leading to compensation and damage to reputation – the brand is tarnished – investors and potential investors respond negatively – the value of the company can seriously deteriorate leading to liquidation, merger or takeover 9707/12/O/N/15 - Explain why small businesses are important for many economies. [5] Small businesses employ in total a significant proportion of the working population in many countries. – They often provide entrepreneurial impetus and give greater consumer choice. – They provide competition for the larger companies. – They often provide specialist goods and services to large/important industries in a country. – They can be flexible and adaptable to the needs of larger businesses. – They may well grow into larger and more efficient businesses. – They can provide more personal services to consumers and enjoy lower average costs. – They contribute to GDP. 9707/12/O/N/15 – Explain how the objectives of a social enterprise might differ from those of other private sector businesses. [8] – A social enterprise is a business with mainly social objectives and re-invests profits into benefitting society rather than maximising returns to owners. – Profit is still an objective and social enterprises compete with other businesses in the market / industry. – Business principles are used to achieve social objectives and they seek to make profits in a socially responsible way. – Objectives are Economic (make profits in sociably responsible ways), Social (provide local jobs and/or support local disadvantaged groups) and Environmental (protect the environment, do business in an environmentally sustainable way) – triple bottom line… distinctively different from sole traders, partnerships, plcs not set up as social enterprises. 9707/12/O/N/15 - Discuss why an entrepreneur might choose to become a franchisee rather than start an independent restaurant business. [12] The decision to adopt a franchisee model for restaurant ownership is likely to be influenced by the suggested advantages of a franchisee arrangement: – You adopt an existing successful/established business. – You operate an established brand and reduce risks. – The initial investment is probably smaller. – An entrepreneur can focus on operating and driving the established brand. – Ability to benefit from a franchised business relationship. – Less likely to fail. – In the short term probably more profitable. There are limitations of course (and these could be mentioned in an evaluative comment) but this question requires a focus on the entrepreneurial advantages of choosing a franchisee arrangement. 9707/13/O/N/15 – Define the term ‘internal growth’. [2] Internal growth refers to the expansion of a business by expanding existing operations through opening new branches, shops or factories – also known as organic growth. 9707/13/O/N/15 - Briefly explain two reasons why many businesses set growth as an objective. [3] Business growth may be sought for reasons such as: – increase profits and sales – increase market share – a higher market profile – secure economies of scale – increase power and influence of owners in society – reduce risk of takeover – exploit entrepreneurial ambition and potential 9609/12/F/M/16 – Distinguish between the ‘private sector’ and the ‘public sector’. [2] The private sector consists of businesses owned and controlled by individuals or groups of individuals. The public sector consists of organisations owned by, accountable to and controlled by the State (central or local government). 9609/12/F/M/16 - Briefly explain two advantages of public sector businesses. [3] The advantages of public sector businesses are said to include: • the provision of goods and services that the private sector might not provide (merit and public goods) • the provision of critical goods and services that a State/Government needs to maintain control over • the provision of loss-making services where the social benefit is considered important • appropriate funding/investment can be provided by the State to fund and develop essential goods and services • provide employment opportunities and career progressions • the internal environments may be less demanding than the private sector • they often focus on social value and values, rather than raw competitive objectives. 9609/12/F/M/16 - Discuss how and why a multinational food manufacturer might have corporate social responsibility (CSR) as a business objective. [20] Why • Company leadership may be committed to CSR – recognises need for accountability, not just to shareholders. • Recognises opportunity to make an environmental and social impact. • May be a defensive attitude – to preserve market position. • May make good business sense – reduce costs and waste. • It is in company mission statement. How • Company structures – such as a Chief Sustainability Officer – a Board of Directors’ Social Responsibility Committee. • Company policies and protocols – guidelines for sourcing ingredients/suppliers. • Goals for reducing emissions, water use, energy use. • Supporting locations and farmers where grains grow. • Reviewing transport options to reduce carbon footprint. • Ensuring that CSR is in the company bloodstream/culture. 9609/11/M/J/16 – Distinguish between ‘strategy’ and ‘tactics’. [2] ‘Strategy’ can be defined as ‘a way of planning/achieving an objective’ (the action/actions required to achieve an objective). OR ‘Strategy’ can also be defined as actions/activities that focus on the long-term direction of an organisation. 9609/11/M/J/16 - Briefly explain two stages of business decision-making. [3] The different stages of business decision-making are said to include: • Identification of objectives/goals/problem identification. • Planning i.e. collection of information and ideas. • Analysis of information and ideas. • Formulation of alternative courses of action. • Choice of alternative courses of action. • Making a decision. • Implement the decision • Communicate the decision. • Evaluate the results of the decision. 9609/11/M/J/16 - ‘Because there is conflict between profit and corporate social responsibility (CSR), private sector businesses should not have CSR as an objective.’ Do you agree? Justify your view. [20] • CSR is the concept that business should consider the interests of society in decisions and activities over and above legal requirements. • May include paying higher wages, improving working conditions, improving safety standards, cutting waste and pollution, support worker security. • May well mean a sacrifice of profit levels, increased costs. • May well lead to modification of objectives, such as aggressive expansion, tax avoidance, excessive staff bonuses. • Can lead to shareholder conflict. • Some customers want low prices – not worried ‘how’ a product is made. • So should not the ‘business of business be business’, not wishy-washy social objectives? • Positive aspects of CSR – more socially aware customers purchase, more employee loyalty, more good reputational publicity – can lead to higher long-term profit levels. • Perceptive answers will recognise the potential conflict between CSR and profit – but will also recognise the simplicity of the assertion in the question. 9609/12/M/J/16 – Define the term ‘entrepreneur’. [2] Defined as someone who takes risks. Starting/managing/making decisions in a business. Organises the factors of production. Creative/has new ideas/spots gaps in the market. 9609/12/M/J/16 - Briefly explain two reasons why new businesses often fail. [3] Despite the enthusiasm and skills of an entrepreneur, many new businesses fail within one year. Lack of finance/capital – banks unwilling to lend. Poor cash flow management. Poor management skills – entrepreneur’s not always good operational managers. Severe competition – large companies/competitors squeeze. Limited portfolio of products/services. Very vulnerable to change and environments/threats – e.g. recession, legal requirements – technological change. Lack of market understanding. Lack of reputation/brand. Lack of record keeping 9609/12/M/J/16 – Analyse the importance to a large business of setting corporate objectives. [8] These specific organisation objectives become part of senior level management strategies. Set the context for divisional/departmental objectives and effective plans of action can be developed. Ensures that the business is focused and does not drift – clear corporate objectives given such as growth, profit/sales maximisation. Present a clear set of guidelines and parameters for middle, junior management actions and strategies. Without these clear corporate objectives a business can drift and cease to compete and flourish. Give meaning and purpose for all engaged in the business. 9609/12/M/J/16 - Discuss how a large food retailer, with many shops, could effectively communicate corporate objectives to its workforce. [12] Strong answers will recognise the particular communication challenge to reach all the retail outlets in different location areas – senior management visits and presentations – regional/local managers invited into HQ? Specific communication methods could be used: ‘State of nation’ address by CEO and/or senior managers Senior managers to middle managers to junior managers Team meeting/briefing Away days Training and development days Company newsletters/digital platforms/company website Internet/social media. Methods may not be as important or effective as developing participation and engagement opportunities for employees – to educate, inform and inspire employees. Develop an open, sharing, two-way communication culture in the business – train and retrain managers to share information and practise a management style that is supportive of staff engagement approaches. Effectiveness depends on the extent to which open communication is part of the bloodstream/DNA of the organisation and its managers and that there is full recognition of the need for consistency of approach over all this disparate business. 9609/13/M/J/16 - Analyse the advantages of a co-operative as a legal form of business. [8] • Co-operatives are joint ownership organisations (producer, workers, consumer). • A distinctive type of business organisation – often a significant amount of democratic control and profits shared/distributed in proportion to members’ investment. • Producer co-operatives common in agriculture in developing countries. • Advantages claimed for co-operatives include: – Members/users are involved and have opportunity to direct and control the business – The business is designed and operated specifically for the members/users – Resources are pooled for mutual gain – Increased purchasing power with suppliers – Increased marketing power – joint advertising – More consumer power – less social/environmental damage – Allows members with common interests to work together and assume responsibility (e.g. village post office/shop). (While a brief reference to the limitations of co-operatives may be relevant, this answer needs to focus on the advantages of co-operative businesses). 9609/13/M/J/16 - Discuss the factors that could influence the success of a small business manufacturing fashion clothing for children. [12] • Definition of small businesses and their characteristics • Success factors could be owner/venture/economy specific • Reference to the specific advantages and limitations of the context of a small niche market manufacturer • Degree of owner business expertise, experience • Degree of capitalisation/under-capitalisation • Relevance of business objectives (measured growth) • Quality of business systems/functions (marketing, product, development, costing, planning) • Level and type of competition • Viability of business model chosen • Luck! 9609/11/O/N/16 – Define the term ‘mission statement’. [2] A written statement of the core aims/values/purpose/objectives of a business. 9609/11/O/N/16 - Briefly explain two limitations of mission statements. [3] • Often written in very general / vague terms in order to appeal to internal and external stakeholders as to have little impact. • Often long and aspirational – a wish list with little operational value. • Often seen as a PR exercise – so little motivational impact (other than negative cynicism!). • If not supported by management has little positive impact • Seen as being distant from operational reality. 9609/12/O/N/16 – Define ‘joint venture’. [2] Two or more businesses/people agree to work together (1 mark) on a particular project/product or business enterprise (1 mark) (A distinct business unit/division may be set up or just informal collaborative arrangements). 9609/12/O/N/16 - Briefly explain two advantages of joint ventures to the businesses involved. [3] • Share strengths, minimise risk and increases opportunity for competitive advantage in business ventures. • Given access to new resources, markets, or distribution channels. • Particularly useful for small businesses wanting to spread risks – e.g. joint advertising, marketing, R&D. • Popular way of entering new, emerging markets. • May be used by large businesses to shut out the competition. • Loyal customers of both companies are likely to purchase the new product or service and the customer base is therefore widened. NB: do not accept economies of scale as an advantage unless it is linked to a new project/service coming out of the new venture. 9609/13/O/N/16 - Explain why many new businesses fail within their first year. [5] • Insufficient capital – run out of cash for day to day operational needs (working capital). • Flawed business plan/model – inadequate information and too ambitious forward projections. • Poor management – entrepreneurs without experience in finance, sales, hiring – poor leadership and decision-making. • Failure to understand customers – too ‘product led’. • No real differentiated product/service and no real understanding of the competition. • Lack of business visibility – website. • Over expansion – too soon. • Too much red tape – bureaucratic restrictions. • Unable to respond to external environmental changes – recession. 9609/13/O/N/16 – Analyse the qualities of a successful entrepreneur. [8] • Have innovative and viable business ideas/proposals. • Willing to take risks. • Self– confident and assertive. • Multi-skilled. • Committed and self-motivated. • Good leaders/motivators. • Ability to raise finance/convince investors. Perceptive answers may consider how to measure success and/or question the time element of success – for how long will a business survive. 9609/13/O/N/16 - Discuss why senior managers leading large public limited companies might decide not to have corporate social responsibility (CSR) as a business objective. [12] • Some senior managers see CSR (that business should consider the interests of society in its decisions and activities over and above legal responsibilities) as fundamentally flawed and a dangerous distraction from profit seeking and shareholder satisfaction. • Companies that simply do all they can to boost profits will end up increasing social welfare. It is argued that, for example, producing fuel efficient cars is not about increasing the quality of the environment, but about responding to customer demand for fuel efficient cars. The profit motive will, therefore, lead to successful environmental situations. • Senior managers should relentlessly pursue profit maximisation – the market response to consumer demand will maximise consumer satisfaction. • More important to make money than to give it away. • It is irresponsible to focus on wider community if the business is managed/ led successfully. • If the aim/objective is ‘to do good’ companies may well fail. • The movement towards CSR is seen to be in direct opposition to the best interests of a business organisation. • Companies who sacrifice profit for the common good are imposing a tax on shareholders and other company stakeholders. • An awareness of social consequences of business activity is sufficient – CSR is going too far. So some senior managers may see CSR simply as a financial calculation for the business and are not interested in CSR for PR purposes. 9609/12/F/M/17 - Explain why a mission statement might be important for a multinational business. [5] A mission statement is a statement of the core business, purpose and focus of an organisation – designed to resonate with internal and external stakeholders. A multinational business might use a mission statement to: communicate the philosophy and goals of the business to its many employees in different country locations – to direct and motivate these employees – to provide a reference point for national, corporate, departmental, section, and individual activities. Externally, the mission statement may well serve to support and communicate the claims, aspirations of the business – in terms of customer, supplier, community relationships and its treatment of employees in each of its different locations. 9609/12/F/M/17 – Analyse the strengths and weaknesses of a ‘public limited company’ legal structure for business. [8] Answers may well initially define a public limited company – a company that can sell shares to the general public on a stock exchange and has limited liability. Identified and analysed advantages and disadvantages of this form of business organisation could include the following: Strengths: • business has a separate legal identity • limited liability for shareholders • ability to raise large sums of capital - no limitation on number of shares • shares are freely transferable - providing liquidity for shareholders • provides prestige and status • increased opportunity to make acquisitions by offering shares • may find it easier and cheaper to borrow form banks • tax advantages vis a vis other organisation structures. Weaknesses: • complex legal formalities to form a public limited company - costly and time consuming • strict controls and regulations to protect the interests of the ordinary shareholder • requirement to file accounts • the original owners may lose control • risk of takeover • financial markets will determine the value of the company through the trading of the shares • greater public scrutiny of company performance and activities • may lead to governance/management problems. 9609/12/F/M/17 - Discuss how ethics may influence the decisions of private sector banks. [12] Answers could include: Ethics is about the morality, rights and wrongs of business decisions as perceived by the stakeholders of a business. • Business ethics are concerned with how businesses treat the environment, work with staff and suppliers to build a responsible company, relate to local communities and produce a viable, sustainable company and add value socially as well as economically. • Business ethics is now part of the language of business; customers demand more and management is often trained to deliver more. • May mean that a business makes explicit provision for ethical behaviour and ethical performance. • Might mean additional costs. • More monitoring and rules of accountability. • May mean new and different practices. • May be seen as part of brand building and reputational protection (USP). • May be a source of additional investment for ethical investors. • Becoming a necessity rather than a discretionary approach to business decisions. In relation to private sector banks, answers may address some of the following issues: • Willingness of a bank to take risks – the level of discretion/freedom given to employees. • The extent and significance of internal regulatory protocols that prevent unethical behaviour. • Without ethical frameworks, expectations or codes, banks may engage in unethical behaviour – over-invest – focus on high profit making activities at the expense of core customer lending activities – engage in exploitative practices with small businesses – manipulate lending rates – engage in illegal activity. • Ethical behaviour will constrain banks and move them into fair and reasonable behaviour and to adopt internal codes and regulations and so avoid need for external regulations, fines and even prison sentences. 9609/11/M/J/17 - Explain why corporate objectives are important to a business. [5] This question seeks information and comment on objectives at the corporate level and some reference to importance. Objectives are important at every level of a business – gives focus and clarity – allows control and review of operations. Corporate objectives – are designed to make specific the aims and mission of a business – they provide a much clearer guide for management and workforce action throughout a business. They are set at the highest level of a business – examples include: profit maximisation, market share, growth, return on investment, cash flow, sales revenue, shareholder value, corporate image and reputation. Importance: • they express the aims, purpose and mission of a business. • the main, and primary, business objectives. • set the frameworks and guidelines for all activities in a business. 9609/11/M/J/17 – Analyse why a business needs to be accountable to its stakeholders. [8] A definition of stakeholders – people, groups of people who have an interest in, or are affected by, what a business does and stakeholder theory. Stakeholder accountability may then be analysed as different stakeholders having different demands of a business: • customers – quality/safe products – competitive pricing – ethical selling practices – demanded. • employees – job security, safe working practices, training, minimum wages – demanded. • suppliers – prompt, regular payments – fair treatment - demanded. • local community – environmental consideration, secure jobs – demanded. • government – pay taxes, observe laws, publish accounts – required. • Shareholders – if a plc, shareholders will have concern for dividend levels and share price. Good answers will use stakeholder theory and illustrate with examples of different kinds of accountability to stakeholders 9609/11/M/J/17 - Discuss how there could be conflict between the stakeholders of a fast food retailer. [12] Candidates might initially identify different stakeholders associated with a fast food retailer such as owners, employees, local communities, customers, governments, shareholders. Candidates could refer to business decisions that might lead to conflict situations e.g. introduce new products, change pricing policy, change pay/remuneration policy and conditions of service, introduce new opening / closing hours, change the ingredients of products, introduce different advertising/marketing policies. The examples given of potential stakeholder conflict situations will of course depend on the stakeholders and business decisions chosen. Employees and owners may be in conflict over working conditions, customers may be concerned about price increases, governments may be in conflict over ‘health’ issues relating to fast food products. Some stakeholders may be more important than others and this may vary over time and in relation to different specific business decisions. Analysis/evaluation may consider the importance of conflict, the potential impact of conflict, are some stakeholders more important than others and the need to prioritise stakeholders interests and conflicts. 9609/12/M/J/17 - Analyse problems a business could experience in its first year of trading. [8] Answers could include a focus on the need to: • establish and build a customer base of loyal returning customers. • establish itself in the market. • effectively manage cash flow – generate sufficient working capital. • establish good relations with suppliers. • follow an effective pricing strategy that allows the business to compete effectively. Failure to achieve such objectives likely to lead to problems of: • lack of cash and working capital • uncompetitive production • inability to effectively market the business • insufficient demand to survive • failure to secure external finance • inability to repay start-up capital 9609/13/M/J/17 – Define the term ‘opportunity cost’. [2] Opportunity cost is the benefit of the next best alternative/option that is given up/foregone/lost. 9609/13/M/J/17 - Briefly explain how business decisions involve opportunity cost, using an appropriate example. [3] • Businesses have limited resources and need to make choices. • The allocating of scarce resources between competing demands is at the heart of most business decision making. • A decision to invest in a particular asset/machine means that alternative capital expenditure choices have been forgone. • The opportunity cost of paying a generous dividend to shareholders is the lost opportunity to better reward employees. • Businesses become very competitive to reduce the strength of the next best alternative. 9609/13/M/J/17 – Analyse the rights and responsibilities of employees as stakeholders in a business. [8] As stakeholders in a business, employees are said to have certain rights: • to be given legal entitlements – minimum wage etc. • to be treated in the workplace as set out in an employment contract – conditions of service, hours, disciplinary procedures, holiday entitlements. • to join a union or trade association to protect employment rights. • to have basic human rights guaranteed. As stakeholders, employees are also said to have responsibilities: • to meet the conditions of the contract of employment. • to be honest and productive. • to co-operate with managers and supervisors. • to uphold the ethical codes of behaviour set by a business. • to respect the confidentiality of the business. 9609/13/M/J/17 - Discuss how the stakeholders of a public sector organisation might be affected by a reduction in Government financial support for the organisation. [12] Comment on the characteristic features of a public sector organisation. Speculation on the degree of importance of the service(s) provided by this public sector organisation (presumably not a vital service, or a service that could be provided with less governmental financial support.) Stakeholders affected by such a scenario could include • Customers/service users may be concerned that services may no longer be available, or reduced, or subject to price increase if a different form of service provision resulted such as private sector provision. • Employees may be concerned about potential job losses if the organisation contracts and reduced conditions of employment if drastic measures are taken to preserve a reduced service. • Unions will be concerned about potential impact on their members. • Local Government affected by the threat to this public sector organisation will be concerned for their local economies. • Suppliers to this public sector organisation will have concerns of the impact of the reduction in governmental financial support on their businesses. Good answers will recognise that the impact on stakeholders will very much depend on the extent of the reduction in financial support, on the discretion available to the public sector organisation to make savings, gain alternative sources of finance, and/or or make changes to the structure/systems, and/or management of the organisation. Some stakeholders may suffer (employees) but others may benefit as the Government spends less e.g. lower tax rates for tax payers and more discretionary options for government. 9609/11/O/N/17 - Explain how a business might benefit from acting ethically. [5] Acting ethically is regarded as doing the ‘right thing’ – taking business decisions against a background of certain moral principles – morally correct behaviour. In the short-term there may be a ‘cost’ involved in acting ethically – only doing things in a certain way or not doing certain things. In the long-term there could be substantial benefits: • avoid negative publicity. • retain customer loyalty – retain/gain sales through high reputational perception. • attract ethical customers/investors. • attract staff/retain staff. • gives a competitive advantage. • improved brand and business awareness. 9609/12/O/N/17 – Define the term ‘social enterprise’. [2] A social enterprise is a business that has mainly social objectives (1); reinvests profits to benefit society (1); a business whose main focus is not necessarily the making or maximising of profits (1); that pursues the triple bottom line objectives (1); that engages in activities/social objectives such as creating work for the unemployed or producing in an environmentally friendly way (1). 9609/12/O/N/17 - Briefly explain two aims of a social enterprise. [3] • a social enterprise may not focus on making profits or maximising profits like a normal business but rather seek to secure enough resources to provide services to the community • a social enterprise may seek to achieve a triple bottom line set of objectives rather than simply generate profits or maximise sales, or grow the business • a social enterprise may have as its primary purpose the provision of jobs to local disadvantaged citizens who may have difficulty in securing employment in traditional ways • a social enterprise may engage in business activities such as sustainable production to support and protect the environment • a social enterprise may seek to give employees a ‘living wage’ and a supportive working environment at the expense of maximising profits 9609/12/O/N/17 – Analyse the importance of corporate objectives and departmental objectives to the success of a business. [8] Corporate objectives: objectives that transfer mission and aims into clearer guidelines for management action at the business level. Answers may include: • ensure that each business unit is compatible with others in the business portfolio. • concerned with long-term business performance and priorities. • see that all sections of a business contribute to corporate success. • set the framework for departmental objectives. • corporate objectives in a single business company might include growth, profit maximisation, market share increase. • they are all overall strategic objectives. Departmental objectives: each department of a business will be constrained by the corporate objectives and will set departmental objectives that will specifically support and sustain the corporate objectives. Answers may include: • marketing may have a departmental objective to improve sales through more effective sales promotions. • finance may have an objective of reducing long-term borrowing by 5% or reducing costs by 10%. • operations may have an objective of introducing a new product each year. Each functional department will develop functional level strategies that make processes and the value chain more efficient through clearly defined objectives and thus support and sustain the corporate objectives and the success of the business. 9609/12/O/N/17 - Discuss why a bank might change its corporate objectives over time. [12] • corporate objectives of a bank (if a PLC) might well be to maximise profits; grow; reduce the competition; develop new products/services; pay employees significant salaries/bonuses; expand into new markets; manipulate markets and ignore regulations. • these objectives may change for a number of reasons: new government regulations may require significant change; to curtail marginal potentially unethical activities so costs may increase. • competition might increase from more ethical banks, credit unions; social enterprise. • may be urged to pay more attention to small and medium enterprises. • if a government has a shareholding, a bank may be required to withdraw from some highly profitable activities and pay more taxes or be subject to extra taxes. • new senior managers may have different views on what the corporate objectives should be. • the economy may change requiring a bank to play a much more social role in pumping money into an economy through a more liberal lending policy. Strong and evaluative answers will recognise that the corporate objectives of a bank may change as a result of internal and external forces and that banks that fail to be adaptive and flexible may well fail. 9609/13/O/N/17 - Explain the responsibilities employees have to the business that employs them. [5] • stakeholder theory suggests that those interested in and affected by a business have roles, rights, and responsibilities. • employees are said to be important business stakeholders and to have important responsibilities in respect of business performance. • employees are said to have specific responsibilities to the business that employs them: – to meet the conditions and requirements of their employment contracts. – to co-operate with management in all reasonable requests. – to observe the ethical code of conduct or values in a mission statement. – to be honest and respect the rights of fellow workers. – to fulfil Health and Safety requirements. 9609/12/F/M/18 – Define the term ‘entrepreneur’. [2] An entrepreneur is someone who sets up a new business (1). A risk taker (1) who supplies (own) capital (1) and organises factors of production (1). 9609/12/F/M/18 – Briefly explain two qualities of a successful entrepreneur. [3] • Risk taker – able to take a calculated risk to invest in a business venture by seeing potential and evaluating chances of success. • Prioritisation / goal setting – able to decide between urgent and important matters and make the best use of limited resources to guarantee success. • Planning – able to put together a thoughtful, realistic business plan taking account of the business’ strengths and weakness and considering contingencies. • Multi-skilled – able to undertake many roles and tasks to get the business idea up and running. • Leadership – the ability to motivate those involved in the start up business. • Resilient / Passionate / Visionary / Energetic / Self-motivated / Driven / Self-starter / Multitasker / Focused / Flexibility / Positivity / Confidence / Creativity / Initiative / Low fear of failure / Hard worker / Innovative 9609/12/F/M/18 - ‘A family retail business should stay small rather than setting growth as an objective.’ Do you agree? Justify your answer. [20] • A traditional small business usually has five to 25 employees and does $1 million to $5 million in sales. • Growth objectives are goals to increase the size of the business in the future whether by earnings, products or locations. Positive analysis of the statement could include: • Small businesses are easy to control. • Profits can be high as overheads tend to be low. • Strong relationship with customers leads to repeat sales. • A small business may flourish in a niche that enables them to charge high prices. • Better working atmosphere as employees know each other. • Growth requires capital which may not be available. • Growth requires systems and procedures to be developed. • Growth will require recruitment and possibly new premises. • Growth may require management techniques not possessed within the business. • Staying small is safe as long as there is room in the market and demand remains consistent. • Small business owners may find the implications of growth daunting. Negative analysis of the statement could include: • Staying small is not very challenging for an entrepreneur with strong ambitions. • May be unable to take advantage of market growth so lose market share to competitors. • Growth may increase profitability by taking greater advantage of reduced costs through economies of scale. • Growth may increase sales revenues by selling a wider range of products or increasing the number of outlets to cater for increasing demand. • Growth provides a business with greater focus and can motivate the employees. • Internal growth can build on existing activities – products, quality, specialisation, concentrating resources on doing what the firm is already good at so should be supported by customer loyalty. • External growth can spread the business name quickly to new locations. Evaluation may recognise that: • There are different markets and circumstances influencing small business owners and unless circumstances change there may be no need to consider growth. • Staying small may be profitable enough for the owner and there may be no desire to grow. A lot may depend on the family members and who manages the business. Younger family members may have greater ambitions than older ones. • A lot may depend on the skills and finance available within the business as well as the potential for growth in the market. In a recession staying small is advisable but, in a boom, internal growth will be justified. 9609/11/M/J/18 - Explain how ethics may influence the objectives of a business. [5] • The moral principles that guide the way a business behaves – distinguishing between ‘right’ and ‘wrong’ and then making the ‘right’ choice. • The objectives of a business may include survival, growth, market domination, profit, and the pursuit of any of these may well involve ethical dilemmas. Ethics may influence business objectives in the following ways: • Ethics prevent a business pursuing negative objectives such as profit maximisation at any cost. • Prevents a business exploiting workers to maximise profits by the government setting minimum wage levels. • Prevents a business exploiting suppliers to maximise profits (preventing late or slow invoice payments). • Prevents a business deciding on a low cost location in a country that has few regulations e.g. child labour, lax pollution laws, poor health and safety, bribery, slavery. • Encourages CSR. • Encourages recycling. • Encourages employee welfare. • Encourages sustainable production. 9609/11/M/J/18 - ‘A business mission statement is only important if it directly affects the strategy and tactics of that business.’ Discuss this view. [20] • Mission statements define the core purpose and focus of an organisation and are designed to motivate all employees. • Strategy is about the long-term decisions – the focus of senior managers. • Tactics are short to medium term decisions taken by less senior managers in departments or divisions. • The view suggests that some mission statements may be little more than ‘wish’ statements or statements addressing external stakeholders. • The view suggests that for a mission statement to be significant/important it must become part of the operating focus of decisions at strategic and tactical level. • It must be the reference point for senior managers making strategic decisions and more junior managers making tactical decisions and affect the motivation, behaviour of all employees at all levels within the organisation. • For example, the mission statement may relate to ethical business operations. This must be accepted at strategic and tactical level as it affects decisions on, say, use of child labour at the strategic level and compromised customer service levels at the tactical level. • Room for evaluative comment on the extent to which a mission statement is more than an ‘aspirational wish list’. 9609/12/M/J/18 - In recent years a significant number of businesses have been accused of being unethical. Discuss whether senior managers should consider ethics when making business decisions. [20] Ethical decision-making – decisions taken with a reference point of morality – the ‘right’ (rather than ‘wrong’) decisions in relation to employees, customers, suppliers, the environment. Ethical decisions may increase costs and limit business activities. There is increasing scrutiny of business behaviour and activities by outside agencies/pressure groups. Senior managers likely to take decisions that can have a significant impact on others (examples – exploitation, bribery, child labour). Senior managers becoming more aware of consequences of unethical decisions – reputational damage (examples). Senior managers may see a competitive advantage in being ethical and stakeholders may have a greater expectation of ethical behaviour. Its importance may depend on a number of factors: – Extent of stakeholder pressure. – Values of senior managers and/or owners. – What are other businesses doing? Senior managers may make a risk assessment of ethical / unethical decisions and will need to take account of external factors and the unique situations experienced. Answers might demonstrate evaluation by asking questions such as: Does the need to avoid pressure group activity / government action (taxes and grants) put pressure on the senior manager? Also answers may propose that internal concerns about reputation and brand image suggest that the extra short term costs of becoming more ethical can be outweighed by the likelihood of future long term benefits. 9609/13/M/J/18 - Explain why the objectives of a business might change over time. [5] • Business objectives are the stated measurable targets (tactical, strategic, corporate, departmental) that move an organisation to achieve its aims and purpose. • Objectives can include survival, growth, profit maximisation, sales growth, socially responsible aspirations. • Changes may take place in response to: – – Initial objectives achieved (survival). – Competitive environment changes. – New leadership and management. – Technology changes – new production possibilities. – New opportunities arise – international trade. – Economic / external situation changes – e.g. recession. – Unique products are no longer unique. – Customer demands change. – Change of ownership. 9609/13/M/J/18 – Analyse the potential advantages to a community of a business with triple bottom line targets. [8] The ‘triple bottom line’ approach goes beyond the traditional measures of profits, return on investment, and shareholder value to include social and environmental dimensions – profits, people and the planet. A triple bottom line business may provide benefits to a community such as: • Economic – make profits to reinvest back into the business and the local / national economy as well as to shareholders. • Social – provide jobs or local support to disadvantaged sections of the community. • Environmental – protect the environment and manage the business in an environmentally sustainable way. • These 3 benefits may be more valuable to a community than the traditional targets of a private sector profit driven business. The triple bottom line organisation (social enterprise) has the capacity to temper the extremes of a purely capitalist / profit-centred approach to business activity and offer much more socially responsible and valuable business performance. 9609/13/M/J/18 - Discuss the role of business enterprise in the development of a country. [12] • Business enterprise is about entrepreneurial activity, taking risks, setting up businesses raising capital, exploring business ideas. • Those involved in ‘business enterprise’ make things happen – make a major contribution to the development of business activity and the growth of a business economic sector. • Create jobs, add value, make goods and services available. • Increase living standards, raise taxation, create infrastructure possibilities. • The economy develops – multi-national businesses are attracted. • Increased use of IT and new technology. • International competitiveness develops – exports. • Finances for social development and cohesion created. • Economic development takes place. Evaluative comments may well consider that there are potential disadvantages to business enterprise development such as unrestricted profit making or unregulated capitalism. 9609/11/O/N/18 – Analyse the qualities of a successful entrepreneur. [8] An initial definition of an entrepreneur may be given as someone who sets up a business – takes the risk – manages the new business. Successful may be defined as establishing a sustainable / profitable business. Answers may include the following: • Ability to develop innovative and viable business proposals and projects. • Willingness to take calculated risks – especially financial. • Persistent and determined. • Self-confident and able to promote the business idea. • Strong personality – energetic and driven. • Self-motivated and multi-skilled. Good motivator. • Ability to lead and inspire employees. • Be persuasive and provide a vision for the future. 9609/11/O/N/18 - Discuss why the shareholders of a public limited company might disagree with having corporate social responsibility (CSR) as a business objective. [12] • The distinction between ownership and control can lead to conflicts between shareholders and directors about the direction the business should take. • Shareholders may well prefer measures that aim at short term profits rather than long term growth. • Shareholders may well believe that the objective of the business should be to make profits not to do social good. • Some stakeholders may say that an awareness of the social consequences of business activity is enough – there is no need to go as far as CSR. • The large institutional shareholders may be particularly concerned with short-term profits – a recognition that there may be shareholders in a business with different motives but the large shareholders may dominate. • Lack of understanding by shareholders of longer-term benefit of CSR. • Stakeholders other than shareholders may prefer CSR as it could result in environmental preservation, better work practices/pay, higher quality/cheaper products. Evaluation may contrast the advantages and disadvantages of CSR in the short and long term, possibly with reference to the different objectives the PLC is aiming to achieve at a particular time or the type of shareholders they are hoping to attract.
• the amount by which the value of a product/service is increased during the production process (2), or • the difference between the price of a finished product/service and the cost of the inputs involved in producing it (2). 9609/12/O/N/18 - Briefly explain two ways a restaurant could increase its value added. [3] • Reduce costs by changing supplier or purchasing in bulk or reducing wastage of ingredients. • Increase prices to reflect enhanced product / service provision. • Producing more unique / distinctive ‘celebrity chef’ meals. • Creating a more superior/distinctive eating environment / ambience. • Upgrade the kitchen to produce more distinctive food offerings. • Offer a more comprehensive / distinctive menu. • Carry out more effective promotion. 9609/12/O/N/18 - Discuss the extent to which the stakeholders of a large clothing retailer might want the business to become more ethical and socially responsible. [20] Candidates may well recognise that such a business will have different stakeholders – customers, suppliers, employees, managers, owners, shareholders, communities, who may well have different and possibly conflicting objectives / ideals. • There are opportunities for a business to focus only on making profits and this could lead to unethical and socially irresponsible behaviour, e.g. exploiting low wage / child labour clothing production. • The main objectives of the business may be – Profit maximisation – Being socially responsible and ethically minded – Cost reduction e.g. cheap clothing production – Short-term profitability – Long-term sustainability – Building reputation – Establishing a competitive advantage through ethics and social responsibility Evaluative comments might discuss questions such as who the dominant stakeholders are and what the dominant business objectives are. The answer may well depend on stakeholder perceptions of what is best for the business / society in short and long term. Stronger evaluation may mention the influence of social/political pressure for more ethical and socially responsible business activity, which could give stakeholders little choice in the matter, or the influence of the business cultures in individual countries, or the stage of economic development in different countries. 9609/13/O/N/18 – Define the term ‘private limited company’. [2] A small to medium sized business (1) that has a separate legal entity (1) and is owned by shareholders (1) often members of the same family (1). Shareholders have limited liability (1) and shares cannot be sold to the general public/or on stock exchange (1) 9609/13/O/N/18 - Briefly explain one advantage and one disadvantage to a business of operating as a public limited company, rather than as a private limited company. [3] Advantages: • Easier to raise capital e.g. from existing/new investors. • To give company a more prestigious profile – improved reputation. • Greater creditworthiness e.g. easier to obtain loans. • The opportunity to more easily make acquisitions e.g. by offering shares to the shareholders of the target firm. • plc status may reduce expenditure on marketing e.g. greater discounts. Disadvantages: • Short-term pressure for profit maximisation/share price may mean compromising overall business aims. • More media exposure – potentially more accountability. • Greater transparency – accounts must be audited/fuller information on performance provided. • No control over who buys shares/less control over business – vulnerable to a takeover/a majority shareholder having a greater say how the business is run. • Amount of finance to set up plc is higher. • More documentation required to set up. 9609/13/O/N/18 – Analyse the advantages of a partnership as a legal structure for the owners of a small business. [8] • Two or more people forming a business with shared capital, investment and shared responsibilities. • It overcomes some of the drawbacks of a sole trader. • Decisions are shared. • New partners can provide additional capital. • It is relatively easy to set up with few legal formalities. • Does not have to publish its accounts. • Cover for holidays/sickness can be provided by other partners. • Allows specialisation within the business. • Deeds of partnership can regularise the management roles of partners, voting rights, management roles. • In some countries, limited liability partnerships can be set up. • Popular form of business for small service companies such as architects – flexibility with a measure of organisational security. 9609/13/O/N/18 - Discuss the most important factors that could influence the success of a small business manufacturing highly priced ‘designer’ handbags. [12] • Success factors could be owner / product / economy specific. • The quality and attractiveness and exclusivity of the product will be very important. • The risks and advantages of niche market manufacturing will be relevant – the extent and growth of competition. • The competence, experience and business expertise of the small business. • The degree of capitalisation / under-capitalisation / cash flow / liquidity. • Where is the business in terms of market consolidation? • The relevance of the business model and business objectives. • Quality of business systems – marketing, product planning. • Reward reference to the uncertainties, fashion changes for the niche market of handbags. Evaluative comments might include judgement on what are the most important factors – might they all be equally important? 9609/12/F/M/19 - Explain why there might be conflict between two stakeholder groups of a large mining company. [5] Stakeholders are groups / individuals that are affected by and/or have an interest in the operations and objectives of the business. E.g. directors, managers, employees, shareholders, customers, suppliers, competitors, government, local community, pressure groups, media. Different stakeholder objectives – profit, wages, cost reduction, job security, safety, share price, payment, product availability, product quality, product price, environmental impact, local impact, legal issues, tax receipts, job creation, CSR. Mining company – large employer, provides fuel (need), building material, gems, minerals etc. All bought by other businesses and used in consumer products. User of heavy plant and other resources from suppliers. Possibly large / inter-national company with high level of investment in the area. Large profits to tax. Environmental impact likely to be high. Health and safety an issue. Alternative fuels. Possibly labour intensive (low paid). Possibly high number of shareholders wanting dividends. Products may not be sold in the country of origin. Conflict likely where
9609/11/M/J/19 – Define the term ‘private limited company’. [2] A business owned by private shareholders (1). A small to medium-sized company (1). Owned by shareholders (1). Shareholders have limited liability (1). Shareholders are often members of the same family (1). The business is a separate legal entity (1). Cannot sell shares to general public / stock exchange (1). 9609/11/M/J/19 - Briefly explain two possible disadvantages to a sole trader of changing to a private limited company. [3]
9609/12/M/J/19 - Explain how the interests of two stakeholder groups could affect the decisions of a business. [5]
9609/12/M/J/19 – Analyse the impact of social enterprises on the development of a country. [8]
9609/12/M/J/19 - ‘The purchase of an internationally recognised fast food franchise guarantees business success.’ Discuss this view. [12]
9609/13/M/J/19 – Analyse the impact of small businesses on the development of a country. [8]
9609/13/M/J/19 - Discuss the view that a public limited company should prioritise the aims of its shareholders rather than those of other stakeholder groups. [12]
Unit 2 - People in organisation 9707/11/M/J/14 - Briefly explain two ways human resource management could help a business achieve its objectives. [3] • HRM is concerned with the effective management of staff in a business to ensure that those staff enable the business to be productive and efficient. • Essential purpose of HRM is to recruit, train and use staff in the most productive way to assist the organisation in achieving its objective. • Specific ways could include: recruiting and selecting appropriate staff – training and development of staff – motivating staff – supporting staff welfare – developing appropriate pay systems, etc. 9707/11/M/J/14 - Explain the differences between the motivation theories of Maslow and Herzberg. [8] • Maslow essentially concerned with identifying and classifying human needs. • Application to the work organisation is the presumption that satisfied needs at work lead to greater productivity. • Hierarchy of needs – from physical needs to self-actualised needs. • Herzberg – focus on a two-factor theory. • Hygiene factors (e.g. working conditions, salary), extrinsic factors can cause dissatisfaction – these need to be removed but satisfaction with hygiene factors will not necessarily create a motivated workforce. Motivating factors – intrinsic factors – are the key to productivity (achievement, recognition, responsibility). 9707/11/M/J/14 - Discuss the view that a successful business needs both effective managers and effective leaders. [12] • Discussion should distinguish between managers and leaders. • Managers said to deal with the ‘now’ – set objectives, plan, co-ordinate, motivate, direct and control (Mintzberg classification may be cited). • Leaders – said to be more about the future – giving clear direction, and vision and purpose for an organisation. • Each requiring different qualities and skills. • Arguably successful organisations need both effective managers and leaders – they can be the same people – but not necessarily! • Accept a discussion of the concept of informal leaders. 9707/12/M/J/14 - Explain the differences between McGregor’s ‘Theory X’ and ‘Theory Y’. [8] – Theory X and Theory Y are concerned with the attitude of managers to their workers. – Theory X managers see workers as lazy, disliking work, unprepared to accept responsibility, needing close control and supervision. – Theory Y managers see staff as enjoying work, they can be creative and will accept responsibility, and contribute to decision-making. – The impact of either approach on workers is significant. – It leads to different kinds of management/leadership and different reactions. 9707/12/M/J/14 - Discuss the benefits of team working for production workers and managers. [12] – While working in isolation is sometimes appropriate and successful, it is argued that working in teams can lead to high performance activity. – For employees, team working provides an opportunity to form relationships with other employees – share tasks – multi-task – more motivation – more involvement – more ideas – more sense of ownership – job enrichment through teams being given complete tasks. – For managers, less need for close supervision – happier employees – more productive ideas – better quality work (quality circles) – reduce management costs (de-layer the organisation). – Recognition that producing high performance team work is not easy. 9707/13/M/J/14 - Explain why a business could decide to use only non-financial rewards to improve the motivation of its workforce. [8] – Non-financial rewards can include increased responsibility, job enrichment, development opportunities – to ensure staff is engaged emotionally with the organisation. – Higher order needs (Maslow) and intrinsic motivators (Herzberg) are accepted motivational theories by employers. – Financial rewards may have been tried and failed or recognised to have limited effect. – Companies may be unable to afford financial rewards. – A business may have employees that will likely respond more to non-financial rewards. – In time of economic recession more appropriate – engage employees. 9707/13/M/J/14 - Discuss the view that effective workforce planning is a necessary requirement for successful business performance. [12] – Workforce planning is the activity of systematically identifying and analysing what a business needs in terms of the size, type, and quality of workforce to achieve its objectives. – It determines what mix of experience, knowledge and skills is required and sequences the steps to get the right number of right people in the right place at the right time. – Effective workforce planning ensures that decisions are made on staffing – decisions that are linked to an organisation’s mission, strategy, budgetary resources and a set of defined workforce competences. – Without effective workforce planning a business will not be equipped to achieve performance targets and will likely drift and ossify. – Workforce planning affects most parts of a business – While considered to be a necessary requirement for successful business performance, it is not, of course, the only requirement and on its own does not ensure successful business performance. 9707/11/O/N/14 - State two functions of human resources management. [2] • recruit competent skilled staff • selection of staff • train and use staff in productive manner • discipline and welfare of staff • workforce planning • staff appraisal • staff morale • pay-reward systems • motivating staff • monitoring staff performance. All concerned with effective use of workforce to support business to gain competitive advantage. 9707/11/O/N/14 - Briefly explain the difference between redundancy and dismissal. [3] Redundancy is when a job is no longer required – the employee becomes redundant through no fault of his/her own – this may occur due to a whole business unit closing, or a section of a business unit closing, or reduction in the need for a particular kind of work to be carried out. Dismissal is when an employee is removed from an organisation for a cause relating to performance/non-performance such as gross misconduct. 9707/12/O/N/14 - Explain why many businesses have corporate responsibility as an objective. [5] Corporate responsibility is a concept involving a business concern, not just for the bottom line but for the interests of society. Businesses consider the impact of business decisions and activities on customers, employees, communities and the environment. • Concern for more than the bottom line. • More awareness of the negative effects of damaging business activities. • More legislation has developed to constrain business. • Pressure groups can draw attention to poor business decisions and activities and damage reputations. • Consumers tend to react positively to businesses that act in a socially responsible way. • Corporate responsibility can produce competitive advantage – a U.S.P. • Not all businesses are convinced and argue that the business of business is business and let others pursue social issues. 9707/12/O/N/14 - Define the term ‘workforce planning’. [2] Defined as the activity of analysing and forecasting the: 1. numbers and 2. skills of workers that are required if the organisation is to succeed. 9707/12/O/N/14 - Briefly explain two benefits to a business of effective workforce planning. [3] Most importantly, an effective workforce plan helps a business achieve its corporate objectives as it ensures that the business has a right sized workforce with the right skills at the right time. Good workforce planning can be a source of competitive advantage. Workforce planning encourages managers to prepare and plan for change, rather than just react. It places the H.R.M. department at the heart of strategic decision-making. Businesses going through significant change (technological/environmental) are better able to handle worker issues. Talent/skill shortages are identified. Supports internal communication in organisations in times of issues and opportunities. Prepares organisations for change, such as restructuring, reducing or enlarging the workforce. 9707/13/O/N/14 - State two functions of a manager. [2] – A short definitional statement that will give a clear indication of each function is required – Functions could include the traditionally accepted activities such as planning, controlling, directing, motivating, co-ordinating, objective setting. – Functions could include Mintzberg categorisation, such as leader, disseminator, negotiator, resource allocator, and entrepreneur. 9707/13/O/N/14 - Briefly explain two ways in which human needs could be satisfied at work. [3] – Candidates may use Maslow/Herzberg as a template for identifying worker needs. – Physiological needs may be satisfied with competitive financial compensation. – Physical health and job security needs may be satisfied with comprehensive benefits package. – Belonging needs can be met with a rich culture that creates a friendly, welcoming organisation. – Esteem needs can be met by providing rewarding and challenging work that builds respect from others, a sense of achievement and confidence in one’s ability. – Develop opportunities for career growth and leadership responsibility for self-actualisation needs. 9707/11/M/J/15 - Define the term ‘leadership’. [2] Leadership has been defined as giving direction, guidance, and/or vision/inspiration to an organisation. 9707/11/M/J/15 - Briefly explain one style of business leadership. [3] Styles of leadership could include: 1. autocratic or authoritarian 2. democratic 3. laissez faire The explanation of the chosen style should identify the characteristics and business relevance for all 3 marks. 9707/12/M/J/15 - Define the term ‘emotional intelligence’. [2] Emotional intelligence can be defined as the ability (or intelligence) to recognise, control, and manage emotions in self and others – and so improve business/personal performance. 9707/12/M/J/15 - Briefly explain two of Goleman’s emotional intelligence competencies. [3] Goleman has suggested that there are a number of specific emotional intelligence competencies that will support effective manager performance: Self-awareness – knowing your emotions and understanding how they can affect your behaviour and decision-making. Self-management – managing your emotions – self-control – stress – to more effectively influence, motivate, understand others. Social awareness – sensing what others are feeling – taking their views into account – managing relationships with others. Social skills – ability to negotiate, persuade and lead using emotional intelligence. 9707/12/O/N/15 - Define the term ‘piece rate payment method’. [2] A piece rate method of payment is a payment made to each worker for each unit produced. 9707/12/O/N/15 - Briefly explain two possible disadvantages of piece rate payment methods for employers. [3] The disadvantages of piece rate methods of payment for employers can include: – It may lead to reductions in quality and safety levels as workers focus on producing a high quantity level. – Workers may only want to achieve a ‘target’ pay and thus not produce beyond a certain level. – Accidents may occur as workers focus on speed. – Employers may lose control of output and wages bill as workers over-produce. – The method requires precise, measurable, standardised outputs to be set by employers – Increased labour turnover or absenteeism because some workers find piece rate demotivating. 9707/12/O/N/15 – Explain why the motivation of employees is an important objective of managers. [8] – Managers are concerned with achieving organisational objectives. – Resources need to be organised and the labour resource is usually a key element. – Employees need to be developed and directed to ensure all abilities and competencies are exploited. – Motivation of employees has a direct impact on productivity and business efficiency. – Managers seek to motivate employees to peak performance. – A motivated workforce can be a competitive advantage. – A motivated workforce means low labour turnover, low absenteeism, high productivity, responsible ideas – sharing workers. – A demotivated workforce may give only the minimum or even less. 9707/12/O/N/15 - Discuss the view that Taylor’s theory fully explains employee motivation. [12] – The Taylor ‘economic man’ theory is that the rational worker will seek to maximise economic gain, workers can be treated in a standard way, and wages/payment by results will determine productivity – the scientific management approach. – The factors that stimulate workers to work are simple – money, money and money! – Taylor also argued that workers should have close supervision measured against targets and be rewarded for output achieved. – This approach is seen as a partial, simplistic view of worker motivation – a factory-led approach. – It ignores ‘other ways’ that workers can be motivated. – It ignores the complexity of other drivers of performance. – Other theorists who came later, e.g. Maslow, Herzberg, Mayo – Vroom – emphasised additional motivators that might satisfy human needs at work (with examples). – Nevertheless, despite the criticisms and revisions made to Taylor, money is still seen as driver of performance. – Money is still seen as important in satisfying important needs and a variety of monetary incentives still figure in many motivational approaches. 9707/13/O/N/15 – Define the term ‘laissez-faire leadership’. [2] Laissez-faire leadership can be defined as a leadership style that delegates much of the decision-making powers to the workforce – a ‘hands off’ approach – the opposite of autocratic leadership. 9707/13/O/N/15 - Briefly explain two advantages for a business of autocratic leadership. [3] The advantages of autocratic leadership may be described as: – employees know exactly where they stand – instructions are likely to be explicit and unambiguous – such leadership is said to be appropriate in certain situations, such as ‘quick response’ scenarios (e.g. police and army) – some employees are content to take orders and do not want any more involvement – work will be supervised closely 9707/13/O/N/15 – Explain the functions of management in a business organisation. [8] Managers of a business perform many important functions including (reward references to the Mintzberg classification) – setting objectives and planning – organising resources to achieve objectives – directing and motivating staff – coordinating activities across the organisation – controlling and measuring performance against targets. 9707/13/O/N/15 - Discuss the view that a supervisor of production workers needs a high level of emotional intelligence to be successful. [12] A comprehensive response to this question requires consideration to be given to: – what might a supervisor do in the context of this question? – how might a high level of emotional intelligence help? – to what extent is success dependent on a high level of EI? what is success?...high productivity?...low labour turnover? A supervisor will: – monitor the production process – observe and evaluate workers – require compliance to procedures – introduce new production technologies – support and discipline front line workers – drive performance, motivate, and ensure quality. This supervisory work arguably requires a number of skills and competencies, among them emotional intelligence, e.g. self-awareness – self-management – social awareness – social skills. Goleman`s analysis argues that successful managers/leaders have the emotional intelligence to understand their own emotions, and those whom they supervise in order to drive performance. How might EI help in this context? What management/leadership decisions have to be made in order to motivate production workers and what level of EI might be appropriate? Are production workers any different from other workers in the challenges they present to managers/leaders.? Is the level of EI required any different to that required to successfully supervise/manage any type/group of workers? Interesting discussion questions. 9609/12/F/M/16 – Define ‘productivity’. [2] Productivity can be defined as the effectiveness of productive effort as measured in terms of the rate of output per unit of input. For example, output per worker over a specific time period. 9609/12/F/M/16 - Briefly explain two ways of improving manufacturing productivity in a business. [3] Ways in which productivity levels could be improved include: • improve the training of staff to raise skill levels – staff could become more efficient • improve worker motivation – intrinsic and extrinsic rewards • invest in more effective/advanced technology – might mean more capital intensive process of production • more efficient management, e.g. better supplies, better machine maintenance, better people management. 9609/12/F/M/16 - Analyse the importance of employee motivation for the achievement of business objectives. [8] • Motivation is said to have a direct impact on productivity and business efficiency. • A poorly motivated workforce can lead to poor organisation performance, such as: – waste – poor quality – slow work – inconsistent work – high labour turnover. • A high performing workforce can lead to: – high quality work – fast work – efficiency – reduced costs – loyal workforce. • Motivation is said to be the internal and external factors that stimulate people to take actions that lead to the achievement of a goal. It is the role of managers and leaders to ensure consistency between personal and corporate goals and objectives and to recognise how important personal and corporate motivation and morale is for achieving business success. 9609/12/F/M/16 - Discuss the view that managers and leaders perform very different functions in business organisations. [12] • A reference to academic distinctions/theory relating to managers and leaders that suggest distinctive differences. • Managers seen as dealing with the operational ‘now’ – focus on control, efficiency – perhaps a reference to Mintzberg. • Leaders seen as concerned with strategy, the long term, the vision, the purpose and mission of the organisation – creativity, innovation, risk-taking – a more isolated role. • However, good answers will recognise that there is overlap – e.g. both need to motivate and affect the culture of the organisation. • Very often the same people in the organisation are leaders and managers. • It often depends on the size and nature of the organisation being managed and led and on the qualities of each leader and manager. 9609/11/M/J/16 - Explain the possible consequences for a business of high labour turnover. [5] • Defined as the rate at which employees leave an organisation over a given period of time. • Possible indication of significant problems; low morale, poor motivation , poor working environment, uncompetitive pay, poor management and leadership, or induced by management dismissing lots of employees. • Possible consequences could include: – business/production disrupted – insufficient staff – poor customer service – existing staff put under more pressure – skills gaps develop – business objectives threatened/not achieved – business reputation/brand damaged – extra expenses on training, recruitment and selection of new staff – staff may be difficult to replace – discourages potential investors 9609/11/M/J/16 – Analyse why it is important for a business to have policies on diversity and equality. [8] • Equality defined as breaking down barriers, eliminating discrimination, ensuring equal opportunity and access for all groups in the business. • Aim to outlaw discrimination on grounds of gender, marital status, sexual orientation, race, colour, nationality, religion, age, disability, political beliefs. • Diversity defined as celebrating differences and valuing everyone. Each person with visible or invisible differences valued and respected. • There are increasing legal requirements relating to equality and diversity (will vary between countries and regions). • But also policies developed to reflect the distinctive values of a business and embedded in day-to-day working practices. • Such policies regarded as essential for workforce efficiency and effectiveness. • Aim is to produce an inclusive organisation, a distinctive organisation culture that enhances the work experience. • Considered important to counter the negative effect of discrimination and to produce a richer, more tolerant working environment. • It is about promoting fairness, ensuring all are valued. • Perceptive answers will recognise the ‘compliance’ aspect of these policies, together with the proactive approach of many organisations – and the potential consequences of such policies (some may be negative). 9609/11/M/J/16 - Discuss the importance of ‘work-life balance’ for employee welfare in a tertiary sector business. [12] • Work-life balance is about creating and maintaining supportive and healthy work environments that enable employees to have balance between work and other aspects of life – family, friends, community, personal growth. • A focus on work life balance could lessen the danger of over worked employees affecting quality of service /reputation and profits. • Reduce employee stress/burnout/conflict between work and family. • Reduce negative effects of work life conflict – such as health risks – smoking, drinking, weight gain, depression – on employees. • Cost implications of over-worked staff – absenteeism, reduced commitment and performance. • Strengthen employee loyalty and productivity. • Duty of care for employees/families/society plus the value to the employer. • Active programmes of support in many organisations – HRM play a pivotal role – flexiworking, increased paid leave, advice on health, counselling etc. • WLB programmes seen as an investment by some businesses – can become a USP in terms of recruitment and retention of staff. • It affects the bottom line! • References to its value in a tertiary sector business. 9609/12/M/J/16 - Distinguish between a ‘job description’ and a ‘person specification’. [2] Job description is a detailed list of the key points about the job that is to be filled – the tasks and responsibilities. Person specification is a list of the qualities, skills and qualifications required of a successful applicant. 9609/12/M/J/16 - Briefly explain two ways in which employees can participate in business decision making. [3] Representation at Board level – a form of industrial democracy – protect interests of employees. Participation through ownership – employees hold shares. Collective bargaining arrangements/trade union membership. Suggestion schemes – new ideas – proposals for, say, cost cutting. Specific organisation forums – e.g. worker co-operatives. Quality circles/focus/worker groups – focus on analysis and problem-solving. Joint management/employee committees. Arrangements for employee/empowerment – problem solving sessions – delegated authority. Laissez-faire/democratic/paternalistic management/leadership allows participation in decision making. Delegation. Opportunities to vote on decisions. 9609/13/M/J/16 - Define the term ‘workforce planning’. [2] Workforce planning is defined as the analysis and forecasting of the numbers of workers (1 mark) and the skills/quality (1 mark) of those workers that will be required by a business organisation to achieve its objectives. Reference to the right people at the right place at the right time should be regarded as a sound definition and given 2 marks. 9609/13/M/J/16 - Briefly explain two benefits to a business of workforce planning. [3] • A business will identify the existing skills and qualifications of its existing workforce. • A business will identify gaps in skills of existing workforce. • A business will analyse and anticipate the future needs of the organisation for particular skilled workers. • A business will ensure that in each department and throughout the organisation the numbers and skills of the workforce are appropriate. • Avoids the consequences of not having a workforce plan. • Assists the business to meet objectives and respond to current/future environmental/competitive situations. 9609/13/M/J/16 - ‘The most effective way to realise human potential in a manufacturing business is to give high rates of financial rewards to the workforce.’ Do you agree? Justify your view. [20] Answers may include: • Initial definitions of ‘human potential’ and financial rewards • The use of financial motivators – payment systems, bonuses, profit sharing, performance related pay etc. • The use of non-financial motivators – training, development, team working, empowerment, participation etc. • The application of motivation theories to this view, such as Maslow and Herzberg, Taylor, Mayo, McClelland, and Vroom Some answers will see the context as a justification for the view expressed in the question that in such a business financial rewards will be the most effective way to incentivise workers – are manufacturing businesses different? – are production operatives more likely to be influenced by financial rewards? Perceptive answers may well argue that a minimum level of financial reward is required to ensure employee productivity and performance and therefore financial rewards are important. Such answers may well then go on to say, however, that financial motivators alone may be insufficient and not the most effective way to harness the full potential of employees and use motivation theories to identify other, non-financial motivators. They may also recognise that the particular type of organisation and staff may be important factors. 9609/11/O/N/16 – Define the term ‘redundancy’. [2] When a job is no longer required in a business and the employee doing that job loses the job through no fault of their own. 9609/11/O/N/16 - Briefly explain two ways a human resource management department could help employees who are to be made redundant. [3] • Re-deployment opportunities identified. • Produce an appropriate redundancy package. • Access additional help for employees such as job advice, counselling. • Training/new skills • Financial help 9609/11/O/N/16 - ‘Herzberg’s theory of motivation can ensure success for all private sector businesses.’ Discuss this statement. [20] • Describe the main features of Herzberg’s theory – focus on ‘hygiene’ issues extrinsic factors– pay, conditions – these may remove dissatisfaction but will not lead to performance enhancement –there needs to be a focus on a second set of factors – ‘motivators’ -the intrinsic factors such as – recognition, meaningful work, achievement. • The two factor theory is a diagnostic framework that focuses on a range of different dissatisfiers and motivators .It is very popular and there is lots of research evidence to support the theory and impact. • The theory encourages teamwork and collective actions and is more sophisticated than say the Taylor approach. • However not all are convinced – like all theories/fads/fashions it needs to be effectively implemented. • It can be argued that the statement is far too simplistic – other factors are important for business success such as the quality of management and leadership and the nature of market environments. • Does job satisfaction always mean performance? • Some say the Vroom expectancy theory of motivation is more realistic and that a blend of motivational theorists is required for business success (eg Taylor and Herzberg and Vroom, Mayo and Maslow.) • Perceptive answers will address the reference to private sector businesses in the question and query why the theory might/might not be applicable to all/other business situations. 9609/12/O/N/16 – Define ‘leadership’. [2] • A popular textbook definition of leadership is: ‘the art of motivating a group of people towards achieving a common objective’. This definition should be awarded 2 marks. • Other more specific definitions of leadership include reference to: giving a sense of direction, a vision or purpose, guidance, inspiration, long-term and strategic, for or within an organisation. Such definitions should also be given 2 marks. (This definition of leadership is clearly different to definitions of a manager.) 9609/12/O/N/16 - Briefly explain two advantages of autocratic leadership. [3] • Leaders take decisions on their own – no discussion – set objectives themselves, issue instructions – close control and monitoring. • Useful when orders/decisions need to be responded to quickly – e.g. army/police. • Important in emergency situations – accidents, disasters – requiring a focused leadership and co-ordinated decisions. • Useful when workers are content to get the job done and have no desire for empowerment or for participation, consultation, Theory X. • Prevents drift and ensures a focus on objectives.
Definition: Performance related pay has been defined as a way of linking salary progression to an assessment of individual performance usually measured against pre-set objectives. (Reference may be made to ways of giving PRP through piece rate, bonus, and commission payments.) Answers could include: • Advantages – – a bonus scheme to reward staff for above average performance will motivate those who seek increases in financial reward it is suggested. – the targets set for PRP will focus workers. – it helps to retain and attract new staff. – recognises individual contribution. – it may be an effective way of dealing with poor performance. – it can lead to an increase in staff productivity. – it can be an important element of a performance culture. • Disadvantages – – it is suggested that PRP inhibits team performance with its focus on individual performance – it may be seen to reduce pay equity and increase disparities – disputes can arise relating to how to measure performance. – arguably too much relies on the judgement of the assessor. – does PRP really motivate workers significantly? – other incentives (non-financial may be more important. – it may encourage unhealthy rivalry. NB: please note this question requires an analysis of the advantages/disadvantages of PRP to an employer. 9609/12/O/N/16 - Discuss the importance for a large hotel of staff development and training. [12] • Staff development/training considered to be essential for a progressive company – though it may require considerable investment. • Training refers to the process of acquiring the essential skills for a job - e.g. hotel receptionist/manager/chefs - while development may be a focus on broader skills, such as decision-making and managing people, dealing with customers/guests or specific attention to employee needs and career aspirations. • Staff training and development considered to be important in order to: – address employee weaknesses - skill gaps - brings staff to a higher level of skill - important in a service business. – improve worker performance and confidence. – give consistency of information about procedures and policies. – motivate employees - better able to perform - feel valued by a company and develop better customer relationships – become more productive - become more efficient, more responsive – become more self-reliant - reduced supervision required. – at the cutting edge of new technology - new ways of working − flexible, agile workforce. Good answers will give examples of jobs in a hotel (i.e. context) that require constant training and development e.g. from Porters to Duty Managers. So the individual and organisational benefits of staff development and training can be an important contribution to achieving the objectives of an organisation such as a hotel. A large hotel will have a variety of job roles, all of which require staff development and training to produce a distinctive culture of service efficiency that will attract and retain a variety of guests having a complex set of customer demands. 9609/13/O/N/16 – Distinguish between external and internal recruitment. [2] External recruitment is where the HR department search the employee pool outside of its own employees to fill positions. Internal recruitment is where the HR department searches inside the organisation and appoints people from within to positions (can be horizontal/ sideways appointments or vertical promotion appointments). 9609/13/O/N/16 - Briefly explain two advantages to a business of internal recruitment. [3] • Internal employees will understand the business/culture/processes. • No need for extensive training for assimilation. • Promotion from within may well be a significant motivator for staff – improving morale. • Cheaper and quicker to recruit – more cost effective. • Known past performance can be assessed. 9609/12/F/M/17 - ‘Maslow’s theory of motivation can ensure success for all businesses.’ Discuss this statement. [20] • Reference to the main features of Maslow’s hierarchy of needs - a focus on human needs that might be satisfied in the work place; physical, safety, social, esteem, self-actualisation needs. • It is suggested that once one level of need is satisfied employees move on to the next level. • A diagnostic framework that alerts managers to the possible needs that employees have and how they might be satisfied and so improve morale and productivity individually and collectively. • The theory recognises the place of monetary and non-monetary rewards to meet different needs. • It is a simple and general theory of motivation that arguably can be successfully applied to all types of businesses and organisations. • However, it is not without its critics«seen as too simplistic«not all employees have the same needs«does a particular need have to be satisfied in order to move on to higher needs? • Other motivation theorists such as Herzberg and Mayo are regarded as more realistic - an approach to motivation that draws on a number of theories rather than just Maslow is often suggested. • What is meant by ‘success’ in the statement in the question« success for a business in terms of survival, growth, profitability may well depend on factors other than employee motivation. • These factors could include: quality of leadership and management of a business, the nature of the market environment, the capability of competitors, effectiveness of product/service design and marketing/investment strategies. 9609/11/M/J/17 – Define the term ‘emotional intelligence’. [2] The ability of managers to understand their own feelings or emotions and those of the people they work with. 9609/11/M/J/17 - Briefly explain two of Goleman’s emotional intelligence competencies. [3] • self-awareness – ability to recognise and understand personal emotions and their effect on others – having a realistic self confidence in personal abilities. • self-management – ability to control own emotions, impulses – recover quickly from stress – being trustworthy and conscientious, show initiative and self-control. • social awareness – having empathy, sensing what others are feeling – take views of others into account, establish relations with a wide range of different people. • social skills – proficiency in building relationships and networks – ability to find common ground, build rapport – effective in leading change, building and leading teams – being persuasive and understanding 9609/11/M/J/17 - Discuss how Maslow’s ‘hierarchy of needs’ theory could be used by the managers of a retail business to motivate employees. [20] An explanation of Maslow’s hierarchy of needs and apply the framework to a retail business (which may well include part-time and temporary staff alongside full-time staff). Specific references to the hierarchy may well include: • Biological and physiological needs – food, drink – pay good wages to meet these needs plus fringe benefits. • Safety needs – protection/security/stability needs – through a business that is stable, good market share, strong market presence. • Social needs – team working – good working environment to meet belongingness needs – concern for family. • Esteem needs – achievement/status – employee of the month – promotion opportunities. • Self-actualisation – personal growth and fulfilment – training and development opportunities – opportunities to progress in the company. Strong analytical/evaluative answers will give a number of relevant examples of the use of this framework and may well recognise the variety of workforce situations in a retail business. Answers may well refer to the limitations and significance of the Maslow hierarchy itself as well as for a retail business. The significance of the theory for young people / those in the early stages of a retail career, what might be the most important of these needs for different retail employees. 9609/12/M/J/17 – Define the term ‘leadership’. [2] • A definition that suggests that ‘leadership is the motivation of people towards achieving a common objective or goal’ should be awarded 2 marks. • Other answers might focus on leaders providing vision, direction, inspiration, strategy, for a business and could be awarded 2 marks if developed. 9609/12/M/J/17 - Briefly explain two styles of leadership. [3] • Autocratic – all decisions taken by leader – staff supervised closely, one-way communication – little information given to staff. • Democratic – participation encouraged, two-way communication, sharing of information, feedback encouraged – involvement of staff in decision-making. • Paternalistic – leader assumes he/she in a better position than staff to know what is best for the organisation, some consultation but final decisions taken by leaders – no true participation in decision-making. • Laissez-faire – much of decision-making made by the workforce, arms-length approach – the reverse of autocratic leadership – lots of delegation within very broad limits. 9609/12/M/J/17 - ‘Money is the most important factor for motivating teachers in a school.’ Discuss this view. [20] • a recognition that financial rewards are considered to be very important as a means of satisfying and motivating workers in businesses. • reference to Taylor and ‘economic man’ theory and the lowest Maslow hierarchy of needs, or Herzberg hygiene expectations. • a recognition that there are alternative and revisionary theories and explanations of worker motivation – references to Maslow, Herzberg, Mayo, McClelland and Vroom (content and process theories). • The significance of non-financial rewards to satisfy higher order needs and to act as motivators will be explored. • Good answers will attempt to comment [using the context of school teachers] on the relative importance of financial and nonfinancial rewards (such as recognition, challenge, self-actualisation) and understand that any judgements about significance and importance may well need to take account of specific job situations, specific organisational settings, and specific individual worker aspirations and expectations. • recognition that specific organisation / work / person situations will likely suggest different combinations of theoretical and practical motivating rewards [again referring to the context of schools/school teachers]. Evaluation may well be made as a judgement is made of the relative importance of money and other factors affecting motivation in context. 9609/13/M/J/17 - ‘Senior business managers must have a high level of emotional intelligence to be effective.’ Do you agree with this view? Justify your answer. [20] • The context is senior managers – likely to be managing significant resources, making important decisions – needing to galvanise staff to achieve organisational objectives. • The statement is that, as well as an appropriate level of intellectual intelligence (IQ), effective managers should have and develop an appropriate level of emotional intelligence (EI). This is the theory of multiple intelligences and emotional intelligence is said to be the ability to understand and manage your own emotions and those of the people you work with and manage, and so achieve better business performance. • Goleman developed the notion of emotional intelligence competencies: self-awareness, self-management, social awareness, and social skills. With these, managers are more likely to have self-confidence, a more realistic awareness of employee characteristics and needs, recover more quickly from stress, manage stress better, develop self-control, become more sensitive and empathetic, negotiate and lead with a more emotionally stable behaviour. The idea that 'soft is hard' for the practice of effective management. • Consider the tasks and situations a senior business manager needs to manage and the value of a measure of emotional intelligence may seem obvious. • Are some more traditional attributes/characteristics of managers more important than emotional intelligence, e.g. resoluteness, determination – in the short-term aggressive 'bullying' managers can be very effective – and not all employees want 'soft' managers. Look for evaluative comment. • Credit answers that link EI with anti Taylor views and support motivational theorists who focus on issues like Emotional Intelligence. 9609/11/O/N/17 – Define the term ‘job re-design’. [2] The re-structuring / altering / changing of a job (1), usually with employee involvement and agreement, (1) to make the work / job more interesting / satisfying / challenging. (1) 9609/11/O/N/17 - Briefly explain the benefits to a business of job re-design. [3] • make the job holder feel more valued by increasing their role. This leads to maximum output from satisfied workers. • increase motivation of workers and hence help to retain them so reducing costs of recruitment. • create a right person – right job fit leading to efficient and effective workforce so increasing productivity. • adapt the business / job roles to suit changing economic conditions, therefore having the right staff and skills to deal with change so the business can survive/grow. 9609/11/O/N/17 – Analyse how a business might use Mintzberg’s roles of management. [8] Mintzberg identified ten roles common to the work of all managers – divided into three groups: Interpersonal: Figurehead, Leader and Liaison. Informational: Monitor, Disseminator and Spokesperson. Decisional: Entrepreneur, Disturbance Handler, Resource Allocator and Negotiator. • allows a business / HRM to analyse the roles that need to be performed to support the effective management of a business and to identify any gaps • acts as a benchmark for drawing up job specifications / recruitment criteria • acts as a guide for the content of training and development programmes • can be used as evaluative criteria for assessing the performance of managers • allows a business to recognise that management roles are varied and demanding 9609/11/O/N/17 - ‘Emotional intelligence is the most important quality of an effective leader.’ Do you agree with this view? Justify your answer. [12] Effective leadership qualities will be identified such as: • ability to set a clear vision and direction; • ability to think strategically and see the big picture; • motivate and carry staff along in successful achievement of goals; demonstrate resilience and risk-taking skills; • inspire followers etc. Emotional intelligence – Some say EI is more important than IQ. • ability of leaders to understand their own emotions and those of others to achieve business performance; • the ability to understand people and to get staff to respond through respect and understanding; • authentic leadership and servant leadership • Goleman’s EI competencies: self-awareness; self-management; social awareness; social skills. The relative importance of emotional intelligence – • how does EI complement and support other leadership qualities? • without EI leaders may not gain the confidence of employees. ‘ • ‘soft is hard’ in business leadership but it would be risky not to expect a balance and variety of qualities from an effective business leader. Evaluative comment/judgement of the view stated. EI may be one of a number of important qualities required of an effective leader. The balance within the cluster of qualities may well be critical, as would the specific needs of a business at particular times. 9609/12/O/N/17 - Explain the importance of workforce planning for the effective performance of a university. [5] Definition – ‘The analysis and forecasting of the numbers of workers and the skills of those workers that are required by an organisation to achieve its objectives’. • factors such as an ageing population, technological skill change, competition, changing consumer demands and expectations suggest the need for a relevant, agile and adaptable workforce. Some may well be important in a University • workforce planning is about deciding how many and what types of workers are required at any particular time in line with mission and strategy of an organisation • process of analysing current competencies, competencies needed in the future, building on relevant workforce is critical for business performance • workforce planning provides a strategic framework for making HRM decisions; it provides methods for addressing present and future workforce issues • organisational success and performance depends on having the right employees with the right competencies at the right time; workforce planning provides a method(s) of securing this situation • workforce planning is necessary; if a business/University does not have a sound workforce planning system, it will be reactive and suffer surprises • a University needs staff engaged in relevant research and teaching 9609/12/O/N/17 - A hospital requires employees to work long and often unsociable hours. Discuss why and how the hospital should assist its employees to achieve a good work-life balance. [20] Work-life balance is where employees choose to and are allowed to attain a good balance between the time and effort given to work and that given to life outside of work e.g. family, leisure etc. Why – • a duty of care for a business. • to protect staff from over-stress and mental health issues. • it is about employee morale and welfare. • in a more positive way it is the practice of caring for staff. • this may well lead to more loyalty, productivity and commitment. • this increases employee efficiency. • it requires investment but can reap rewards. How – • company will need to regularly review structures and processes that put too much pressure on employees. • introduce more flexible working e.g. more working from home; job sharing; sabbaticals. • regular consultation with employees. • ensure management support for employees. Evaluative comments could be: A significant role for HRM but WLB cannot be achieved by company action alone (though this may be very helpful and necessary). It also requires individual employee recognition of the dangers of working too hard and too long. It may well be a shared responsibility. 9609/13/O/N/17 – Define the term ‘induction training’. [2] An introductory training programme for new business recruits (1) to provide awareness of the systems and practices used in the business (1). 9609/13/O/N/17 - Briefly explain two benefits to a business of training employees. [3] • the business chooses what skills to give to its employees. • you can target the skills needed now and for the future. • you give a message to employees that they are valued. • improves staff loyalty and retention. • may well improve performance/productivity/motivation. • business can get a competitive advantage with a skilled workforce. • strengthens the intellectual capital of the business. • an attractive recruitment tool. • increases the adaptability of the business and assists change. • potentially improves staff morale/performance and profits.
Define ‘self-actualisation’ – a need to feel self-fulfilled – feeling enriched and developed as a worker in an organisation – the top of Maslow’s hierarchy of needs – the need to reach one’s maximum potential. The need to become what one is capable of becoming. It is, of course, not a simple concept – it will differ as between workers and may well change over the life of a worker. Identify and discuss methods that managers might use such as: • satisfying some of the other needs first – good salary, secure employment, rich organisation culture. • then providing worker development programmes – opportunity for career growth – recognise worker strengths. • providing work opportunities for accomplishment and recognition • placing employees in positions of leadership, responsibility and accountability. • providing challenge – give opportunity for creativity – job enrichment. Candidates may well consider that this top level need in the hierarchy is very personal and may be as much a personal responsibility status factor as it is a managerial responsibility. 9609/13/O/N/17 - Discuss the view that the ability to motivate others is the most important quality of an effective business leader. [12] • leadership is said to be about giving direction to a business. • having a vision for the business and inspiring employees to follow the direction given. • leadership has been defined (in one of the books on the reading list) as “the art of motivating a group of people towards achieving a common objective”. • leadership thus implies an ability to motivate. • whether it is the most important tool of effective leadership of a business is debateable – some may argue that strategic direction and vision is more important. • autocratic leaders may not be too concerned about motivating staff – ‘get the job done, leave the motivation to the managers and/or supervisors Strong answers should focus on leaders rather than managers. Evaluative comments could discuss other leadership qualities and make a judgement about their relative importance. 9609/12/F/M/18 – Define the term ‘labour turnover’. [2] The proportion of a firm’s workforce that leaves (1) during a specific time period. (2) OR (Number of employees leaving during the period/ Average number employed during the period) X 100 9609/12/F/M/18 - Briefly explain two possible causes of high labour turnover in a business. [3] • Changes in strategy e.g. closure of a location making employees redundant • Issues with pay causing employees to leave to take up better paid employment elsewhere • Conflicts with management or poor communication leading to employees leaving the business • Poor motivation caused by conditions, relationships, pay, hours, holidays, the work itself etc. causing employees to leave due to dissatisfaction with their job • Poor promotion prospects • Lack of training • Poor working conditions • Illness, accident, death, retirement 9609/12/F/M/18 – Analyse the benefits of a job description and a person specification when recruiting a new employee. [8] • A job description is a detailed explanation of the roles and responsibilities of the post advertised. Refers to the post available rather than the person. • Most applicants will ask for a job description before applying for the job. • Job description is important as it sets out what the person will be expected to do so that applicants can assess whether or not they are able to undertake the role and therefore should apply. • It will stop most unsuitable applicants from applying therefore saving time at the shortlisting stage when reading through the applications. • A person specification sets out the kind of qualifications, skills, experience and personal attributes a successful candidate should possess. Refers to the person rather than the post. • The person specification is a vital tool in assessing the suitability of job applicants. • Person specification is important as it clearly sets out the required standards for the post and gives valid reasons for rejecting candidates at application form stage if they have not obtained the required qualifications and experience. 9609/12/F/M/18 - Discuss which leadership style is likely to be the most effective for a large clothing manufacturer. [12] • Understanding of leadership styles – autocratic, paternalistic, democratic, laissez-faire or McGregor. • Size of workforce – the larger it is the more difficult it may be to be democratic and laissez-faire. • Skills and experience of workforce – lower the skill and experience level the more likely is autocratic and Theory X. • Type of decisions being made – instant decisions and emergencies need autocratic style. Decisions relating to the long-term well-being of workers better with democratic style. • Organisation structure – flat needed for laissez-faire to work well. Tall may be more autocratic but democratic is also evident. • Amount of delegation – none = autocratic, most = laissez faire. • Attitudes to decision making – culture of the business may have shaped the leadership style over time and expectations exist as to the best leadership style to adopt. Workers may expect to be told what to do or may expect to be consulted. • Motivation of the workforce – low level motivation may need autocratic approach; high motivation may require laissez-faire. • Amount of change – rapid changes in strategy require strong, decisive leadership, possibly with a democratic approach to a point but able to change to autocratic if resistance is encountered. • Personality of the leader – eg decisive, forceful, easy-going, open. Effective evaluation is likely to consider specific scenarios where a variety of factors might work together and therefore candidates will be able to justify why the most effective leadership style may vary. 9609/11/M/J/18 – Analyse the possible disadvantages to a business of using performance related pay to motivate its employees. [8] • A payment scheme to reward employees for above average performance. • Often used for employees whose output is not measurable in quantitative terms, e.g. management, supervisor, clerical posts. • Does performance-related pay actually motivate staff? • Can cause divisions within a group of staff-does not encourage team-work. • How do you measure ‘above average’ performance? • How can you ensure equity? • Can put power in the hands of senior managers which can lead to favouritism and/or discrimination. • It can be a time-consuming process agreeing targets and criteria. • Requires detailed information about each employee and their tasks. • Employees can be demotivated if the goals are set too high. • Too much focus on monetary reward rather than on development needs. • Employees may expect an additional reward every year. 9609/11/M/J/18 - Discuss the view that the most important role of human resource management (HRM) in all businesses is to maintain a high level of staff morale and welfare. [12] • HRM function is to recruit and manage workforce so that business objectives are achieved • HRM function includes a whole range of activities, including recruitment, training, contracts of employment, and staff morale and welfare. • Morale is the emotions, attitudes, satisfaction and overall outlook of employees in the workplace environment. • Welfare is said to be anything that makes the workplace more congenial and healthy and helps keep the motivation and morale of staff high. • Low staff morale and welfare can result in low productivity, poor standards of work, high levels of absenteeism, labour turnover. • HRM can specifically contribute to staff morale and welfare through the following: – Monitor levels of motivation in the business. – Take action where appropriate. – Give support and advice to staff at risk (personal problems). – Help and encourage staff to have a sensible work-life balance. – Ensure that policies on equality and diversity are in place and are working. • HRM is involved with staff morale and welfare with virtually all that it does. • HRM needs to build and strengthen staff morale and welfare as well as maintain it. Evaluative comments may well consider that it depends on where the organisation is and on the current demands made on the organisation, as well as on the quality of HRM as to where priorities may lie. 9609/12/M/J/18 - Explain the possible long-term consequences for a business of low levels of employee motivation. [5]
9609/12/M/J/18 – Analyse why many human resource departments have developed policies for diversity and equality. [8] Definitions of diversity and equality – the acknowledgement and celebration of difference and the elimination of discrimination and increasing access for all in business. Examples of policies for diversity and equality. In some countries the law now requires explicit policies relating to diversity and equality – businesses are required to comply. Many businesses now recognise the negative business consequences of inequality and discrimination. HRM departments follow and reflect changing societal demands for more equality and diversity. Business are seen as a microcosm of society and HRM at forefront of attempts to produce inclusive environments and cultures in the work organisation. Seen by some as a competitive advantage to have operating policies of diversity and equality. 9609/12/M/J/18 - ‘A significant investment in training and development is the best way to improve employee effectiveness in a retail business.’ Discuss this view. [12] Training and development aims to strengthen and update employee job-related knowledge and skills. Retail is a ‘labour intensive’ business where customer service skills are critical. Training and development might be part of a motivation package to improve performance. ‘Best way’ depends on a number of factors, e.g. – the current state of employee performance – is the extent of training and development comparable with competitors? – the level and impact of remuneration – past investment in training and development. Could a more effective recruitment and selection process be more successful at improving employee performance? It might be considered effective, but can the business afford a ‘significant’ level of investment in training and development (time and money). Evaluative comments may well consider that the ‘best way’ all depends on the particular time and circumstances of a business and discuss alternative ways of improving employee effectiveness in a retail business (such as more money). 9609/13/M/J/18 – Define the term ‘leadership’. [2] Leadership involves giving clear direction / vision for a business (1), setting an example and engaging others to follow (1), motivating / inspiring / guiding a group of people (1) towards achieving a common objective / goal / aim (1). Giving long term direction to an organisation / taking the business forward (1). Giving a new direction for a business (1). 9609/13/M/J/18 - Briefly explain two styles of business leadership. [3] • Autocratic / authoritarian – all decisions kept at top of the organisation or with the leader – impact on employees / business operations. • Democratic – workers encouraged to take part in decisions –impact on employees / business operations. • Paternalistic – leader will listen and consult but will take decisions themselves as ‘they know best’ – impact on employees / business operations. • Laissez-faire – ‘hands off’ approach – opposite of autocratic – most decisions left to workforce – impact on employees / business operations. 9609/13/M/J/18 - Discuss how the motivational theory of Maslow differs from that of Vroom. [20] Maslow’s theory of motivation is classified as a ‘content’ theory of motivation where the assumption is that employees are motivated when their inner needs are fulfilled. Employees will be motivated as business managers create working conditions that allow employees to satisfy their needs. • Maslow was concerned with identifying and classifying the needs that humans have, and his motivational theory is based on how businesses might satisfy needs in the workplace. • Motivation is concerned with how need and goal-directed behaviour is initiated, energised and maintained. • Maslow’s hierarchy of needs approach (physical needs, safety needs, social needs, esteem needs, and self-actualisation needs) suggests that everyone has similar needs and examines what employees require in order to satisfy those needs. • Maslow suggested that individual needs start at the lowest level (physical) and that once one level of need has been satisfied people will strive to achieve the next level. • Sound answers may well comment on limitations / criticisms of Maslow’s theory. Vroom’s theory of motivation is classified as a ‘process’ theory of motivation concerned with ‘how’ motivation occurs – the output of motivation occurs when a certain input occurs – this is the process that must be repeated. Process theories study what people are thinking about when they decide whether or not to put effort into a particular activity. • Vroom developed ‘expectancy’ theory – individuals will choose to behave in ways they believe will lead to outcomes they value. • So, there is a positive link between effort and performance –there is a belief that good performance will lead to a desirable reward. • Vroom proposed that in order to motivate employees, managers need to convince workers that increased work effort will improve performance and that this improved performance will lead to valued rewards. 9609/11/O/N/18 – Define the term ‘motivation’. [2] Factors / reasons that stimulate employees / make them willing / encourage / drive them (1) to achieve a goal / objective (1) that affects the productivity of employees (1). To cause employees to be continually interested and committed to a job, role or business (1), to increase job satisfaction (1). 9609/11/O/N/18 - Briefly explain two ways autocratic leadership might affect the motivation of employees. [3] Note: Autocratic leadership can affect employees positively or negatively. • An autocratic leader is likely to dominate decision-making, give instructions, not allow much participation or empowerment. • Autocratic decisions may be taken that employees disagree with causing bad relationships with managers. • Some employees will resent too much close control. • Allows little scope for employee discretion / creative thinking. • Employees not allowed to express their own ideas. • Employees are unable to reach their full potential. • Some employees will be frustrated and suffer low self-esteem and lack of sense of belonging. • Others, however, will welcome clear instructions and do not seek to be more involved. • Employees may welcome opportunity to simply obey instructions and will be motivated by a theory ‘X’ approach. • Autocratic managers motivate employees by establishing confidence in the manager's ability to make accurate and productive decisions. • Employees become comfortable with the manager's knowledge of the industry and the company processes and gain motivation from the manager's ability to keep the department focused on achieving company goals. 9609/11/O/N/18 - Discuss the possible consequences for a tertiary sector business that decides to reduce its expenditure on employee training and development. [20] Answers may include the following: • A business/HR department should make sure that employees in the business are equipped to satisfy customer demands. • Tertiary sector / service businesses must ensure that their employees can respond effectively to customer demands. • Customer care may be worse so customers go elsewhere. • Training and development is an important investment in the support and maintenance of employee skills and abilities. • Training and development can lead to higher motivation and loyalty of employees therefore reducing labour turnover and recruitment costs. • Training and development could lead to higher productivity/better quality service from employees. • Reduction of spending on training and development is a way to save money which can be spent elsewhere. • A reduction in spending may have no direct negative effect on employee performance. • If new employees are already well trained there is no need for expenditure on training. • Trained employees may be poached by other businesses so may be better not to train them to reduce this possibility. • Morale and motivation may reduce as self-fulfilment is no longer achieved by training and development. • Employees may become less productive due to lack of motivation. • The business is no longer the employer of choice – attracts fewer outstanding employees. Evaluation may make reference to: • The initial level of investment in training and development, the amount of the reduction made and how important the skill level is to the success of a tertiary sector business. • The extent to which other factors are more important to the business success than expenditure on training and development e.g. is it better to give higher wages to Theory X employees, or better working conditions, or more holidays? 9609/12/O/N/18 – Define the term ‘empowerment’. [2] Gives power / authority / rights to employees (1) to take part in decisionmaking (1) it is a form of delegation (1) to have more control over the business / their working lives / over others / tasks and objectives (1) the opportunity to perform tasks as they decide (1) it is a type of motivation (1). 9609/12/O/N/18 - Briefly explain two reasons why a business might decide to empower its employees. [3] • To help employees feel part of the organisation / to get employees and managers working together / to achieve the same goals. • To generate new ideas which might benefit the business. • To increase motivation / self-esteem / commitment of employees. • To tap into the skills and competences of employees. • To give employees greater control over their lives / the business. • To reduce the burden on managers / supervisor systems and costs. • To increase productivity and the bottom line. • To identify skills in readiness for promotion. • To reduce absenteeism and labour turnover. • To attract high quality labour. • To enhance the public image of the company. 9609/13/O/N/18 - A poorly performing business is considering changing its method of employee payment from a salary scheme to a performance related pay scheme. Discuss the likely advantages and disadvantages to the business of this change. [20] Advantages of moving to performance related pay: • Salary payment can lead to complacency, pay unrelated to productivity. • Performance related pay provides financial incentives to meet targets. • Increased production – reduced unit costs. • Increased motivation and morale – fairer system. Disadvantages of moving to performance related pay: • Performance related pay might cause cash flow problems if outflows (manufacturing costs rise) and inflows do not keep pace. • Quality may decrease in the rush to maximise earnings. • Performance related pay can cause divisions within teams – can lead to favouritism from managers / individuals seeking to drive up their own performance rather than that of team members. • Time consuming to implement – more bureaucratic in practice. Evaluative comments: Could discuss the extent to which performance related pay is suitable for all employees in a business. It all depends on the cause of the poor performance – there may be more important measures to take. Consideration of whether a focus on pay systems neglects measuring quality of work, as it concentrates on a narrow focus on quantifiable goals. Impact of a change in payment methods depends on whether employee pay is the or one of the factors causing poor performance. It may be other factors such as the quality of employees, or the inadequacy of products / services. If payment system is considered to be a significant factor, then incentivising through performance related pay could work. 9609/12/F/M/19 - ‘An effective manager must perform all of Mintzberg’s roles of management.’ Do you agree with this statement? Justify your view. [20] Mintzberg's Management Roles cover ten tasks and responsibilities that a manager may need to perform. These are divided up into three categories: Interpersonal roles: include: figurehead (ceremonial, legal, inspiration, authority), leader and liaison (networking, internal and external communication). Informational roles: include: monitor (business environment and team), disseminator (useful information) and spokesperson (externally). Decisional roles: include: entrepreneur (problem solving, idea generation), disturbance handler (problems and disputes), resource allocator (factors of production), and negotiator.
9609/11/M/J/19 – Analyse the difference between autocratic and laissez-faire leadership. [8]
9609/11/M/J/19 - ‘A democratic style of leadership is the most effective leadership style for a manufacturing business in a very competitive industry.’ Discuss this view. [12]
Evaluation could include:
9609/12/M/J/19 – Define the term ‘business leadership’. [2] Motivating / inspiring staff (1). To achieve objectives / goals / aims (1). Directing an organisation (1). Having a vision for a business / organisation (1). Having a strategy for a business (1). 9609/12/M/J/19 - Briefly explain two styles of business leadership. [3] Autocratic / authoritarian: all decisions taken at the top of the organisation, or by the leader. Democratic: employees encouraged to participate in decisions. Laissez-faire: ‘hands off’ approach, opposite of autocratic, most decisions left to employees. Paternalistic: leader may listen and consult but will take decisions as ‘they know best’.
9609/13/M/J/19 – Define the term ‘emotional intelligence’. [2] The ability to understand / be aware of own emotions (1). The ability to understand the emotions / thoughts / feelings of other people (1). 9609/13/M/J/19 - Briefly explain two of Goleman’s emotional intelligence competencies. [3] According to Daniel Goleman, there are four emotional competences:
9609/13/M/J/19 - The human resources manager of a hotel has said: ‘If we empower our employees, work performance will definitely improve.’ Discuss this view. [20]
Unit 3 - Marketing 9707/11/M/J/14 - Define the term ‘marketing mix’. [2] Key decisions that must be taken by a marketing department in order to ensure the effective marketing of a product – usually said to be made up of four inter-related decisions, the 4 Ps – product design and performance, price, promotion, and place. Some texts add more Ps, such as people and process. Some see the four Ps as old-fashioned and product-focused. Fours Cs have been proposed: Customer solution/product, cost to customer/price, communication with customer/promotion, convenience to customer/place. 9707/11/M/J/14 - Define the term ‘labour turnover’. [2] • Definition should refer to the rate at which staff leave a business. • A measure is the number of staff leaving in any one year divided by the average number of staff employed × 100. • A business with an average staff of 100 with 30 leaving would have a labour turnover rate of 30%. • May be an indicator of staff morale or poor recruitment policy. 9707/12/M/J/14 - Define the term ‘market segmentation’. [2] identifying different segments within a market and targeting different products or services at them – a customer-focused strategy – identifying sub-groups in a market in which consumers have similar characteristics. 9707/12/M/J/14 - Briefly explain two ways a hotel could segment the market for hotel accommodation. [3] – Segmentation by type of customer – business or tourist. – Segmentation by income levels – different levels of accommodation and services. – Segmentation by family/non-family accommodation. – Segmentation by different functions – conferences, weddings. – Reward other relevant suggestions. 9707/11/M/J/14 - Briefly explain the importance to a business of place within the marketing mix. [3] • Place is where and how a product will be sold to customers. • Place decisions concerned with how products should pass from manufacturer to the final customers • Place is about convenience to the customer. • Place is one important element of a business marketing strategy. • The product must get to the right place at the right time. • Place involves decisions about distribution channels, e.g. direct selling/retailers/internet. • Clearly, Place decisions are a vital part of a successful marketing strategy. 9707/12/M/J/14 - Discuss how a cell (mobile) phone manufacturer could assess the effectiveness of its market research expenditure. [20] – Market research is the process of collecting, recording and analysing data about customers, competitors, and the market. – There are various types/methods of research – and it can be very expensive. – Measures of effectiveness can only be carried out after the research has been gathered, analysed and used in management decisions – and are problematic. – Measures can include: ○ contribution to sales growth. ○ contribution to net profit. ○ contribution to product design/re-design. ○ increase in market share. ○ successful targeting of marketing. ○ increased recognition of the brand. ○ the extent of success in launching a new product. NB Measures of effectiveness of MR expenditure may not of course always be positive – extent of failure could be measured. – Measuring the ROI for market research is probably as much qualitative as it is quantitative. – The context of cell phone manufacturing raises issues such as the extent to which the manufacturer has been able to plan, change product design to meet the changing competitive context and consumer aspirations. 9707/13/M/J/14 - Define the term ‘niche marketing’. [2] Niche marketing is identifying and exploiting a small segment of a large market and developing products to fit that segment – the opposite of mass marketing. Briefly explain two possible disadvantages of a niche marketing strategy. [3] – Small niche markets do not allow economies of scale to be achieved. – Niche markets involve more risk than mass markets – fewer customer – if their buying habits change it could mean rapid decline in sales. – The lack of customers in a niche market may well limit total profit. – If the niche market becomes more attractive, then more competition may well affect original entrants (particularly small businesses). 9707/13/M/J/14 - Define the term ‘disciplinary procedures’. [2] Disciplinary procedures defined as a written step-by-step process which a business commits to follow in every case where an employee needs to be warned, reprimanded or dismissed – action taken by an employer to review and correct serious performance issues, e.g. habitual absenteeism, sexual harassment. 9707/13/M/J/14 - Briefly explain two reasons why disciplinary procedures are important for a business when managing its employees. – Provide information for employees about what is acceptable and unacceptable in the organisation. – Give employees a clear statement of disciplinary rules and measures in place to review certain performance activities. – Protect management from allegations of discriminatory practice leading to actions for unfair dismissal or unlawful discrimination. – An important and valuable management tool and a safeguard for employees. – May be used to enable employers and employees to agree suitable goals and timescales for improvement in performance and conduct. – May reveal need for more employee training and development – a tool of HRM. – Guarantees fairness for all employees and protects reputation of the business. 9707/11/O/N/14 - Define the term ‘primary research’. [2] Primary research defined as the collection of: 1. First-hand/new data. 2. Collected by an organisation for its own needs. 3. Examples of appropriate primary research methods. 9707/11/O/N/14 -Briefly explain the difference between random sampling and stratified sampling. [3] Random sampling is sampling where each member of a target population has an equal chance of being included in a sample – a selection chosen purely by chance with no predictability. Stratified sampling is the method where a population is divided into smaller, homogenous sub-groups, known as strata, and random samples are taken from each stratum. It is argued that this method improves the representativeness of the sample by reducing sampling error. It can produce a weighted mean rather than an arithmetic mean of a simple random sample of a population. 9707/11/O/N/14 - Discuss the main factors an electronic goods manufacturer should consider before deciding whether to sell its products through the Internet. [20] A business should be clear why it is considering selling on the internet – to open up the business to a much bigger market and increase sales? – should this happen, has it got the productive capacity and the financial resources to expand? Factors to consider might include: • Review the logistics of selling online – can you deliver the product easily and cost-effectively to customers? • A website needs to be designed – need to employ a specialist designer to produce a functional website? • Determine how the business will market products – decide how to create a large amount of traffic on website. • Need to review costs (extra costs) associated with online selling, e.g. cost of designing, maintaining, hosting website – marketing expenses, payment processing costs. • Need to do a cost/benefit exercise – is profitability maintained or enhanced or depressed? • Continue with traditional selling to spread the risk? • How well will the internet serve your business needs? • How well will your particular business model fit into the way the World Wide Web works? (context to be referenced). 9707/12/O/N/14 - Discuss the advantages and disadvantages of niche marketing for a small manufacturer of fashion clothing. [12] • For smaller businesses mass marketing is not an option – too expensive. • The best niche marketing is based on designing goods or services specifically tailored to the needs of particular customers. • Lower initial costs, especially for advertising. • Focus on company strengths and their niche targeted activity. • Competition may ignore the niche – too small – or unaware. • Businesses can develop expert knowledge in the niche giving a real advantage over potential customers. • However, market niches can disappear as a result of changes in economic conditions, fashion, or taste. • Mass market businesses may target the niche if it grows in value or size – small firms may find the competition too strong. • Niche marketing vulnerable to big and/or frequent swings in consumer spending. • Economies of scale are limited. 9707/13/O/N/14 - Define the term ‘market research’. [2] Market research is defined as the collection, recording and analysis of data about customers, competitors and the market in relation to the products and/or services of the business. Relevant examples e.g. primary or secondary can be awarded one mark. 9707/13/O/N/14 - Briefly distinguish between desk (secondary) methods and field (primary) methods of market research. [3] – Desk research (secondary) is the analysis of information that already exists – there are various sources of such information e.g. internet, commercial information organisations. – Main purpose of desk research is to gain information and market intelligence on competitors – who, where and how many – economic trends – level and type of customer expenditure – number of households in the market. – Considered to be a low cost approach to getting market information. – Field research (primary) is new/first hand intelligence gathering by direct contact with an identified or targeted group of clients. – Aims are to find answers such as: how often do customers purchase, how likely are they to purchase from you, are there enough customers to build a viable business. – Main methods used in this type of research are face to face questioning, telephone research, postal surveys. 9707/13/O/N/14 - Explain the benefits to a railway company of using price discrimination for ticket sales. [8] – Price discrimination is when a business charges a different price to different groups of customers for IDENTICAL goods or services for reasons not associated with cost. – A business must be able to segment the market and be able to keep the segments separate. Train companies identify customers with different demand elasticities and charge differential prices for tickets. Different groups of customers that can be kept apart such as students, older people, families, can be charged different prices for the same journey. Price discrimination provides opportunities for maximising revenue and boosting sales 9707/13/O/N/14 - Discuss why a business could use different pricing strategies during the life of a product or service. [12] In response to why different pricing strategies could be adopted, the following points could be made. – To reflect specific business/marketing objectives and strategies such as to maximise profits or sales, to ward off competition. – To respond to changes in market conditions. – To manage the life cycle progress of the product/service. Answers may well give examples of how these pricing strategies are implemented. This is legitimate as long as the focus of the answer is on why different pricing strategies are used. Answers may well give examples of how these pricing strategies are implemented. This is legitimate as long as the focus of the answer is on why different pricing strategies are used. – A skimming pricing policy could be adopted in the early stages of a product life – but perhaps only for a limited time – to exploit the uniqueness of the product/service. – A penetration pricing strategy could be adopted to gain market share (again possibly for a limited time). – A competitive pricing strategy could be adopted to combat difficult trading conditions and protect sales against competitors. – Other pricing strategies could be adopted (cost plus, loss leader) depending on business objectives, marketing strategies, and product life cycle stages management. 9707/11/M/J/15 - Define the term ‘business relocation’. [2] Relocation can be defined as a change in the physical location of a business – the movement of a business from one area/region to another. Briefly explain two factors that could cause a business to relocate. [3] 9707/11/M/J/15 – Briefly explain two factors that could cause a business to relocate. [3] – the rising costs of an existing facility. – tax breaks/Government incentives in a different location. – growth which requires expansion in a new outlet or location. – changes/closeness to the target market. – workforce issues. – quality of life issues. – political issues. – to avoid trade barriers. – better transport links. 9707/11/M/J/15 - Discuss the factors that would indicate that a retail business has effective human resource management. [20] Effective HRM is concerned with the efficient and effective use of people – how a business views its employees as resources to achieve its objectives. There are many general factors that would evidence effective HRM in any business. Selected factors could include: – high levels of productivity. – lower unit costs than the average in an industry. – mission and purpose of the business understood and achieved. – low labour turnover and sickness levels. – high quality staff recruited. – there may be training and development policies. – effective workforce planning. – motivation and morale is high. – few disputes and disruptions. – customer satisfaction Some/all of these may apply to a retail business – specific/contextual factors could include good customer service from a highly motivated workforce - and a friendly helpful culture, that give particular retail stores special competitive advantage (USP) 9707/11/M/J/15 - Explain the differences between niche marketing and mass marketing. [8] Niche Marketing: – the targeting of a small segment of a large market where customers are seen to have special needs and wants. – attractive to small businesses where there may be less competition and allows a clear focus on specific customers. – specialist skills/knowledge/market expertise is developed – may be able to charge a premium price and earn higher profit margins – develop loyal customers – economies of scale not achieved and risk of overdependence on limited product portfolio-vulnerable to market changes and increased competition. Mass Marketing: – selling into the largest part of a market where there are many similar products and services and where the majority of customer needs are similar and general – associated with higher production and capacity levels – economies of scale are achievable – focus on low costs of production to achieve success/competitiveness – likely heavy brand promotion/high volume sales/low profit margins/lots of competition/little differentiation between products/services. 9707/11/M/J/15 - Discuss the view that marketing is only about the advertising and selling of products and services.[12] Marketing has been defined as ‘the management process that identifies, anticipates, and supplies customer requirements efficiently and profitably.’ A business-wide function that communicates the value of a product or service to customers. Such definitions involve a number of related activities: – market research – product design – pricing – advertising – distribution – customer service Answers may well refer to the marketing mix – 4 P’s and/or 4 C’s. It can be argued that marketing is much more than advertising and selling (but includes these activities). The link between a business and its customers – getting the right product, at the right price, to the right place, at the right time 9707/12/M/J/15 - Discuss the view that product differentiation is the most important activity of the marketing department of a motor car manufacturer. [20] Answers may well initially define product differentiation, making a product distinctive in the eyes of a consumer – stands out from competitor products – perhaps with a special feature (USP). In motor manufacturing differentiation might be achieved through different product lines and/or distinctive features of particular models in a very competitive industry. – Reference may well be made to the range of objectives that a marketing department is seeking to achieve in relation to the role and function of marketing. – The question should lead to candidates considering the relative importance of product differentiation and how it might be gained in relation to other objectives, and the marketing mix may well be used to consider objectives relating to product design, pricing, promotion etc. Perceptive answers may well argue that product differentiation is NOT the most important objective and other objectives are more important or equally important, such as pricing and promotion. 9707/12/M/J/15 – Explain why it is important for a business to have an effective system of recruitment and selection. [8] Answers could initially discuss the role of HRM and identify recruitment and selection as a significant HRM activity. – Reference may well be made to workforce planning and how recruitment and selection contribute to effective workforce planning. – Recruitment is the process of defining the need for employees, defining the job and person specifications and attracting appropriate candidates. – Selection is establishing appropriate systems and procedures that lead to appointment of required staff. – Vital to recruit and retain staff with appropriate skills, competencies – to ensure consistency in appointments. s– Recruitment and Selection is an expensive activity so it is important that it is effective and efficient. This is a WHY question – so much more than a description of the how of recruitment and selection is required. 9707/12/M/J/15 - Discuss why a school might decide to recruit a new head teacher externally, rather than by internal promotion. [12] Answers may well consider the advantages of the external versus internal options as a structure for the discussion. Internal recruitment has a number of potential advantages, such as: – a vote of confidence in internal staff – a means of continuity – less expensive than external recruitment – less disruptive to staff in school – the new head will understand the culture of the school – maintains the morale of staff However, a decision may be made to recruit and select an External candidate for reasons such as: – there may not be a suitable internal candidate – new ideas, practices, and experience are sought – acquire a more qualified candidate – greater choice through external recruitment – it may be the start of a new era for the school – introduce a new culture – new skills may be required, such as leadership, in addition of teaching ability 9707/13/M/J/15 – Explain, with examples, the difference between ‘above the line’ and ‘below the line’ methods of promotion. Above the line promotion is defined as paid for communication with consumers using mass media methods. The focus is on advertising to a large audience. It includes print, on line media, television and cinema advertising. The aim is to inform customers, raise awareness and build brand positioning. It tends to be high cost and lacks precision. It is difficult to measure impact and effectiveness – it is conventional and impersonal – it is ‘awareness or attention focused marketing’. Below the line promotion is very specific, memorable activity focused on targeted groups of customers. The aim is to develop a brand by creating awareness and building a brand profile – methods include sponsorship, sales promotions, public relations, personal selling, direct marketing. It is more measurable promotion – tailored – less conventional – potentially more cost effective. The distinction between the two is becoming less clear with internet possibilities – more of a mix – ‘through the line’. 9707/13/M/J/15 - Discuss the importance of branding for effective product promotion. [12] Answers may well define brand – an identifying symbol, image, name, or trademark that distinguishes a product from competitors. Branding can have real influence on marketing. It can create a powerful image or perception in the minds of consumers – negative or positive – it can give the products of a company a unique identity. – Promotion is the use of methods such as advertising to inform consumers and persuade them to buy – how does branding assist promotion? – Branding acts as a way of communicating with customers – the brand delivers a strong message. – Branding connects a product to a customer – it builds trust. – Branding motivates customers to buy and continue buying a product. – Branding establishes credibility in the mind of a customer – helps the introduction of new products under the same brand name Branding can, therefore, be very important in supporting effective product promotion. It needs, of course, protection and constant reinforcement. 9707/11/O/N/15 – Define the term ‘contract of employment’. [2] A contract of employment can be defined as a document setting out the terms and conditions relating to the job of an employee (details such as work hours, rates of pay, holiday entitlement etc.). 9707/11/O/N/15 - Briefly explain two advantages to employees of having a contract of employment. [3] – certainty about specific conditions of service, e.g. hours of work, pay rates, holiday entitlements, redundancy conditions, disciplinary codes (any of these or similar could be explained and developed as a separate advantage) – clarity about the responsibility of both employee and employer and the protocols that exist in the business – provides a framework for a legal solution to issues e.g. unfair dismissal 9707/11/O/N/15 - Explain why many tertiary sector businesses differentiate their services. [5] Answers could well initially define the terms in the question: – tertiary sector businesses are those that provide services to consumers and other businesses such as banking, hotels, tourism, retailing and transport – differentiation is the process of making a product or service so distinctive that it stands out from competitor products/services in the perception of a consumer Given these definitions the reasons why tertiary sector businesses try to differentiate their services could include: – to establish and gain market share – to establish and maintain a reputation – to persuade customers to pay a particular price for the service – to create an exclusive purchasing environment – to create a unique selling proposition (USP) – to survive and thrive in a very competitive environment – to establish a perceived difference amongst consumers for services that are essentially much the same 9707/11/O/N/15 – Explain the importance of primary market research to a new business. [8] Primary market research is expensive and time consuming but is designed to produce information/intelligence directly related to the needs of a business – potentially more valuable than secondary market research. – a new business may have little experience and information relating to a market, customers and competitors – secondary research may be very general and unsuitable for a new business – primary research may give a new business specific insight into potential customers – which to target etc. – it could support a business plan and impress investors – it is expensive and few new businesses may be able to afford it 9707/11/O/N/15 - Discuss how a business could make sure that its market research expenditure is cost effective. [12] Market research may well be a significant item of business expenditure. It is therefore, vital that such expenditure is cost effective. Answers should address how cost effectiveness might be achieved. Measures could include: – establish and review clear objectives for market research expenditure – ensure that these objectives are connected to corporate business objectives, e.g. maintain profit margins – ensure the most relevant and cost effective methods are used, such as electronic means of contacting large numbers of customers – ensure that the market research is well designed and focused – consider the most efficient way to conduct the research – self-directed, outsourced to professionals? – control the market research budget and seek to measure the impact of activities – use lower cost methods – social media/secondary research – strong answers may well address effectiveness as well as cost In the long term, the cost effectiveness can only be assessed after the expenditure, but in the short term the actions listed above can be effective. 9707/11/O/N/15 - Discuss the view that employee participation is not always desirable in the management of a profit maximising business. [20] Employee participation in the management of a business is often considered to have a number of advantages, such as: – employee worth and sense of ownership – new ideas and feedback for management – higher motivation for employees and higher productivity – greater acceptability to change – more teamwork, problem solving opportunities – more effective communication in the organisation However – employee ideas may not be practicable/realistic – employees may lack the confidence and experience to take part – employees may become more inflexible in sticking with their own ideas – organising participation can slow down production and decision-making – employees may be unwilling to take part – managers may need re-training – issues of security and confidentiality – can increase bargaining power of employees – it may blur the lines of responsibility and accountability So there are advantages and disadvantages – may well depend on the way it is carried out and the approach taken by a company – profitability may improve or may be reduced. 9707/12/O/N/15 - Discuss the view that while market research can be very beneficial for a business it can also have serious limitations. [20] The process of collecting, recording and analysing data about customers, competitors and the market – market research – is potentially very useful to a business: – Reduces risk associated with new product development. – Can predict future demand changes. – Identifies market trends and sales patterns. – Provides information for marketing mix decisions. – Primary and secondary research methods may be used to illustrate the benefits of market research activity. However, there may well be limitations: – Market research is not an exact science. – Inappropriate methods might be used. – A market research department might not be integrated with the rest of the corporate organisation. – The market research objectives set may not be relevant. – The research may become too expensive or too slow. – The reliability of data may be suspect. – Predictions/forecasts may not materialise. – Not all marketing problems are researchable. The limitations of primary and secondary research methods may be presented and this may be the vehicle for explaining the limitations of some market research methods. – Market research information is only a tool for decision-making – business decisions still have to be made and market research information interpreted and analysed. This requires good quality management – not always present in organisations. Poor analysis and poor use of good market research information by managers could damage an organisation. 9707/13/O/N/15 – Explain the importance of a USP (unique selling point) to the marketing of a product or service. [8] If marketing is concerned with meeting the needs of customers better than your competitors, then establishing a USP can be very important. – a USP is a special feature of a product and service which differentiates it from competitor products and services – e.g. a delivery promise by Domino’s Pizza – a bank offering ethical investment – a value added statement or commitment that sets you apart – seeks to convince customers to choose your product/service – can be an important part of branding – establish a premium brand, e.g. Coca-Cola – it allows a business to charge premium prices and reduces PED 9707/13/O/N/15 - Discuss ways in which poor customer relations could be improved in a large retail business. [12] Answers might initially identify the main features of poor customer relations. Also recognise why customer relations is important – to attract and keep customers loyal. Ways to improve could include: – train and develop staff in customer relations – ensure customer relations objectives are set – review style of leadership and management to ensure that it supports good customer service – engage with customers...seek feedback – respond to collected customer feedback and comments – introduce customer service awards – have ‘welcome’ staff – get rid of queues – smile at checkout, etc. – ensure they have a good after-sales service – introduce loyalty cards/improve communication with customers 9609/12/F/M/16 – Define ‘product differentiation’. [2] Product differentiation can be defined as the process of making a product distinctive so that it stands out from competitor products in the perception of consumers. 9609/12/F/M/16 – Briefly explain two marketing benefits of product differentiation. [3] • if marketing is concerned with strengthening the position of a product in the eyes of customers, then product differentiation becomes a very important and potentially very profitable activity • product differentiation can create a competitive advantage for the seller as the customer views such products as unique or superior – it pulls customers away from competitor products • product differentiation can create a ‘premium product’, allowing a premium price to be charged and maintained • product differentiation and the various means of establishing it then seen as an important part of an effective marketing strategy – as a marketing concept it gives focus to product in the marketing mix and identifies how the other 4P’s could make a contribution to such differentiation. 9609/11/M/J/16 - Analyse how a business might use price elasticity of demand for pricing decisions. [8] Answers could include: • PED measures the responsiveness of customer demand for a product as the price of it is changed. • Setting the price for a product is one of the most important of all marketing decisions. • A useful concept to use in fixing/changing a price. • Gives an understanding of the sensitivity of demand for a product at different price levels. • Reduce price of product with a price elastic demand can increase revenue • Gives an indication of the price level that maximises revenue (used in price penetration strategies). • Can be used for a price discrimination strategy where there are different segments of the market with different elasticities. However, not as simple as might appear because: • the data on price elasticity may be inaccurate • it is hard to predict consumer behaviour • other factors need to be considered in pricing decisions • revenue maximising may well not lead to profit maximisation (costs need to be considered as well as price) • share of market to secure economies of scale and market dominance may be more important than revenue maximisation. Perceptive answers may well recognise the need for a business to assess the possible response of their customers to any change in price. 9609/11/M/J/16 - Discuss the best ways a car manufacturer could use the marketing mix to increase its share of the market. [12] • Marketing mix as a framework/process for identifying, anticipating and satisfying customer requirements profitably. 4Ps. • A tool of analysis and planning to focus on key elements/variables in designing a marketing strategy to achieve organisation objectives (e.g. increase market share). • Focus attention on Product: higher quality, customer perception, changes needed, car design, USP, reliability, engineering claims? • Price – pricing strategy? – competitive pricing? • Place – appropriate retail outlets? • Promotion – relevant and impactive promotion? • Perhaps a more balanced marketing mix – or a more intensive focus on particular elements? • Are there perhaps other factors than the Marketing Mix that need to be addressed – i.e. production issues, people issues? • Marketing Mix too simplistic? – said to be too product/organisation focused – lacks focus on customer, too simplistic a process – so 7Ps (people, process and packaging) and 4 Cs recommended. • Perceptive answers will do more than simply describe and analyse the 4Ps Marketing Mix. 9609/12/M/J/16 – Distinguish between random sampling and quota sampling. [2] Random sampling is where every member of the target population has an equal chance of being selected in a market research survey. Quota sampling is where the target population has been stratified and the interviewer selects an appropriate number of respondents from each stratum. 9609/12/M/J/16 - Briefly explain two limitations of market research sampling. [3] Imperfect sample design Inadequate budget to determine the sample, as it could be very/too expensive Sample size may be too small Difficulty in getting representation in the sample Some sampling may be tedious and time-consuming Untrained/inadequate interviewers Biased, ambiguous questions Could be very/too expensive. 9609/12/M/J/16 - ‘The 4Cs marketing model is more useful for a retail business than the 4Ps marketing model.’ Do you agree with this statement? Justify your view. [20] Both models provide an analytical framework for classifying the elements of a marketing plan/strategy – focus on asking specific questions to measure existing situation and ways to improve. 4Ps (or 5, 6, 7 P’s) seen as dated – the product of a physical external environment that has fundamentally changed – too product/organisation focused – seller-orientated – its focus is on internal controllable factors – customer is passive – ignores customer behaviour. 4Cs – an explicit customer approach – deals with perceptions of product by customers – the customer drives marketing decisions – asks what will the customer pay – how is the product valued by customers – how affordable is it? Given this, do our costs enable production at a profit? What is the degree and type of customer engagement – use social media to communicate with customers. What are the barriers to customer purchasing – convenience factors. Customers do not now just receive products – they now participate with the production process. 4Ps still valuable but dated? – 4Cs more relevant? 4Cs: customer, cost, convenience, communication 4Ps: product, price, place, promotion 9609/13/M/J/16 – Define the term ‘market segmentation’. [2] A marketing approach that identifies different segments/sub-groups (1 mark) with similar characteristics within a market (1 mark) and gives correct examples e.g. age, social class, income, gender, geographical, demographical, psychographic (1 mark) and targets different products/services to those segments. (1 mark) 9609/13/M/J/16 - Briefly explain two reasons why a business might segment the market for its products. [3] • Segmentation allows a precise targeting of a market/consumers • Allows a business to design and produce goods/services specifically aimed at a group • Helps to identify gaps in a market and to exploit them • A differentiated marketing strategy can be adopted • Allows small businesses to compete in a market and specialise to supply specific segments • Allows price discrimination to be used to increase revenue/profits 9609/11/O/N/16 - Explain why the distinction between market orientation and product orientation could be important for a business operating in a very competitive market. [5] • These are two contrasting approaches to marketing. • Market orientation is a market-led approach where the focus is on the customer – market research is used to identify customer needs, perceptions and potential demands – this information is then analysed and used to develop products and services to meet these demands – associated with the 4Cs and CRM. • Product orientation is a product-led approach – a focus on getting the product right – then market it effectively and sell it to the customer – associated with the traditional 4Ps approach to marketing. • Market orientation is said to be a more effective approach in the digital age where customer relationships and interactions are encouraged. • The context of ‘a very competitive market’ would suggest that a market orientation would be the marketing approach to adopt in order to survive and thrive. 9609/11/O/N/16 – Analyse the benefits to a business of product portfolio analysis. [8] • Product portfolio analysis is the analysis of the elements of a company's product/service mix in order to determine the optimum allocation of resources. • It is a tool for a more informed marketing/corporate strategy. • It involves the examination of products/services with low margins and/or volatility and the removal of them from the portfolio – remove risk to the business. • In the context of the product life cycle concept/model, you examine where each product/service is positioned. • An important tool to aid decision-making – helps to steer resources towards the most productive areas. • Reveals the strengths and weaknesses of the product/service mix. • Some may refer to Boston matrix (but not required). NB Some candidates may adopt an approach in which they refer to ‘one product’ out of a product portfolio and then identify benefits to a business of nalyzing that product in the market. This is an acceptable approach. 9609/11/O/N/16 - Discuss the importance of branding in the promotion of a soft drinks product. [12] • Branding is concerned with establishing an identifiable product image that supports regular and loyal customer buying behaviour – creates expectations. • Branding promotes visibility, reduces price elasticity, and establishes a strong connection between customer and product. • Produces a competitive advantage. • Soft drinks are a very competitive industry, so arguably branding is very important, especially when soft drinks products are marketed. • More effective marketing results, it is argued, with a strong brand. • However is price-led marketing breaking down the power and importance of brands and branding? • Can discount retailers in fact secure product loyalty with consistent low prices-is low price marketing the main ‘game in town’ in some market sectors? • Are some discount retailers creating a generic low price retail brand? (Aldi/Lidl in the UK) 9609/12/O/N/16 – Define ‘secondary market research’. [2] The collection of data from second hand sources. 9609/12/O/N/16 - Briefly explain two advantages of using ‘focus groups’ as a method of market research. [3] Definition: a form of qualitative research in which a group of people are asked about their perceptions/opinions/beliefs/attitudes/views towards a product or service. Answers could include: • Considered to be an important source of marketing data. • Used to secure feedback about new products/services. • Considered to be more accurate and reliable information than surveys. • More opportunity for views, ideas, comments than in individual interviews or questionnaires – rich discussion. • Produces important qualitative information. • Can save time / cost. NB: focus groups can consist of general consumers or targeted consumers. 9609/12/O/N/16 - Analyse, using examples, why packaging could be important in the marketing mix. [8] • Packaging is often advanced as an additional P to the 4P's – the quality, design, colour of a product's packaging is often considered to be very important.(eg: perfume/fragrance as a luxury product) • Packaging can perform a number of functions – protect and contain the product – give instructions to the customer about the product (contents, ingredients, how to use) – support and sustain the image of the product – support the recognition/brand of the product. • If packaging is poor it can destroy the quality image that is sought for a product. • If packaging is seen to be too wasteful of resources, consumers may respond negatively in an environmentally concerned time. • Packaging has to support the overall objective of the business. • So packaging is functional (protects product) – it attracts the customer – it promotes the product – it differentiates the product – it encourages purchasing. NB: the question asks for examples; these can be product specific or examples that demonstrate application of packaging to the marketing mix. 9609/13/O/N/16 – Define ‘product life cycle’. [2] The stages/cycle a product goes through from introduction to withdrawal from the market. Or, the marketing stages are traditionally broken down into 4 stages e.g. introduction/launch, growth, maturity and decline 9609/13/O/N/16 - Briefly explain two uses of the product life cycle to a business. [3] • The PLC concept assists with planning marketing mix decisions – when/how to launch a new product – at what stage do you reduce the price of a product – when do you spend most of your advertising budget – when do you make changes to the product? • Indicates the extent of the cash flows at different stages of the life of a product – at introduction stage will be negative – at maturity stage most positive. • Indicates the need for a balanced product portfolio – when to replace a product. • An important analytical tool – a check on the effectiveness of the marketing strategy of a business. 9609/13/O/N/16 - Discuss how a large national fast food retailer could develop effective marketing during a period of economic recession. [20] • Recession may be short term – but will present specific challenges that will require a revised/changes to marketing • Customers will likely cut spending and have stricter priorities. • A number of marketing principles may be suggested to steer an appropriate and effective marketing approach: – know your customer needs. – establish an emotional relationship with customers (share the pain). – improve affordability. – maintain quality of product/service. – emphasise your core values. – re-evaluate your offer. • Some key elements of an effective marketing strategy could include:- – compete more on price. – stream-line product portfolio – offer more family meals. – communicate with a greater focus on cost effective direct marketing – but also take advantage of lower marketing costs. – innovate with more value-for-money meals. – seek organisation production cost reduction. Answers may well use 4Ps or 4Cs to outline what marketing activities may need to change. This is acceptable. Strong answers might suggest that recession times may also offer opportunities to strengthen the brand and prepare for better times. 9609/12/F/M/17 – Define the term ‘market research’. [2] Market research is defined as process of collecting, recording and analysis of data about customers, competitors and the market/product/service. 9609/12/F/M/17 - Briefly explain the limitations to a business of using secondary market research information. [3] Secondary market research is the analysis of information that already exists – there are various sources of such information, e.g. internet, commercial information organisations. Main purpose of desk research is to gain information and market intelligence on competitors Considered to be a low-cost approach to getting market information 9609/12/F/M/17 – Analyse the importance of a Unique Selling Point (USP) to a mobile (cell) phone manufacturer. [8] • Answers need to define the marketing concept of a USP – a specific means or method of product differentiation to gain a competitive advantage – the aspects of a product or service that makes it different from others. • The context of a mobile phone business is the intense market competition and where products may be subject to rapid and significant changes in fashion and technology, hence the requirement to continually establish and review the USP of the product and to communicate it through promotion and advertising. • Developing a USP can be very expensive, requiring heavy and sustained promotion. • By patented technical innovation, a cell phone manufacturer may be able to retain customer loyalty, capture the attention of new customers and so gain higher profits. 9609/12/F/M/17 - Discuss how a retail business could improve customer relations. [12] • Concern for the customer is considered to be of vital importance as retail stores compete for business, (some people are, in fact, willing to pay a premium price for distinctive customer care). • A customer focus (or indeed obsession) is considered to be a cultural characteristic of successful retail stores and an essential component of reputation and loyalty. • Good customer care becomes so significant and obvious that it assumes the role of a USP. How might customer relations be improved: • Recognise customer care as a potential USP. • Make improved customer relations a key organisation objective – motivate/incentivise staff. • Examine style of management and leadership in the organisation. • Establish and support a culture of customer care – it becomes a key feature of the mission statement. • A key feature of appraisal/staff development systems. • Specific methods could include: opportunities for customer feedback and suggestions. • Improve the service to customers. • Improve the range of products/information about goods. • Take on more staff/more training for existing staff etc. 9609/11/M/J/17 – Define the term ‘price skimming’. [2] Price skimming is a pricing strategy which involves setting a relatively high price for a product or service: one mark. For a second mark answers could include the following: • The price is then lowered (over time) • It is a new product or a differentiated product • The product has a low price elasticity of demand • In order to seek a high level of profit/sales/demand • To recover any investment (such as R&D) 9609/11/M/J/17 - Briefly explain why a business might use a price skimming strategy. [3] • To exploit the distinctive attributes of a new product in the market • To create consumer perception of high quality • To maximise short term profits on such a differentiated product/service • To recover any investment (such as R&D) • To exploit an inelastic demand for a product/a monopoly position 9609/12/M/J/17 – Define the term ‘demand’. [2] • A sound definition is ‘Demand is the quantity/amount that consumers are willing/able to buy at a given price (or in a particular time period.).’ 9609/12/M/J/17 - Briefly explain two factors that could influence the demand for restaurant meals. [3] • the price / cost of a restaurant meal compared to other customer expenditure options. • the relative increase / decrease in customer discretionary income. • the state of the (local) economy in terms of employment, wage and salary levels, recession or economic prosperity. • the price / cost of substitute products / services (food and drink price levels) / changes that might encourage home eating and meals. • availability and range of restaurant options, quality of meals and service. • degree of advertising / promotion, special offers, BOGOF etc. • the location of a restaurant • the time period of the meal, busier at lunch and dinner. A range of factors – some customer orientated – some market orientated – some macro-economic orientated. 9609/12/M/J/17 - Discuss whether market research will reduce problems that might be experienced by a new start-up business. [12] • Answers might then define market research and methods of market research. • Ways in which new business problems could be reduced by market research could include (prior to start-up and in the early period of trading.) • Better understanding of your target market. • Identify and keep up with market trends. • Set realistic targets for sales and revenue. • Make better informed marketing decisions (4Ps). • Better identify specific problems – sales fall due to new competitor, or substitute produce now available. • Identify new business opportunities. Answers might well use Primary and Secondary market research methods as a framework for answering this question. Credit to be given as this approach supports and provides a relevant response. Market research then has the potential to provide more accurate information / data relating to potential customers, existing and potential competitors / products, marketing opportunities – that may well reduce risk and facilitate more confident business decision making. It is, however, expensive (particularly primary market research) and new start-up businesses may not have the finance or the inclination to engage in extensive market research. ALSO not all problems experienced by a new start up business will be problems that can be solved by market research e.g. the internal management of the new business may be inadequate, sudden changes in the external environment may present significant problems for a new business such as recession and new competition, new technology etc. 9609/13/M/J/17 - Explain how viral marketing could be an important part of marketing for a business. [5] • Definition of viral marketing – marketing technique that uses social media networks to increase brand awareness of products and services. Idea is to generate an 'infection' of thought among the base users which is passed on and multiplied. • Viral marketing adds to the traditional methods of marketing the messages of a business. • Viral marketing can build brand recognition very quickly. • Viral marketing may well be a highly effective and cost efficient tool in the marketing mix in exploiting social networks to produce exponential increases in brand awareness. • Viral marketing becomes very attractive as traditional channels become more competitive and expensive. • Very attractive to start-up ventures with limited marketing budgets and can deliver outstanding results in a short space of time. • Viral marketing needs to be integrated with the other variables in a marketing mix, and can significantly improve a marketing ROI. • So viral marketing can be an important part of a marketing strategy, but there are risks. 9609/13/M/J/17 – Analyse how the features of an international market may differ from the features of a national market. [8] Selling in foreign markets is much more common in the 21st century – globalisation. International markets are an opportunity to profitably expand sales – indeed, competition may require it. What are the special features/problems likely to exist in international markets not experienced in national/regional markets – • legal differences – different/lack of regulations • unstable governments – leading to acts of terrorism, civil violence • differences in tax rates – living standards – age profile etc. • cultural differences – role of women may be different – use of language – dress codes – different products demanded. • business practices – different legal practices – working conditions, use of 'gifts' to obtain contracts. • more uncertainty – more complex environment socially, economically and politically in an international market. • possibility of cheaper labour and materials • larger markets/more segmented markets 9609/13/M/J/17 - Discuss the advantages and disadvantages for a multi-product business of using product life cycles to help make effective marketing decisions. [12] • Explain the PLC concept – the life cycle of a product/service – record and analyse the sales of a product from launch to withdrawal from the market. • A main form of product portfolio analysis – important in the context of this multi-product business. Advantages • Helps a business develop a balanced portfolio of products – with products at different stages of life cycle. • Helps a business to plan ahead with new products – take out old ones – identify gaps – determine type of marketing required for each product. • Provides information for the use of the marketing mix – e.g. penetration pricing in early stage of a product – high promotional expenditure in growth period – extension strategies later. Limitations • Exact span of a life cycle for a product is often difficult to estimate. • External changes in the market (new technology) can quickly reduce the value of planning based on life-cycle forecasts. • Extension strategies may or may not reverse the decline of a product. • Many products do not go through a complete life cycle. • PLC not so useful in dynamic, ever-changing markets. • It may be expensive to do in a multi-product business Evaluation might discuss whether the product life cycle approach is sufficient to make effective marketing decisions; is more needed e.g. more focussed attention on marketing issues? 9609/11/O/N/17 – Define the term ‘channel of distribution’. [2] It is the chain of intermediaries a product passes through (1) from producer to consumer. (1) 9609/11/O/N/17 - Briefly explain two factors a manufacturing business might consider in deciding on an appropriate channel of distribution. [3] • cost of different distribution channels e.g. direct selling involves shipping costs and requires the manufacturer to hold inventory. • using intermediaries means reduced profits for the manufacturer. • efficiency of distribution channel; which will reach the customer the quickest and at the lowest cost to the manufacturer. • which channel gives the manufacturer the control they require over how the product is presented to the customer. • type of product – industrial products tend to be sold more directly than consumer goods, perishable direct to retailers. • the nature of the chosen market – if it is large and dispersed, intermediaries may well be needed. • level of service required or demanded by customers – so some products will not be sold via internet (e.g. bespoke products). • technical complexity of the product – may be direct selling, e.g. computers. • number of customers – if high value product and few customers, direct selling might be used (luxury yacht). 9609/11/O/N/17 – Analyse the role of marketing in adding value to a product. [8] Candidates may well use the 4Ps framework to answer this question, but must link to adding value to gain Level 2. Marketing is linking the production of goods and services to the consumer profitably and satisfying business and consumer objectives. Adding value is the difference between the cost of purchasing bought in materials and the price finished goods/services are sold for – the greater the difference the greater the potential for more profit. Marketing / market research / market intelligence can add value by: • identifying how to get a product to the right customers more effectively/cheaply so reducing cost and adding value. • determining the right offer price to set for the target market so creating the optimal amount of added value for that target market. • creating a distinctive brand that becomes a ‘must have’ name that consumers will pay a premium price for. • increase the perception of this product being more valuable so customers are willing to pay more for it. • positioning a business/product/creating a USP so that it stands out from the competition; customers likely to buy the product even if the price is higher than rivals. • creating an exclusive and luxurious retail environment to convince customers to pay more for a ‘luxurious’ product – cosmetic retailers, luxury cars. • using high quality packaging to differentiate a product – perfume – luxury chocolates and make it appear worth the higher price. • promoting the benefits of a product to achieve a result / outcome / emotion – not just a commodity so higher price is justified. • including testimonials in advertising to suggest social proof that the product should be bought at the higher price. 9609/11/O/N/17 - Discuss how market segmentation could be used to improve the profitability of a hotel. [12] Answers may include: • market segmentation – identify different segments within a market and target different products/services to those segments. • a customer-focused marketing strategy with the promise of increased sales and profitability. • it might lead to gaps in the market being identified and exploited. • price discrimination can be used to increase revenue and profits. • profitability – the ability of a business to earn a profit by increasing revenues and decreasing costs. NOTE. Some may adopt a ‘macro approach’ and focus on the whole of the hotel being segmented such as becoming a luxury hotel. This is acceptable if appropriately discussed. • Hotel objectives might include – growth, profitability, full occupancy. • Specific hotel market segments i.e. business traffic during the week, leisure traffic at weekends, special event traffic (celebrations, weddings), conference traffic, all ensuring different revenue streams. • Specific provision could include: luxury penthouse rooms for highincome earners, family rooms, budget rooms etc. all potentially generating higher levels of profit. Evaluative points: increasing hotel facilities to suit different segments involves costs e.g. refurbishment, staffing, materials. Must be enough potential revenue to cover this. Depends on existing reputation / location / competition of hotel as to how successful and therefore profitable, increased market segmentation might be. Impact on decisions if say an economy goes into recession. 9609/11/O/N/17 - ‘Location is the most important factor determining the success of a large car manufacturing business.’ Discuss this statement. [20] Answers may interpret the question in terms of business location generally within a particular country or area, or relating to a decision to relocate / diversify, possibly to another country. Answers may include: • a discussion of the importance of location to any business (including a car manufacturing business) – access to skilled labour, raw materials, transport and communication facilities, governmental support / incentives / light regulations, proximity to other businesses and services, customers. • a recognition that while location is likely to be a significant success factor it will not be the only important factor or necessarily the most important factor. • other critical success factors determining success will be discussed, i.e.: - Operational efficiency – including innovative design, lean / efficient production processes leading to – - Product differentiation – distinctive features, ‘bells and whistles’ that lead to distinctive brand attributes leading to – Customer satisfaction – supported by effective marketing and an effective response to the demands of existing and emerging market opportunities. Strong answers will fully explain the potential contribution made by ‘Location’ to success of a car manufacturing business– but will also recognise that other factors might be equally / more important such as the 3 set out above and not forgetting the quality of leadership and management in the business – location is but one important factor. 9609/12/O/N/17 – Define the term ‘product orientation’. [2] Product orientation is said to be an inward-looking marketing approach (1) which has a focus on making products (1) and invests a high proportion of resources on product features rather than marketing (1). The product is made without carrying out market research (1) and then the business tries to find customers to buy it (1). 9609/12/O/N/17 - Briefly explain two advantages of customer (market) orientation to a business. [3] • this is an outward-looking marketing approach where product decisions are based on customer demand as determined by market research. • it is said to be very important in fast-changing, volatile, consumer markets as it allows speedy response. • market research feedback allows production and marketing to be adapted to the needs of customers before competitors get there first. • it may well reduce number of market failures for newly-developed products. • it reduces high cost wastage of producing an unwanted product. • if business responds continually to customer preferences it is more likely to be a sustainable business. 9609/12/O/N/17 - Analyse how a business might use a price discrimination strategy to increase profit. [8] A definition of price discrimination – the charging of different groups of consumers different prices for the same product giving opportunities to increase profit (as opposed to a single price for all these different markets). Conditions required for successful price discrimination policies may well be spelt out: • company must be able to identify different market segments. • different segments must have different price elasticities (PED). • market segments must be kept separate either by time, physical distance, or nature of use (e.g. Microsoft Office – available at a discount only to educational institutions). • there must be no seepage between the segmented markets. • the company must have some degree of monopoly power. Examples of possible price discrimination policies to improve profit: • rail travellers sub-divided between commuter and casual travellers; • cinemas selling differently priced tickets for adults, children, students, seniors; • different prices for export market products from those sold in home country; • splitting a market between peak and off-peak use; • charging many different prices for airline travel. 9609/13/O/N/17 – Define the term ‘marketing mix’. [2] Defined as the four decisions that must be taken in the effective marketing of a product (or service) (1); i.e. product, price, promotion, place / or it is concerned with the 4Ps (1). 9609/13/O/N/17 - Briefly explain the importance to a business of product in the marketing mix. [3] • the marketing mix is a range of tactical marketing decisions for a product; the aim is to sell products and services profitably using an appropriate marketing mix. • the right product or service must be made available to the customer. • a business must focus on quality, performance, appearance of a product. • a focus on new product development, on establishing a USP – a brand may be necessary. • product life-cycle is very relevant. • product is, therefore, a critical aspect of the marketing mix; it must meet customer expectations. 9609/11/M/J/18 – Define the term ‘market research’. [2] The process of collecting data about customers or markets or competition (1) and analysing such data (1). Finding out what consumers want or need (1) before a product is made (1). Process of gathering primary or secondary data (1) using research methods (e.g. surveys, interviews and product testing) (1) 9609/11/M/J/18 - Briefly explain two advantages to a business of primary (field) market research. [3] Primary market research is first-hand data directly related to the needs of a business. • It is up-to-date and thus more useful than dated secondary research. • Relevant – it is collected for a specific purpose and answers the questions a business asks. • The business has direct control over what and how information is collected. • The information collected is confidential and can be hidden from competitors. • Allows the targeting of customer groups. 9609/12/M/J/18 – Define the term ‘below-the-line promotion’. [2] Promotional activities where the business has direct control over the target or intended audience (1). Promotion that is not a directly paid-for means of communication (1). Promotion based on short-term incentives to purchase (1). The business is not paying a third party to produce promotional materials on its behalf (1). Examples could include sales promotions, loyalty cards, free gifts, flyers, direct marketing, personal selling, word of mouth and sponsorship. (1) 9609/12/M/J/18 - Briefly describe two methods of ‘above-the-line promotion’. [3]
9609/12/M/J/12 – Analyse why a train company might use a strategy of price discrimination. [8]
9609/12/M/J/12 - Discuss whether having a large product portfolio is an advantage for a car manufacturer. [12]
– e.g. meet the specific needs of an emerging economy with basic low-cost motoring.
Evaluation might well recognise that while it might be a competitive advantage, a large product portfolio has potential negative features – a single model or limited model production might be a safer and more profitable approach 9609/11/O/N/18 – Define the term ‘niche marketing’. [2] A focus on a small/subsection/group of a (larger) market (1) through specifically designed / specialised goods and/or services (accept example) (1) related to specific interests, which suit the customer (1). 9609/11/O/N/18 - Briefly explain two limitations of niche marketing. [3] • Misses out on potential mass market customers. • If successful, larger firms / competitors may be attracted into the niche market. • Limited growth / expansion / profit opportunities as sales may be low. • Risk of over-dependence on a single product or market. • Production is expensive due to lack of economies of scale and high average costs of production. • Harder/more expensive to research a smaller niche market in order to determine the separate market segment. • Marketing / advertising / promotion expenditure may need to be high to preserve exclusivity of customer perception. • Higher overall costs leads to a higher price being charged. • Changes in consumer buying habits can have very significant effects in a small niche market, e.g. during a recession. • Labour tends to be specialised and expensive as no mass production possible. • Strong brand image needed to enter and succeed in a niche market. 9609/12/O/N/18 – Define the term ‘unique selling point’ (USP). [2] The special feature(s) of a product / service / business / an example may be given (1) what makes a product stand out or seem special (1) that differentiates it from competitor products or services (1) gives a business a competitive advantage (1). 9609/12/O/N/18 - Briefly explain two benefits to a business of having a USP. [3] • An effective way of distancing a product or service from competitive rivals. • A competitive advantage can be created. • Opportunity to charge higher prices due to exclusive design. • Decrease price elasticity of demand. • Differentiated products / services may lead to higher sales / increased market share. • Effective promotion can focus on the differentiated features. • Customers are attracted to the ‘special’, ‘different’ or ‘exclusive’ nature of the product / service so creating a strong brand and customer loyalty. 9609/12/O/N/18 – Analyse how the 4Cs marketing approach is different to the 4Ps marketing approach. [8] NOTE: Many candidates may simply but effectively analyse the component parts of both the 4P’s and the 4C’s and recognise that they differ i.e. one has a focus on the customer and the other a focus on the product. This approach is acceptable and can achieve Level 3 or 4 with the mark depending on there being analysis and on the quality of that analysis. Answers could also include: • The suggestion is that the two models can be combined – Product and Customer, Price and Cost, Promotion and Communication, and Place and Convenience. • Are they not the two sides of the same coin? You need to consider both sides of the marketing mix to maximise possibility of marketing success. • Both marketing models seek to identify and analyse the key decisions that need to be taken for the effective marketing of a product/service. • Distinction between product /price/promotion/place and customer solution /cost to customer /communication with customer /convenience to customer. • 4Cs developed as some see the 4Ps as being too much focused on the business and its product / service rather than on the ultimate user – the consumer. • The 4Cs is an alternative view of the key elements of successful marketing. • The 4Cs put the customer first in marketing decisions and is a key feature of customer relationship management. • The suggestion is that the 4Ps is outdated, it is too product-orientated and is a risk to your businesses – a customer-orientated approach is said to be a better basis for an effective marketing strategy. 9609/12/O/N/18 - Discuss how a house construction business could improve its customer relations. [12] Some candidates may start by referring to the importance of customer relations. • Good customer relations is said to be concerned with meeting and exceeding customer needs. It is much less expensive and much more profitable to retain existing customers than to acquire new ones. • Generic suggestions to improve customer relations could include: – Have better and well-trained staff that responds to customers’ needs effectively and promptly. – Develop good customer service standards. – Take responsibility for problems / complaints. – Be accessible to customers. – Invite and respond to customer feedback. • Specific customer relations improvements for a house-building business could include:– – Higher quality build specifications. – Realistic completion dates for new build. – More involvement of customers with the final product design and possibly with the builders and architects. – Good after-sales service. – Longer guarantees of work standard. Evaluative comments could discuss the importance of customer relations in any business and in a house construction business and the potential costs/benefits resulting from good public relations. Could also comment on what could happen in a business if customer relations are poor and are not improving. 9609/13/O/N/18 - Explain how an understanding of the product life cycle might help a business manage its product portfolio. [5] • It is important for a business to know when to launch a new product or update an existing one. • A balanced product portfolio is one in which the range of products is one that maximises efficiency in the allocation of resources. • The product life cycle (concept) is a mechanism for assisting with product portfolio analysis. • The product life cycle is the pattern of sales recorded by a product from launch to withdrawal from the market. • It is an analytical tool that examines product sales over a series of stages: introduction, growth, maturity, decline, extension. • This analysis assists in reviewing the product portfolio and suggests when changes may be needed. 9609/12/F/M/19 – Define the term ‘demand’. [2] The amount of a product that consumers are prepared to buy / willingness / ability of consumers to buy / purchase a good (1) How much willing to pay for it / at a given price (1). With all other factors remaining constant (1). The want or need of consumers for goods and services that businesses need to satisfy / fulfil (1). Effective demand is the ability to pay for the products demanded (1). 9609/12/F/M/19 - Briefly explain two factors which might influence demand for digital cameras. [3]
9609/11/M/J/19 – Define the term ‘competitive pricing strategy’. [2] A pricing strategy / method of pricing where a price for a product or service is set / made (1) Based upon the price set by competitors (1). A business offers to match the price of competitors (1). Set a price slightly below competitors (1). An example Mcdonalds v Burger King (1). 9609/11/M/J/19 - Briefly explain why a business might use a price skimming strategy. [3]
9609/12/M/J/19 – Define the term ‘supply’. [2] The quantity of a product / service that businesses are prepared to supply / produce (1). Raw materials sold to a business / coming out of a business / offer / deliver to the market (1). Quantity available to purchase (1). To supply at a given price / has a positive relationship with price (1). To supply at a given time / place (1). 9609/12/M/J/19 - Briefly explain two non-price factors which could increase the demand for a product or service. [3]
9609/12/M/J/19 – Discuss the likely impact on the marketing mix of a bank that decides to make increasing use of the Internet to provide its services. [20]
9609/13/M/J/19 – Define the term ‘market segmentation’. [2] Identifying / dividing a market into sub-groups or segments (1). An example of a sub-group to target (1). Sub-groups or segments have customers with similar characteristics (1). Targeting products or services to these sub-groups or segments (1). Differentiated marketing (1). In order to conduct easier market research (1). Segments are based on the products of a business provider (1). 9609/13/M/J/19 - Briefly explain two reasons why a business might segment its market. [3]
Unit 4 - Operations and project management 9707/11/M/J/14 - Define the term ‘operations management’. [2] • Operations management has been defined as the discipline of managing resources to achieve efficient on-going production/provision of goods and services. • Concerned with workflow at the operational level – how work will be performed, who will do it, how resources will be combined. • The conversion of strategic goals into operational activity. 9707/11/M/J/14 - Briefly explain how changes in technology could affect the operations management of a business. [3] • Advances in technology could mean greater efficiency in production/service processes. • Could mean the need to update equipment and require new investment. • Impact of technological change on employees - can they change/cope? • If the business does not keep up with technological change the operations management may contribute to a fall in demand for the product/service. • Possible impact on productivity and costs. • Could mean less/different staff required. 9707/11/M/J/14 - Explain the differences between batch production and flow production methods. [8] Batch production – a single product made in batches to an individual specification – production process divided into a number of different stages – each operation at each stage carried out in a batch, e.g. there is a demand for 500 bread rolls – allows each batch be matched to a specific demand specification – flexible and some economies of scale if large batches. Flow production – mass production of identical standardised products – continuous sequence of a range of different operations – large quantities produced – automatic – lower unit costs – semi-skilled workers required. 9707/11/M/J/14 - Discuss the implications for a manufacturing business of changing from batch production to flow production. [12] • Factors that could affect a business as it moves from batch production to flow production: ○ new machinery/technology – cost implications. ○ impact on staff – redundancy implications. ○ impact on morale/motivation of staff. ○ implications for inventory requirements. ○ impact on unit costs. ○ impact on quality standards of products. ○ the need to plan and manage this change. ○ impact on consumer – standardised products. • The effect of these factors and implications for the business also determined by the context of the business and its products, e.g. existing levels of automation, the industrial relations situation, the managerial competency within the business. 9707/12s/M/J/14 - Briefly explain two ways operations management could contribute to the success of a business. [3] Answers could explain that operations management is concerned with orchestrating all resources to produce a final product or service and as such is constantly seeking to make the transformation process of inputs into outputs more efficient. Value is therefore added through ways including: ○ reducing costs. ○ reducing wastage. ○ increasing productivity. ○ taking out activities that do not add value. ○ improving design. ○ improving quality. ○ designing more efficient work methods. ○ better product development. ○ more efficient inventory management. 9707/12/M/J/14 - Explain how the effectiveness of the operations management function can be influenced by human resource management. [8] – Operations management decisions involve making effective use of resources (inputs), land, labour and capital to provide outputs in the form of goods and services the transformation process. – Operations management and planning is concerned with: ○ which resources are needed to complete the production/service process. ○ how the work/process will be organised and scheduled. ○ who will perform the work. – Clearly human resource management is a critical factor in efficient and effective operational management processes. People management decisions (HRM) will include issues such as recruitment/selection of appropriate staff for operational efficiency – quality of staff, skills, competences of staff, training and development of staff are all critical aspects of efficient operations management and planning. The impact of HRM, generally on the motivation of staff, on the culture of the organisation, and more specifically on the motivation and culture of the operations management department/division. 9707/12/M/J/14 - Discuss how the actions of competitors could influence the operations management decisions of a car manufacturer. [12] Answers may well describe and define the role of operations management – the concern with effectively transforming inputs into outputs – producing final products (in this case cars) which satisfy consumer demands and so contribute to the profitability and sustainability of the manufacturer. Key operational decisions are made – what to produce, how to produce, where to produce. The actions of competitors may well create new market scenarios that require reaction and response. Competitor actions could include: improvements in design, in quality, in cost reduction, improved customer service, new and innovative models, more attractive pricing offers. An operations management department will need to respond to such changing situations and might include: ○ developing a new/improved computer aided design and/or production process ○ a focus on higher quality -○ more ‘bells and whistles’ on cars ○ develop a more efficient production platform process (including possibility of outsourcing) ○ innovation in product range and models ○ more efficient distribution channels (logistics) ○ more efficiency / cost-cutting 9707/13/M/J/14 - Explain factors that could affect the level of inventory held by a business. [5] – Type of product/materials (e.g. perishable goods). – Depends very much on the particular industry activity of a business – a manufacturing business will probably need to hold high levels of raw materials, work in progress and finished goods – whereas a retailer would hold mainly finished goods. – A business needs to decide and predict inventory levels to meet anticipated demand now and in the near future and ensure continuing production. – A business may need to order and hold inventory levels in order to qualify for bulk order discounts, or special promotions, or to meet suppliers’ requirements for minimum order levels. – A business needs to weigh up the costs and benefits of holding inventory – too much and costs are high – too little and sales may be lost. – A business will be concerned about stock wastage as stock becomes out of date. – Internal and external factors affect business decisions on levels of inventory. 9707/11/O/N/14 - Define the term ‘process innovation’. [2] Process innovation is the use of new/improved production methods, or service delivery methods – the way in which an organisation adopts or devises new manufacturing/service methods. 9707/11/O/N/14 - Briefly explain two advantages to customers of job production. [3] Job production involves a business producing items that specifically meet the requirements of a customer – often one-off items such as a building or a wedding dress. Advantages of job production for a customer include: • product/service usually high quality • producer meets individual customer needs from start to finish • customer likely to have control of the process throughout • customer likely to have ready access to the dedicated team working on the product/service • customer able to intervene at different stages of the process • specification changes can be handled relatively easily • expertise/advice of production team available to customer. 9707/12/O/N/14 - Define the term ‘diseconomies of scale’. [2] Diseconomies of scale are when factors cause: • costs of production to rise and when • the scale of operations is increased. 9707/12/O/N/14 - Briefly explain two reasons why a business could experience diseconomies of scale. [3] Diseconomies of scale are generally related to management challenges/problems associated with directing a large organisation, often with many divisions and spread across countries. Communication is often a major problem leading to diseconomies – excessive use of nonpersonal communication – mass of messages – long chains of command – messages distorted – information is delayed – poor decision-making – lack of feedback – management efficiency reduced. Impersonal organisations – lose contact with employees – demotivation – danger of staff alienation, especially in flow line manufacturing companies (use team work and job enrichment to address these issues). Poor co-ordination – with growth – difficult often to maintain control over the disparate parts of the organisation – purpose and mission not understood – duplication of effort – bureaucracy – this poor co-ordination can lead to higher production costs. Top heavy companies – company politics. 9707/13/O/N/14 - Discuss the factors a large manufacturing business should consider before relocating its operations to another country. – A major operational management decision – factors affect-ing any location decision will be relevant, e.g. site/building costs, labour costs, transport costs, government grants/government support, profit estimates. – Re-location overseas involves other factors such as – can it achieve significant reductions in cost – are they sustainable – how big is the market potential in this new country – governmental financial support available? – Level of education / qualifications of staff – cultural differences. – Specification lists issues such as geography, demography, legal issues, political stability, resource availability, infrastructure and markets as potential important factors influencing an international re-location decision. – Movement of exchange rates could be significant. – A mix of economic and non-economic factors. – Content specific to a manufacturing company could include availability of local manufacturing skills/experience, ease of communication/use of local language, use of IT in process engineering. 9707/12/M/J/15 - Define the term ‘diseconomies of scale’. [2] The term can be defined as the situation when there is an increase in a business unit (average) costs of production as a result of an increase in the scale of operations. 9707/12/M/J/15 - Briefly explain two causes of managerial diseconomies of scale. [3] – Poor co-ordination – as a company grows there may be a proliferation of departments and divisions. A major problem for management is to co-ordinate and control operations – could lead to wasteful duplication of activities and different quality levels, leading to higher production costs. – Workforce problems – in larger companies workers may become isolated/alienated – low morale and motivation – flow line production may intensify motivation issues – poor management of workforce due to increased size of the business. – Poor communication – communication inefficiencies may impact on decision-making – communication overload – lack of feedback and worker involvement – reducing management efficiency. 9707/13/M/J/15 - Define the term ‘process innovation’. [2] Process innovation can be defined as the use of new or improved production methods or service delivery methods. (including significant changes in techniques, equipment and/or software). 9707/13/M/J/15 - Briefly explain two ways a manufacturing business could use process innovation to improve efficiency and effectiveness. [3] – Introducing a new, more cost effective, machine to produce a product. – Moving to a more streamlined production line system e.g. flow production – The use of new software such as 3D modelling software i.e. (CAD). – Use of CAM in production process. – Training i.e. higher skilled workers – Improved motivation – Computerised stock control 9707/11/O/N/15 - Define the term ‘buffer inventory’. [2] Buffer inventory is defined as a minimum level of stock (inventory) safety level that should be held in order to meet a sudden increase in demand or an interruption in supply. 9707/11/O/N/15 - Briefly explain two reasons why inventories of finished goods need to be carefully managed. [3] If inventory is not managed effectively then problems may occur such as: – stock out – out of date stocks may be held if an effective stock rotation system is not used – stock wastage may occur with inefficient inventory storage system – inventory might be too high – high storage costs and opportunity cost of capital tied up 9707/13/O/N/15 – Define the term ‘process innovation’. [2] Process innovation is the use of a new or improved production method or service delivery method. 9707/13/O/N/15 - Briefly explain two ways in which process innovation could improve the operational efficiency of a business. [3] The ways in which process innovation could improve the operational efficiency of a business could include such developments as: – more efficient production processes – robotics – CAD/CAM – making increased use of flow production methods – use of Internet to initiate and track parcel deliveries Examples of process innovation could be generic and/or specific and should relate to operational efficiency/cost reduction or to enhanced product/service quality improvement. 9609/11/M/J/16 – Define ‘inventory management’. [2] Ensuring an appropriate level of inventory (stock) is held (1 mark) within the business. To ensure that inventory is held in appropriate conditions i.e. storage. (1 mark) Inventories are controlled/organised efficiently (1 mark) to ensure uninterrupted production/sales/customer service levels. (1 mark) 9609/11/M/J/16 - Briefly explain two reasons why a business might decide to hold a high level of inventory. [3] Answers could relate to a specific business such as a retailer and/or to particular product/service items within a business. Answers could include: • A buffer against anticipated high demand. • To eliminate/reduce the risk of stock out costs. • To respond to the risk of future supply difficulties. • To plan for significant seasonal variations in demand. • To take advantage of bulk supply price discounts. • To respond to anticipated future price rises in supplier materials – achieve a capital gain. • To improve customer service with consistent high levels of product / service availability. 9609/12/M/J/16 - Explain the costs and benefits to a business of a decision to hold low levels of inventory. [5] Costs such as: Insufficient stock to meet demands – lost sales Lack of raw materials leads to idle production resources Unable to respond to exceptional/new orders quickly If not buying large quantity of inventory, miss out on bulk buying discounts (JIT). Benefits: Opportunity cost of capital invested in inventory is reduced Reduced storage costs Reduced risk of wastage/obsolescence Easier to organise and retrieve inventory. Very much depends on the type of business activity involved and whether demand is normal or exceptional. It is a trade-off between benefits and risk of incurring costs. 9609/11/O/N/16 – Analyse the benefits and limitations of a labour intensive production process for a business. [8] • Operations managers must decide on the combination of factors of production – one option is to use a high level of labour relative to capital equipment. • Obviously more appropriate and necessary for some businesses – the nature of the business (say hotels and restaurants). • More labour may afford opportunity to give a more personal service – or a more unique product (hand crafted furniture). • In certain situations, it is less expensive to use labour than expensive machines – or where machines are not appropriate – capital investment not required or not available. • Less fixed cost, particularly in recession times – more flexible – can 'lay off' staff. • However, there may be limitations in using a labour intensive production process • Opportunities for expansion – economies of scale may be limited. • Craft/specialised labour may also die away/be in short supply. • Labour-intensive production may become uncompetitive. • Labour costs initially low may become too high. • More likely to get government grants due to increasing/creating employment 9609/11/O/N/16 - Discuss the importance of ‘intellectual capital’ for a university. [12] • Intellectual capital defined – the knowledge, experience, enterprise, customer relationships, and organisational technology of a business – regarded as an important intangible asset. • Valuable potentially for all businesses – could give a competitive advantage, a USP – the difference between the book value of a company and its market value. • In an increasingly knowledge-based word – intellectual capital is regarded as a very important asset. • Universities – the main purpose/business is education, learning and the production of knowledge. • The importance for a University is the opportunity for knowledge transfer – new ideas, new solutions can become commercial opportunities and commercial businesses can be developed in a University setting. • The distinctive approach to teaching methods, course provision, research activity and results can develop out of the rich intellectual capital of the organisation and lead to a distinctive reputation/brand. • It strengthens the brand. • It attracts the best students/staff. • It can attract government grants for research. 9609/12/O/N/16 - Discuss ways in which the operations management department of a car manufacturing company could help the business survive during an economic recession. [20] • On its own an operations management department could seek to improve efficiency, reduce costs, enhance product quality by:- – process innovation – new ways of production – decrease costs. – re-engineer the product, enhance quality of cars. – strengthen role of CAM and CAD to strengthen efficiency and quality. – review and change the transformation/value added processes in the company. • With other departments:- – work with marketing to review distribution channels, marketing strategies. – work with Finance and HRM to review efficiency measures. – interim and longer term – e.g. reduce labour force, consider investments in new technology. Perceptive answers will recognise that operations management has the potential to make an impact on the profit/loss position at times of economic recession – but other internal and external factors may also be important. In this question we do not know if the business is /was profitable or is making a loss Candidates could well make assumptions and/or introduce different scenarios. The external environment in this question is clearly not helpful for business survival, and so even if the operations department succeeds in stemming any losses or maintain profitability through lean production, the depressed external environment may well delay or halt any planned business recovery/turnaround. 9609/13/O/N/16 – Define ‘transformation process’ [2] An activity (process) or group of activities that takes inputs and converts them into outputs. 9609/13/O/N/16 - Briefly explain two objectives of an operations management department [3] • To design, create, produce goods and services for an organisation and its customers – effectively. • To direct and control the transformation process – so that it is efficient and effective and adds value. • To procure appropriate inputs in a cost effective way. • To effectively manage an appropriate inventory level. • To focus on quality, speed of response, flexibility, type cost of the production process. • Achieve an effective labour/capital production mix. • To incorporate latest technological approaches into the production process. 9609/12/F/M/17 – Define the term ‘economies of scale’. [2] Economies of scale occur when the costs of production fall (1) when the scale of operations is increased (1). 9609/12/F/M/17 - Briefly explain two causes of diseconomies of scale. [3] • Diseconomies of scale are generally related to management challenges/ problems associated with directing a large organisation, often with many divisions and spread across different locations/ countries. • Communication is often a major problem leading to diseconomies - excessive use of non-personal communication – mass of messages – long chains of command – messages distorted – information is delayed – poor decision-making – lack of feedback – management efficiency reduced. • Impersonal organisations – lose contact with employees – de-motivation – danger of staff alienation, especially in flow line manufacturing companies (use team work and job enrichment to address these issues). • Poor co-ordination – with growth – difficult often to maintain control over the disparate parts of the organisation – purpose and mission not understood – duplication of effort – bureaucracy – this poor co-ordination can lead to higher production costs. • Top heavy companies – company politics. 9609/11/M/J/17 – Analyse why effective inventory control is important to a manufacturing business. [8] Answers could include: Analysis might well initially define effective inventory control – to ensure that inventory cost is minimised – (raw materials, work in progress, finished goods). Maintain an optimum level of inventory that allows a smooth production and sales process, avoid unnecessary holding costs, for example insurance costs and stock-out costs. Important to a manufacturing business: • manufacturers rely on inventory to complete a finished product e.g. auto parts for a finished car • need to plan ahead and have an efficient ordering system to anticipate and maintain adequate and appropriate levels and types of stock, e.g. late orders can cost more • loss of customers if demand cannot be met with brand and reputational damage. • important also that a manufacturer records accurately the cost of goods sold in the income statement which affects profit calculations Good answers will identify what comprises effective inventory control and will apply this to the specifics of a manufacturing business. 9609/11/M/J/17 - Discuss the advantages and disadvantages for a manufacturing business of using the Just in Time (JIT) method of inventory control. [12] Description of a JIT system of inventory control – a demand-pull system of production that means a business produces only what is required, in the correct quantity at the correct time, so that inventory is kept to a minimum. A carefully planned scheduling and flow of resources through the production process and supplies are delivered right to the production / consumption line only when needed. Advantages • Funds not tied up in inventory can be used elsewhere • Storage areas can be used for more productive processes • Potential quicker response to customer demand and greater potential output/production • Defect rates reduced, less wastage, greater customer satisfaction • Parts used in production may be newer, more up to date, and at lower cost Disadvantages • Expensive to introduce JIT in a business. • Opens a business to a number of risks especially those associated with the supply chain. • A minor disruption in production from just one supplier can force a manufacturer to stop production at very short notice. • Toyota had a fire in its supplier of brake parts and had to stop production within 3 days losing $15 billion as a result. Discussion should give relevant examples of benefits and potential disadvantages in a manufacturing context. Evaluative comments might well include reference to an assessment of risk for a business of using JIT and that it may well depend on the nature of a business and its relationship with stakeholders especially suppliers. 9609/12/M/J/17 - Explain the possible benefits of mass customisation to a computer manufacturer. [5] • Mass customisation is a production process where there is a flow production of products with many standardised components but with flexible equipment – often computer controlled that allows for variations in the product – the production process is supported by a flexible and multi-skilled workforce. • There are low unit costs due to the flow production but also a flexibility to meet customers’ individual requirements. • A business using mass customisation can produce a variety of products and use a focused or differentiated marketing approach and achieve higher added value. • A computer manufacturer can, using mass customisation, make a customised computer to meet customer specific needs in just a few hours. By changing just a few of the key components of computer production – and keeping the rest standard, low unit costs are achieved with greater product choice. • The technology of mass customisation gives a computer manufacturer the advantages of high volumes combined with the ability to make slightly different products for different markets. 9609/13/M/J/17 – Define the term ‘buffer inventory’. [2] The minimum/safety inventory level that should be held to ensure that production can take place should delivery of supplies be delayed / or production rates need to increase. 9609/13/M/J/17 - Briefly explain two likely consequences for a business of poor inventory management. [3] Inventory is raw materials, work in progress, finished products. Consequences of inefficient inventory management could include: • Cost implications – storage costs, inventory handling costs, damaged/obsolescence, opportunity costs of capital tied up in stock (too high inventory levels). • Insufficient inventories to meet changes in demand – lost sales. • Out-of-date inventories – non-rotation – leads to losses – food – fast changing technology products. • Late deliveries • Low discounts from suppliers • Idle production – resources if inventory supplies run out. • Excess finished goods – may need to reduce prices. 9609/13/O/N/17 – Define the term ‘economies of scale’. [2] Defined as reductions in the unit costs of a business (1) resulting from an increase in the scale of operations (1). 9609/13/O/N/17 - Define the term ‘economies of scale’. [2] • purchasing economies – discounts for bulk buying. • technical economies – use of flow production lines and sophisticated computer equipment; high cost equipment spread over large-scale production. • financial economies – large firms advantaged in raising loan finance and at better rates. • marketing economies – these costs (e.g. sales force) spread over a higher level of sales. • managerial economies – large businesses able to employ more specialised managers. 9609/12/F/M/18 - Explain why mass customisation might be used by businesses. [5] • Mass customisation is a company’s ability to efficiently mass produce products that meet individual consumer wants and needs. • Examples may include functional and aesthetic features of computers, cars, clothing, M&Ms, trainers, cards, chocolates, a flower bouquet for a special occasion etc. • High customer satisfaction as they are getting exactly what they want which leads to improved company reputation and sales. • Reduced costs of inventories of unsold goods and raw materials • Higher profit expected if customer demand and satisfaction is high • High level of added value and therefore premium price can be charged • High level of involvement of consumer in design / production process • Customised products more attractive to consumers than uniform products • Companies can develop strong relationships with their customers and this loyalty leads to return business time and again • Workforce is more fulfilled as they take part in numerous tasks as opposed to one production line responsibility 9609/11/M/J/18 – Define the term ‘productivity’. [2] The effectiveness/efficiency of productive effort (1) the amount of output produced (1) against the inputs used to produce (1) a measure of efficiency (1) the contribution of a worker (1) in a certain time (1). Productivity = Output/ Time Period OR Output/No. of employees 9609/11/M/J/18 - Briefly explain two ways a manufacturing business could improve productivity. [3] • Improve the training of employees to raise skill levels. • Improve employee motivation – intrinsic and extrinsic rewards. • Invest in more advanced technology. • More efficient management of employees. • Set clear goals and measure performance. • Recruit better employees. • Give better feedback. • Improve quality assurance/control. • Reduce waste. • Introduce Kaizen/cell production. • Improved communication. 9609/12/M/J/18 – Define the term ‘inventory management’. [2] The activities involved in maintaining an appropriate/optimal amount/ level of inventory (1) to assist cash flow and keep costs low (1). To ensure uninterrupted production/service levels (1). The management/control/organisation of stock items/suppliers (1). Overseeing ordering of inventory / storage of inventory (1). The efficient control of stock levels (1). One type is JIT (allow other methods) (1). 9609/12/M/J/18 - Briefly explain two reasons why a business might decide to hold a high level of inventory. [3]
9609/13/M/J/18 – Define the term ‘operations management’. [2] The process of managing resources e.g. labour / capital / stock at the operational level (1) to achieve efficient production (1) and provision of goods / services (1). Managing/planning the transformation process – inputs into outputs (1) managing the production process (1). Deciding what to produce (1). Deciding on method of production e.g. using technology (1). The scale of production (1). What materials to use (1). The process of adding value (1). Quality control (1). 9609/13/M/J/18 - Briefly explain two ways in which changes in technology might affect the operations management of a business. [3] • Technological change / advancement could mean greater efficiency in productive process. • However, failures in newly installed technology may cause disruption to production. • Might require business to purchase new technically advanced machinery – new investment required. • Changes in technology will take time to implement. • Businesses that do not invest in and use new technology may fall behind competitors. • Impact on employees – new training required to work new advanced machinery. • Might mean fewer staff in operations management. 9609/11/O/N/18 - Explain the costs and benefits to a business of holding low levels of inventory. [5] Candidates may well use the JIT method of inventory management to answer this question. This is acceptable. Costs: • Insufficient inventory to meet demand will likely lead to lost sales and reduced revenue. • Loss of customer loyalty if items are not available. • Lack of raw materials can lead to idle production. • Exceptional / new orders may not be met. • Low levels of inventory will likely prevent bulk buy discount. • Needs good relationship with supplier, which may be hard to achieve. Benefits: • The opportunity cost of capital invested in stock is reduced. • More usable cash available. • Storage costs are reduced. • Reduced risk of wastage / obsolescence. • Easier organisation of inventory. • More space available. 9609/12/O/N/18 – Analyse how the efficiency of the operations of a manufacturing business could be influenced by its human resources department. [8] • Operations management is responsible for making effective use of resources – land, labour, and capital in transforming inputs into outputs of goods and services. • There is a responsibility to use all opportunities to combine resources in such a way as to ensure operational efficiency and effectiveness. • This involves selection, organising, and scheduling of work processes. • HR is clearly a critical factor affecting operational processes. • People management (HR) decisions and activities, such as the recruitment of skilled operational staff, training and development to retain and strengthen core competencies, are vital. • The impact of HR on the morale and motivation of staff generally and specifically on the culture of operations management will affect effectiveness of production. 9609/12/O/N/18 - Discuss how the actions of competitors could affect the operational management decisions of a car manufacturer. [12] Operational management decisions of a car manufacturer (in conjunction with other departments, e.g. marketing) include producing cars that satisfy customer needs – the key decisions include what to produce, how to produce, where to produce. Competitor actions can include:– • improvements in design and quality • cost reduction • new models • price reductions • improved customer service activities. An operations management department can respond by taking such action as:– • Adopting a new computer-aided design process. • Adopting a new CAM process. • Creating new production platforms. • Innovation in models, new models. • More efficient distribution channels. • Developing new unique ‘bells and whistles’ – USP. Evaluative comments may include: It may not be appropriate to take knee jerk action in response to competitor actions. A reduction in competitor price may be temporary and the brand strength of the car manufacturer may be strong enough to resist the price reduction. It may well depend on the strength and agility of the company and its operational management department. An operations management department does not have to wait for threatening competitor activities or actions. An innovative operations management department might well be ahead of competitors having taken decisions for new investment/new quality models that put competitors on the back foot and /or it continually and effectively monitors competitors so preventing any surprising or threatening competitor actions. 9609/13/O/N/18 – Define the term ‘lead time’. [2] The normal time taken between ordering new inventory (1) and its delivery / receiving the goods (1). 9609/13/O/N/18 - Briefly explain two advantages to a business of effective inventory management. [3] • Ensures there are sufficient inventories to meet unforeseen changes in demand – prevents shortages. • Ensures out of date inventories are not held e.g. fresh food or technological products. • Prevents wastage due to unsuitable storage – makes better use of resources/saves money. • Prevents excessive storage costs and high opportunity cost. • Good management can secure good discounts from suppliers – saving money. • Leads to repeat customers – as they know their needs will be met. 9609/12/F/M/19 – Define the term ‘Just in Time’ (JIT). [2] A method of managing inventory / a method of production / a production or manufacturing process (1). Ordering supplies / materials / inventory only when required / according to the level of production / only when a customer order has been placed (1). Purchasing only the amount of inventory that is forecast to be sold (1). Aims to avoid holding inventory / reduces the amount of stock held at any one time (1). 9609/12/F/M/19 - Briefly explain two benefits for a manufacturing business of using Just in Time (JIT). [3]
9609/12/F/M/19 – Analyse the likely benefits to a car manufacturing company of using capital intensive processes. [8] Capital intensive processes rely mainly on capital ie plant and machinery, IT systems, etc rather than labour. Many car plants use robots for heavy lifting and paint spraying. Initial cost is high but can save on labour costs in the long term. Benefits of using capital intensive processes include:
9609/12/F/M/19 – Discuss whether batch production is the best method of production for a small jewellery manufacturing business. [12]
Best method of production for a small jewellery manufacturing business will depend on the skills of employees, the requirements of the target market and the extent of demand. It may be more profitable to use job production in the niche market for exclusive designer jewellery with a high profit margin, but this will only be achieved if the staff are skilled enough to be able to produce unique items of sufficiently high quality to justify a high enough price. Batch production for most items may allow higher output. 9609/11/M/J/19 - Explain factors that could influence the scale of operations of a business. [5]
9609/11/M/J/19 – Analyse the advantages and disadvantages for a retail business of using Just in Time (JIT) to manage its inventory. [8]
9609/11/M/J/19 - Discuss the importance of flexibility and innovation to a multinational furniture manufacturer. [12]
Evaluation could include reference to how important flexibility and innovation could be in relation to other factors such as marketing and investment and to factors such as the state of development of a particular furniture business. 9609/12/M/J/19 – Define the term ‘job production’. [2] Production of a one-off / unique product or service (1) specially designed by / for a customer (1). One product made at a time (1). Labour intensive production process (1). Requiring a highly skilled work force (1). A method of production (1). A relevant example such as a piece of jewellery (1). 9609/12/M/J/19 - Briefly explain why a business might choose flow production as a method of operation. [3]
9609/13/M/J/19 – Define the term ‘transformation process’. [2] Resource inputs / raw materials in a production process (1). Converted / transformed into products / outputs (1). 9609/13/M/J/19 - Briefly explain two ways a manufacturing business might improve the efficiency of its operations. [3]
Unit 5 - Finance and Accounting 9707/11/M/J/14 - Explain the importance to a new business of cash flow forecasting. [5] • Cash flow forecasts are estimates of the future cash inflows and outflows of a business. • They are financial planning estimates dealing with the future. • They are important, especially for a new business. • They show periods of negative cash flow and so allow plans for additional financing, e.g. a bank overdraft or additional owner finance. • Or plans can be made in negative cash flow periods to reduce expenditure or increase cash inflow by discontinuing credit sales. • Cash flow forecasts give information to investors and bankers – a vital requisite for business start up and development. 9707/12/M/J/14 - State the formula for one accounting ratio that could be used to measure the liquidity of a business.
9707/13/M/J/14 - Define the term ‘break-even’. [2] Break-even is defined as the level of output at which total costs equal total revenue – neither a profit nor a loss is made – a management accounting tool. 9707/13/M/J/14 - Briefly explain two uses of break-even analysis for a manufacturing business. [3] – Indicates break-even levels of production. – Indicates the margin of safety – how much sales could fall without falling into loss. – Useful indicator of the impact of a price decision, e.g. a marketing decision to increase a product price. – Useful indicator of the impact of an operations management decision to lower variable costs with new equipment. – A simple quantitative tool for managers that can be used in making a wide range of business decisions, including setting prices, preparing competitive bids, applying for loans and location decisions. 9707/13/M/J/14 - Discuss how cost information could be used to monitor and improve the performance of a hotel business. [12] – The production, classification and interpretation of costs allow a business to analyse the current cost position and past trends. Such analysis of costs raises performance issues such as: – cost effectiveness. – opportunity costs. – cost reduction opportunities. – pricing decisions. – existing management methods to monitor costs and control costs. – benchmarking with industry levels. – Cost information is considered to be fundamental to business performance and business improvement – it provides critical data for management action. – The application of these general issues and principles to a hotel business could include a focus on the following: Examine the current costs of hotel activities such as: – cost of food for restaurant. – cost of front of house staff. – cost of cleaning, maintaining rooms. – cost of marketing. – cost of running events/services generally. – compare with planned budget. – compare these with industry average. – examine trends in terms of cost/profitability levels. – relationship between cost and price and hotel facilities offered. – look for cost saving initiatives. – use cost information to adopt marginal cost pricing during off-peak periods to increase revenue (and hence performance). – Review cost/budget objectives/targets and in the light of cost information available, set new targets. 9707/11/O/N/14 - Explain why a business needs to hold a suitable level of cash. [8] • Businesses must ensure that they have enough cash to meet all demands in the short term. • While it is important in the long term for a business to make profits, in the short term cash flow and liquidity issues are of vital importance. • Many profitable businesses fail because of insufficient liquidity. • Businesses need to keep a constant watch for signs of liquidity problems. • Holding a sufficient level of cash to ensure that short term liabilities are met and that the day to day needs of the business can be covered. • Businesses may over trade: a business may be expanded too rapidly without the necessary finance so that a cash-flow shortage develops. • Cash flow and liquidity issues are particularly significant for small and new businesses. 9707/11/O/N/14 - Discuss how a small business could improve its cash flow. [12] Cash is the lifeblood of a small business. So cash flow analysis is vital for small businesses. They must first identify reasons for cash flow problems in order to take steps to improve the situation. Some specific ways for improvement may include: • reduce fixed costs such as rent, building costs, staff expenses...this is probably a difficult option • seek to lower your variable costs - lower your costs of goods sold • trim inventory-possibly giving fewer choices to customer • bill promptly and review credit policy • recover debts and better manage late payments • make a more attractive offer to customers • seek better deal with suppliers • consolidate loans for better interest rate • check prices in respect of competition (often customers expect small and regular price increases) • sell underutilised assets • approach bank for extended overdraft. 9707/12/O/N/14 - Define the term ‘retained profit’. [2] 1. Retained profit is profit after payment of taxation and dividends to shareholders. 2. It becomes a source of finance for future activity, ploughed back/invested in the business e.g. a significant source of funds for expansion. 9707/12/O/N/14 - Briefly explain the difference between financial accounting and management accounting. [3] Financial Accounting is concerned with preparing published accounts of a business in line with legal requirements, such as Income Statement/Profit & Loss. These relate to business performance and profitability. They are a record of past performance, not dealing with future predictions and are useful to external stakeholders. Management accounting is concerned with preparing information for managers – this financial information is used for forward planning, reviewing and analysing current business performance – internal use only. 9707/12/O/N/14 - Discuss the usefulness of profitability ratios and liquidity ratios for senior managers when analysing the performance of their business and their competitors. [20] • Accounting ratios (such as profitability and liquidity ratios) assist managers to analyse the current financial position of a business. • Ratios simplify understanding of financial statements and identify changes in the financial condition of a business. • Ratios facilitate inter-business comparisons. Ratios highlight the factors associated with successful and unsuccessful businesses. • Ratios assist in financial planning, forecasting, and control – basic management functions. • Ratios indicate level of suggested management efficiency – if resources are being employed efficiently, if sales revenue is being converted into net profit, if the company is managing working capital effectively. • However, accounting ratios have limitations – even though they are simple to calculate and easy to understand. • Financial statements (from which ratios are calculated) may be affected by accounting conventions and concepts. • Forecasts based on ratio analysis may be substantially affected by factors such as market conditions and management policies. • Non-financial issues/charges not reflected in the ratios may be more important than financial indicators. • Competitor companies may use different accounting principles and procedures so making comparison difficult. 9707/13/O/N/14 - Define the term ‘working capital’. [2] Working capital relates to the short term financial health of a business. The finance available to pay for raw materials, day-to-day running costs, and credit offered to customers i.e. current assets – current liabilities. 9707/13/O/N/14 - Briefly distinguish between revenue expenditure and capital expenditure. [3] – Revenue expenditure related to the cost of the day to day running of a business – such as wages, raw materials and the maintenance of fixed assets – Capital expenditure is the purchase of assets that are expected to last for more than 1 year-generate profit in the future-bring long term advantage to a business such as machinery, vehicles. These will be depreciated over time. 9707/11/M/J/15 - Explain how a manufacturing company could finance its expansion. [5] – depends on the assumptions made about the existing financial position of the business, e.g. retained profits or the potential for sale of assets. – also depends on assumptions made about the extent and amount of capital required – a manufacturing business might need extensive capital machinery additions. – Internal sources may be limited and may put pressure on current expenditure management. – may be limited and may put pressure on current expenditure management. – External sources such as: – if a plc – equity finance. – if not, shareh/older investment. – loans – banks. – loans/grants – Government. – hire purchase/leasing. 9707/11/M/J/15 - Explain why a new business should be more concerned about cash flow than making a profit. [8] – Cash flow is the movement of cash in and out of a business over time. – Profit is the difference between sales revenue and costs. – Cash flow is a significant short-term financial factor and a major cause of business failure in small businesses – it needs to be carefully managed. – A business needs to maintain liquidity. – A business can become insolvent even though it is profitable because of timing problems between cash inflows and cash outflows. – Cash is a vital short-term need – profit can be a longer-term objective. – A small business may over-trade – expand too rapidly and hit short-term cash/liquidity problems. 9707/11/M/J/15 - Discuss the advantages and disadvantages for a new business of using an overdraft as a way of managing its cash flow. [12] The discussion might initially refer to the need to improve a cash flow situation for a new business – there may well be negative cash flows from time to time. The advantages (in the short- term) of using and increasing an overdraft in order to meet cash flow problems could be stated as: – it can usually be arranged quickly. – to allow customers more time to pay. – it is a very flexible way of getting loan finance. – interest is only paid when overdrawn. – no need for collateral. The disadvantages could be stated as: – can be expensive i.e. often higher rates of interest than loans. – may mean that a business is not exploiting less expensive or ‘free’ short-term sources, such as negotiating more trade credit with suppliers. – may mean business is not clearing up bad debt i.e. disincentive to chase up money owing. – only a short-term solution – not long-term. – can be recalled at any time. 9707/12/M/J/15 - Explain how a business could improve its cash flow. [5] Cash flow management (or lack of it) is critical for most businesses but especially for small businesses. An improvement in cash flow could be achieved by: – before taking cash flow improvement measures, an understanding of cash flow problems now and in the future is required. – so an effective cash flow forecast is required. – ways to improve cash flow can be split between: (a) increasing cash inflows, and (b) reducing cash outflows (a) (1) use overdrafts in short term (2) use short-term loan (3) sell off redundant assets (4) reduce credit terms for customers s(5) use debt factoring (b) (1) delay payments to suppliers (2) delay spending on capital equipment (3) use leasing to acquire capital equipment (4) cut some overhead expenditure (5) reduce expansion/growth momentum (6) reduce costs e.g. buying in bulk i.e. achieving discounts All of these measures do have drawbacks that may affect the viability of a business. 9707/12/M/J/15 - Explain how information in the income statement of a public limited company is useful for potential investors. [8] Answers could initially define an Income Statement as a record of the revenue, costs and profits (or loss) of a business over a given period of time. Reference may well be made to the sections of an Income Statement and the information presented: – Gross profit, sales revenue, cost of sales. – Expenses/Net or operating profit and profit after tax. – Dividends and retained profit. Potential investors can use the information to: – measure and compare the performance of a business over time. – compare the performance of the business with other companies. – use ratios from this information to assist performance analysis. – actual profit can be compared with expected profit. Investors and potential investors can use the information to determine whether to put money into the business. It is not all that they will look at but it is important basic/fundamental information. 9707/12/M/J/15 - Discuss the usefulness of accounting ratios for assessing business performance. [12] Accounting ratios are calculated and used to provide more informative performance indicators than those provided in the raw data of published accounts. Benefits – allows clearer analysis of company performance (examples of gross and net profit margin and current and acid test ratios – how they provide more explanation) – ratio results can be compared over time to identify trends. – ratio results can be compared with other company results in the same industry. – potential future problems can be identified. – indicates need for managerial corrective action. Limitations – while these ratios may be useful for detailed investigation of a business’s profitability and liquidity, there are limitations. – latest data may already be out of date. – accounts may contain ‘window dressing’. – company comparisons may be difficult with different year endings. – the external environment may be more important than internal performance. – past may not be a good guide to the future. – problems may be identified – solutions still need to be found. – quantitative information may require qualitative assessment also. 9707/13/M/J/15 - Explain how cost data can be used to monitor and improve business performance. [5] – Different types of cost information can be used to monitor and improve business performance, such as direct, indirect, fixed, variable, marginal cost data. – Any or all of this type of information will allow a business to consider such factors as the cost effectiveness of operations, the opportunity costs of certain activities, the need for cost reduction initiatives, the trends in cost level, and benchmarking with competitor/industry level costs. – Reviewing cost information allows a business to ask vital questions such as: are we keeping a close enough eye on direct costs – on overheads – how could we lower costs – could we negotiate better deals with suppliers? – Cost information is then at the heart of business improvement generally. – Credit to be given for specific cost information examples. 9707/13/M/J/15 - Define the term ‘management’. [2] Management can be defined as the process of organising and co-ordinating resources, including people, to achieve objectives/making decisions – often summarised as planning, organising, staffing/motivating, leading or directing in an organisation. 9707/13/M/J/15 - Briefly explain two of Mintzberg’s roles of management. [3] Henry Mintzberg has identified ten managerial roles common to the work of all managers. These roles are divided into three groups: (i) Interpersonal roles – dealing with and motivating staff in an organisation i.e. Figurehead, Leader, Liaison (ii) Informational roles – dealing with sources and transmission of information i.e. Monitor, Disseminator, Spokesperson (iii) Decisional roles – taking decisions and allocating resources to meet organisational objectives i.e. Entrepreneur, Disturbance handler, Resource allocator, Negotiator. 9707/13/M/J/15 - An international chain of coffee shops is planning to expand into a new country. Discuss the factors that could affect the decision on how to finance this investment. [20] FACTORS affecting the decision as to how this investment might be financed could include: – Any assumptions made about how big an investment this is. – Also, whether there are any government incentives available in this new country. – What is the financial health of this company (assume that it is a PLC). – Are there internal sources of finance – retained profits? – How highly geared is this company – The level of interest rates – Could it make a rights issue? – Is it planning more investment in the future and needs to conserve internal funds? – What sort of business model is it implementing, eg the ‘coffee shops’ could be developed in existing externally owned stores – this will reduce the extent of financial investment required. – Similarly, a franchise model will affect amount of investment. – Might there be partners willing to invest? – Time period involved – Control issues i.e. loss of control/dilution of ownership 9707/13/M/J/15 – Explain why a business might have a high rate of labour turnover. [8] Labour turnover can be defined as the rate at which employees leave a company. There are a number of reasons that could explain a high rate of labour turnover, including: – HR policy and action in the company may not be strong. – Recruitment and selection methods may be deficient so poor staff recruited. – Mis-match of skills and competencies with jobs. – Poor management and leadership – leading to low morale and motivation. – Poor training and development opportunities. – More attractive jobs elsewhere. – The nature of a business – casual, part-time employees might explain a relatively high labour turnover. – Low wages and poor working conditions. 9707/13/M/J/15 - Discuss how a cruise ship company could solve the problem of a high level of passenger complaints about poor customer service. [12] Answers could identify issues relating the low level of customer service and possible solutions, such as: – Thorough investigation and analysis of evidence of the different types of customer service complaints. – Review existing HR policy regarding recruitment, selection of staff (long-term rather than short-term solution). – Examine and make changes if appropriate in the level and type of training given to employees. – Examine the living conditions – hours of work of staff. – Interview members of staff to find out their perspective. – Examine existing management and leadership style on ships. – Apply sanctions if necessary – remove staff/managers. – Set new standards of customer service. – Increase incentives – enhance hygiene factors and develop motivators e.g. bonuses – It needs immediate short-term actions and more long-term initiatives – reputation is at risk. 9707/11/O/N/15 - Define the term ‘retained profit’. [2] Retained profit is the profit left after all deductions including tax and dividends to shareholders have been made and is kept/reinvested in the business. 9707/11/O/N/15 - Briefly explain two external sources of finance that could be used to fund the capital expenditure of a partnership. [3] The capital expenditure requirements of a partnership might be considered to be relatively small as compared to those say of a plc. Nevertheless for a partnership, capital expenditure for say installing a new IT system might well require significant external financing. ‘External’ sources to fund such capital expenditure could include: – new partner/s investing – hire purchase – sale/lease back of assets – medium/long term loan – Government grants/allowances – borrow from friends 9707/12/O/N/15 – Define the term ‘break-even’. [2] Break-even is defined as the level of output/production/point at which total costs equal total revenue – where neither profit nor loss is made. 9707/12/O/N/15 - Briefly explain two limitations of break-even analysis. [3] Although break-even analysis is a useful decision tool, it has its limitations such as: – The assumption that costs and revenues are always shown by straight lines is not realistic. Not all variable costs change smoothly as output increases, e.g. labour costs could increase with output due to overtime and/or competitors’ actions could affect revenues. – The revenue line could be influenced by price reductions in order to sell at higher levels of output. – Not all costs can be classified neatly into fixed and variable costs – semi-variable costs mean a more complicated technique. – The assumption that there is no inventory is also unrealistic, i.e. that all units are sold. – Unlikely that fixed costs will remain unchanged at different output levels. – Break-even is a quantitative not qualitative measure. 9707/13/O/N/15 - Explain the importance to a business of distinguishing between revenue expenditure and capital expenditure. [5] An explanation requires a clear definition of each: – Revenue expenditure is any expenditure other than non-current asset expenditure and includes items such as wages and salaries and materials bought for inventory. – Capital expenditure involves the purchase of assets that are expected to last for more than a year, e.g. buildings and machinery. One is short-term benefit – one is longer term benefit. The importance of the distinction can be explained by reference to: – These two different types of spending will almost certainly need to be financed in different ways (e.g. revenue expenditure from profits and capital expenditure from loans). – These two different types of spending will also be treated differently in business accounts (revenue expenditure will be recorded on each year’s Income Statement, together with that year’s depreciation for non-current assets owned by the business, while capital expenditure will be recorded in the Balance Sheet). 9609/12/F/M/16 - Explain why accurate cost data is important to a business. [5] • without good cost information a business operates in the dark • businesses must carefully record all their costs accurately so that profit can be determined each period and managers have the information to make decisions • a common method of setting sales prices (cost plus) requires accurate cost data – even if prices not determined in this way, managers need to compare sales prices against product costs • calculations of gross margin/gross profit require accurate cost of goods sold data – if not accurate, the information in the Income Statement is misleading • the Balance Sheet requires accurate data for the cost basis of inventory • controlling costs and becoming more efficient is often the key to competitiveness and companies need to use resources effectively – an accurate cost accounting system is vital – cost analysis is very important • to produce an accurate cash flow forecast • to produce accurate/useful break even analysis. 9609/12/F/M/16 – Analyse why it is important for businesses to effectively manage their levels of cash. [8] • Having cash allows a business to operate. • Managing your cash resources and making sure you have enough to meet your needs – to pay wages, buy supplies is absolutely critical. • Hence importance of cash flow forecasting – cash in/cash out – a key management tool – provide information about cash flow over a future period and provide the basis for action to remedy situation before it appears. • Cash flow management – is the control of cash – management accountants deal with a range of cash issues such as ensuring that sufficient cash is available for investment and not tied up in inventory – putting in place procedures for chasing up outstanding debts. • Companies looking only at earnings and not managing cash flow unlikely to survive. Cash flow management is concerned with accelerating the flow of cash into the business and decelerate the flow of cash out of the business. • So cash flow forecasting and cash flow management are critical to the financial health and survival of a business. The simple goal of good cash flow management is to have enough cash on hand when you need it – applies to small and big businesses. There are few more critical business activities. 9609/12/F/M/16 - Discuss how liquidity ratios could be useful for external stakeholders of a business. [12] • Liquidity ratios are used to assess the ability of a business to pay its short term liabilities – e.g. current ratio and acid test ratio. • They are an important measure of the short term health of a business – too little working capital and danger of illiquidity – too much working capital and ineffective use of resources. • Key external stakeholders include existing or potential investors – existing or potential loan providers, existing or potential suppliers. • These external stakeholders will use liquidity ratios to assess the extent to which the company has the necessary cash to fund its operations and plans. • Suppliers and other trade debtors will have a particular focus on liquidity ratios. • A profitable business will not survive very long if it cannot pay its daily expenses. Answers may well refer to the limitations of liquidity ratios – the need to examine the particular features of a business, for example where high inventory levels are common – also need to be aware of trends – is the ratio improving or not? – and how accurate is the data? Alternatively candidates might identify that liquidity ratios are only one part of the picture. 9609/11/M/J/16 – Define ‘marginal costs’. [2] Marginal costs are the additional costs of producing one more unit of output – the extra variable costs required to make this extra unit. 9609/11/M/J/16 - Briefly explain two other types of business costs. [3] • Fixed costs – costs that do not vary with output in the short-term, such as rent of premises. • Variable costs – costs that vary with output, such as the cost of materials used in making a television/iPad. • Semi-variable costs – these include a fixed and variable element, such as the basic wage of a salesperson (fixed) and the element of commission that varies with sales. • Direct costs – costs that can be clearly identified with each unit of production and can be allocated to a cost centre – e.g. the labour cost of a garage mechanic. • Indirect costs – costs that cannot be clearly identified with a unit of production or allocated directly to a cost centre – often referred to as overheads – the cost of cleaning a retail shop. • Average costs – the total cost divided by the number of goods produced (unit cost). • Total costs – variable costs (labour & raw materials) plus fixed costs (independent of quantity produced). 9609/12/M/J/16 – Analyse the importance for a business of distinguishing between revenue expenditure and capital expenditure. [8] These are two different kinds of business expenditure and have significantly different impacts on a business – revenue expenditure is a regular expenditure, gives benefit over the short term, maintains rather than enhances assets. Capital expenditure is long-term, irregular, and produces benefit (assets) over a number of accounting periods. Different in terms of how they are financed – almost certainly financed in different ways – capital expenditure more likely to be financed with debt/loan financing. Different in terms of how these types of expenditure are recorded in financial accounts. Revenue expenditure is on assets and expenses that give short term benefit to the business (1 year) and recorded in full on the Income Statement. Capital expenditure will be recorded on the Income Statement as a yearly depreciation amount and on the Statement of Financial Position as asset valuation. 9609/12/M/J/16 - Discuss the benefits and drawbacks to a business of using only internal sources of finance to fund expansion. [12] Outline of types of internal funding sources, such as building up reserves through retained earnings, sale of unwanted assets. Benefits such as: No direct cost to the business Readily available Does not increase debt No loss of control – no share sale Risk of high gearing reduced Start projects quickly – no approval process externally Drawbacks such as: Using money from capital reserves or operating budgets leaves a business with less money to manage short-term expenses There may well be a limit to the kinds of expansion that can be funded internally (depends on amount of reserves available) Likely to fund only smaller projects where investment is modest, payback is quick and estimated returns significant. The viability of an investment project may be given less robust scrutiny when internal financing is used. There may be tax benefits of external funding that internal funding does not have (tax deductible interest/depreciation) Strong answers will recognise the significance of only using internal sources and will explain how this approach might well limit or counter the advantage claimed. 9609/13/M/J/16 – Define the term ‘start-up capital’. [2] Start-up capital can be defined as the capital/finance/investment needed by an entrepreneur or business person to initially set up a business. 9609/13/M/J/16 - Briefly explain two sources of start-up capital. [3] • Personal, friends and family • Partnership funds • Bank loans • Government grants/assistance • Venture capital • Equity funding • ‘Angel’ investors • Micro finance • Crowd funding • Trade credit The size of any proposed new business will be an important factor in determining the source of funds. 9609/13/M/J/16 – Analyse how profitability ratios could be useful for any two business stakeholders. [8] • Examples of profitability ratios (gross profit margin, profit margin, ROCE). • Examples of business stakeholders – management, employees, shareholders, banks, government, competitors. • Some general uses of profitability ratios such as: – indication of business performance and efficiency – indication of business performance relative to other time periods and other businesses in the industry. • Application of what is indicated by profitability ratios to specific stakeholders, for example: – shareholders/investors – information to compare performance and decide to invest/increase investment – employees – indication of job security – opportunity to press for better salaries/wages. 9609/13/M/J/16 - Discuss the view that the limitations of published accounts significantly weaken their usefulness for business stakeholders. [12] • Identify published accounts – Income Statement, Statement of Financial Position. • Identification of limitations of published accounts: – historic statements – what has happened in the past – reflect only monetary/quantitative transactions – qualitative factors – reputation, loyalty of employees, integrity of management – left out – many items left to personal judgement of the accountant, e.g. inventory valuation, bad debts provision, depreciation – window dressing However: – published accounts are still of significant value; required by law – provide reliable information and indicators for internal and external stakeholders – aid to decision-making for internal and external stakeholders – can be used for comparable analysis for different time periods – reveals important business performance information – so still valuable for internal and external stakeholders 9609/11/O/N/16 – Define the term ‘working capital’. [2] The capital/finance/money required to pay for day to day running costs, eg, raw materials and credit offered to customers NB. A correct formula i.e. current assets – current liabilities is also worth 2 marks. 9609/11/O/N/16 - Briefly explain two reasons why the effective management of working capital is important for all businesses. [3] • Without sufficient working capital a business will become illiquid – go into liquidation or seek emergency high cost funding. • Too much working capital is detrimental – the opportunity cost of capital tied up in inventories, accounts receivable and idle cash may be high – more productive uses elsewhere. • So effective management is required to see that cash flows are sufficient to deal with anticipated working capital problems – take measures to remedy situations, e.g. shorten credit periods for customers. 9609/12/O/N/16 - Explain why cost information is important for business decision-making. [5] Examples will contribute to the quality of the explanation: • Costing information is an important factor for the following: – key factor in determining profits – informs pricing decisions – informs product decisions • Costing information facilitates control/monitoring/comparisons. • Costing assists in setting budgets and targets • Assists in resource allocation decisions • Costing vital in decisions relating to business options – different production methods, alternative location decisions. Costing is at the heart of business decision-making. 9609/13/O/N/16 – Analyse the advantages of crowd funding as a source of finance for a small business. [8] • The practice of funding a project/venture by raising monetary contributions from a large number of people, typically via the internet. • Access to cheap(er) money for small and medium sized businesses. • No need to sell an equity stake in the business. • Fast and flexible source of finance. • Allows many more speculative projects to be funded. • Supports business expansion. • Acts as a marketing/brand tool. • May give feedback and advice to project fund seeker • Entrepreneurs do not have to risk own money for a new venture. 9609/13/O/N/16 - Discuss the view that non-financial measures of business performance may be as important as financial measures of business performance. [12] • In recent years, there have been moves towards supplementing financial measures of performance such as financial results data and ratio analysis. Nevertheless, quantitative measures of business performance are important and strong answers may well outline the value of financial measures before discussing the case for including qualitative performance measures. • Recognition of the limitations of financial data and often too little emphasis on the qualitative drivers of performance such as innovation, quality, employee relations, intangible assets. • Advantages of non-financial methods of performance measurement – drivers to success are often intangible assets – customer loyalty– innovation, management capability, employee relations, brand value may well compose a significant proportion of the value of a business. – non-financial measures are more closely linked to long term strategy of a business – the progress made towards reducing competition, increasing customer loyalty – while traditional measures are more short term. − non-financial measures can be better indicators of the long term/future financial performance - R&D decisions made now may well produce longer term benefits – traditional measures do not capture this. − Perceptive answers will recognise the need for an integrated set of performance measures – a balanced scorecard approach and that non-financial measures are themselves not without limitations. 9609/12/F/M/17 – Define the term ‘working capital’. [2] The capital needed to pay for day-to-day running costs, e.g. raw materials and credit offered to customers (2). In accounting terms working capital = current assets-current liabilities (2). 9609/12/F/M/17 - Briefly explain the difference between revenue expenditure and capital expenditure. [3] Revenue expenditure is spending on all costs and assets other than fixed assets (non-current assets) – includes wages, raw materials, and maintenance of fixed assets. Capital expenditure is spending on assets such as machinery, vehicles and buildings that are expected to last for more than one year. These will be depreciated over time. 9609/11/M/J/17 – Define the term ‘window dressing’ with reference to published accounts. [2] Window dressing is where company accountants present their published accounts in a very favourable way to shareholders/investors in order to give the appearance of a well-run company and/or to attract more investment. 9609/11/M/J/17 - Briefly explain how window dressing might limit the usefulness of published accounts. [3] • Published accounts may be ‘window dressed’ to give a minimum amount of information - significant information is not disclosed so important information is not included in the published accounts. • Published accounts may be ‘window dressed’ to give a boost to the short term performance of a business and hence a misleading and inaccurate statement is given. • This window dressing may well be legal but has the effect of reducing the accuracy and reliability of published accounts. Comparability with previous year’s accounts and with competitor accounts is compromised. • In consequence the usefulness of ‘window dressed published accounts can be significantly undermined e.g. the ability to monitor, evaluate, and call to account a business through examination of published accounts is weakened. Answers might also give examples of how window dressing could be practised. • postpone paying suppliers so that period end cash appears higher than it should be. • sell assets at the end of the financial year to give more cash and improve liquidity position. • reduce the amount of depreciation of fixed assets to increase declared profit. • record an unrealistically low ‘bad debts’ amount. • giving stock values a higher value than they are really worth. • accelerating revenues from a future period into the current period. 9609/12/M/J/17 – Define the term ‘debt factoring’. [2] • A definition that suggests that when a business sells its debts / invoices to a debt-factoring / third party company should be awarded 2 marks. 9609/12/M/J/17 - Briefly explain how leasing might be used by a business to improve cash flow. [3] • Leasing – is obtaining the use of (but not necessarily purchasing) equipment or vehicles from a leasing or finance company – assets are acquired over the medium term paying a rental charge over a fixed period but not having to purchase the asset at the end of the period. • Leasing avoids the need to raise what may be significant amounts of capital to buy assets with a positive impact on net cash flow • Leasing companies may maintain and update equipment with leasing • Many answers refer to businesses leasing out unwanted assets and thus increasing cash flow which is equally acceptable. 9609/12/M/J/17 - Discuss the view that the quantitative information in published accounts does not present a complete picture of business performance. [12] • discussion of the limitations of quantitative measures of performance as provided in published accounts leading to an incomplete picture of business performance. • a focus on the past – not the present or future. • measurement of the metrics can lead to manipulation / window dressing. • you only count what can be counted and other information is left out • one of the main reasons that performance information and measures are produced is for a company to learn, change, and improve and quantitative measures may not be sufficient. • quantitative measures may well focus only on internal business activity ignore external issues such as customer levels of satisfaction and competitor positions. • it is argued that quantitative information / performance measures need to be complemented with qualitative information (internal and external) • the ‘balanced scorecard’ approach of Kaplan suggests a mixture of quantitative and qualitative KPIs. • qualitative information suggested on the management of human resources (culture, quality of management) on product / service quality, on brand awareness and company profile / reputation as important • you can count money earned, customer transactions, number of patients treated, number of complaints but not so easy to count overall service delivery, organisational culture, intellectual capital, strength of customer relationships ethical / unethical activities. • so in addition to counting it is argued that qualitative information using words and pictures reviewing feelings and behaviours will enhance any measure of business performance. 9609/13/M/J/17 – Define the term ‘share capital’. [2] Share capital is the total value of capital/finance raised from shareholders through the issue of shares or capital used by shareholders to buy shares in a plc. 9609/13/M/J/17 - Briefly explain one advantage and one disadvantage of grants as a source of business finance. [3] A definition/description of grants Funding for businesses often provided by grant giving agencies such as a central government. These are often given to small businesses or those wanting to expand in developing regions. They are often given with conditions attached such as a target number of jobs to be created – if such conditions are met, such grants do not have to be repaid. Advantages: • free money-an attractive financial consideration • good for businesses unable to afford or get a loan • gives confidence to banks and investors • important complement to existing funds • validates the efficacy of your business • easier to get more grants once awarded one Disadvantages: • may be difficult to get • eligibility criteria too demanding • may be too small/insufficient for needs, matching funds • may have too stringent conditions attached • may be too much red tape involved/slow • too much detailed information required • too much detailed control and monitoring of grant use • may become too reliant on grant funding • may be used unwisely 9609/11/O/N/17 – Define the term ‘micro-finance’. [2] The provision of financial services for poor and low-income customers (1) who do not have access to banking services such as loans and overdrafts offered by traditional commercial banks. (1) 9609/11/O/N/17 - Briefly explain two advantages of micro-finance for an entrepreneur. [3] • entrepreneurs use micro-finance to start businesses. • entrepreneurs use micro-finance to operate and grow businesses. • this provides an income and average incomes increase. • provide finance which otherwise would not be available to high risk entrepreneurs with no credit score. • such finance is likely to be at lower interest rates than traditional banks making it easier to pay back. • small capital sums in the form of loans to poor aspiring entrepreneurs (especially in rural areas) have encouraged small businesses to be set up where previously there was no access to such funds. • evidence that women, who traditionally have been denied financial services, have benefitted from micro-finance opportunities. • growth of local economies; incomes rise and families are able to give education to their families. • micro-finance institutions stimulate economic activity and development particularly through entrepreneurial activity – the multiplier effect. 9609/12/O/N/17 – Define the term ‘retained earnings’. [2] Retained earnings (profit) is the profit left after all deductions, including dividends, have been made (1); this is ploughed back into the business as a source of finance (1). Part of the profit that is reinvested in the business (1) rather than distributed to shareholders. (1) 9609/12/O/N/17 - Briefly explain two uses of income statements for senior managers. [3] • income statements record the revenue, costs and profit (or loss) of a business over a given time • provides information on the gross and operating profit of a company and shows how the operating profit is split between dividends to shareholders and retained profits • can be used to measure and compare business performance over time and with other companies (ratios can be calculated to help with this analysis) • used to see where costs could be reduced to increase profits • actual profit data can be compared with expected levels of profit • provide evidence for a bank loan • all this information is useful for senior managers as they review the health of the organisation and make corporate decisions • as important internal stakeholders they may well use the information of a strong set of figures in the income statement to push for improved rates of remuneration and/or propose changes in direction for the business • the information in the income statement will provide vital management information as senior managers review and plan for the future of the business 9609/13/O/N/17 - Discuss the view that cash flow forecasts for a new international airport may be of limited use to its senior managers. [20] Cash flow forecasting aims to estimate cash inflows and outflows to allow effective financial management of a business. The airport is a major capital investment project with significant operational expenditure. The cash flow forecasts will contain estimates of inflows and outflows. Inflows may include: • Capital injection by investors. • Fees paid by airlines for use of the airport. • Income from retail outlets in the airport. Outflows may include: • Interest payments on any loan capital. • Wages and salaries for staff running the airport. • Payment for security of the facility. CFF are important for financial planning and management, but CFF have limitations; factors internal and external to the business can blow CFF off course. Business uncertainty may be especially important in this situation: domestic or international economic recession may affect the flow of business at the airport The price of oil may be volatile and critically affect forecasting. The cash flow estimating may be inadequate; important issues missed or underestimated; wrong assumptions may have been made about, say, the amount of retail income expected. This is a question on the uses and limitations of cash flow forecasting in a specific context. Good answers will address the view stated in the question and provide evidence and analysis to decide if the view expressed is realistic or perhaps a little exaggerated. How significant might be business uncertainty? How realistic are the cash flow forecasts? 9609/12/F/M/18 – Analyse how a business might use break-even analysis when planning to launch a new product. [8] • Break-even analysis uses revenue, fixed costs and variable costs at different production levels to show at what point the business will make neither a loss or a profit. This can be shown on a graph or in a calculation (BE = FC/R–VC). Credit examples. • For a business planning to launch a new product, it shows what output or sales they need to make before they begin to make profit, based on the predictions of revenues and costs. Is reliant on accurate calculations of fixed and variable costs. • Helps to judge the viability of the new product so informs the decision to go ahead with the launch. Useful planning tool. • Helps to understand the level of risk involved in the launch of the new product and decide whether to take it. • Can be used to persuade potential lenders/investors of finance if the breakeven analysis is encouraging. • Encourages the focus on keeping costs down by monitoring expenses and revenues. Costs can change over time so breakeven analysis will need to be amended. • Margin of safety shows how far sales can fall before a loss is made, in case of early problems arising. Candidates may well consider the limitations of break-even analysis. 9609/12/F/M/18 - Discuss the factors that directors of a large pharmaceutical company should consider when choosing how to finance growth. [12] • Understanding of sources of finance – bank loans, overdraft, share capital, venture capital, trade credit, sale of assets, retained profit, crowd funding • Understanding of factors affecting choice of funding – business ownership, profitability, amount of finance needed, short or long term finance, what finance is required for, how easy finance will be for business to obtain, stage of development of the business, cost of finance, attitude to risk, effect on control of business. • Limited company can raise share capital but will dilute ownership and control. • Track record of success makes borrowing easier. Well known firm with recognised brands likely to be a PLC and able to offer new share issue to raise large amounts of finance. • State of the economy – borrowing is easier in a boom when confidence is high. Business may delay growth until it is easier to borrow money. • High interest rates make borrowing expensive. Retained profit would be ideal as no interest to pay but only available to a previously profitable business. • High amount of funding for fairly short term could use overdraft or retained profit, one with high interest, the other with none. Would need a quick return from the growth to justify the overdraft. • Short term injection of low amount of cash could sell assets no longer needed or sale and lease back. If a business is growing this may not be the ideal source of finance as will need more assets not less. For Level 4 several appropriate sources of finance to fund growth may be analysed and an evaluation made of the most suitable to use in the business context. 9609/11/M/J/18 – Define the term ‘margin of safety’. [2] The amount by which the sales level exceeds the break-even level of output (2) OR an indication of how much sales could fall without the business falling into loss (2) OR the difference between the actual output and the break-even level of output (2) OR actual/budgeted sales – break-even sales (2). 9609/11/M/J/18 - Briefly explain two limitations of break-even analysis. [3] • It is supply side only (costs). • It tells you nothing about what sales are actually likely to be for the product at various prices. • Not all costs can be conveniently classified into fixed and variable costs. • It assumes that fixed costs are constant/they can increase • Variable costs do not always stay the same. • Sales are unlikely to be the same as predicted output. • Break-even analysis assumes all output is sold. • There is likely to be some build-up of stock and/or wasted output. • Assumes external environment is stable. • Depends on accuracy of data – it is only a forecast. • It is only useful for one product. 9609/11/M/J/18 – Analyse why accurate cost data is important for all businesses. [8] • Accurate cost data is at the heart of current and future operations and decisions of business organisations. • If costs are not recorded accurately, then managers have incomplete /misleading information on which to make decisions. • Setting prices (e.g. cost-plus) requires accurate cost data. • Calculations of gross margin/gross profit will lead to misleading information in the Income Statement if cost data is not accurate. • The Balance Sheet will not be accurate unless inventory costs are correct. • The valuation of assets on the Balance Sheet will be inaccurate if inventory costs are incorrect. • Cost analysis is vital if costs are to be controlled and resources used efficiently. • Cash flow forecasts need to be accurate if they are to be useful. • Break-even estimates rely on accurate costing. • With accurate cost data a business can run more effectively – e.g. sales prices can be set to a more competitive margin. • Helps with good decision-making – e.g. investment of funds in new directions/cost cutting for savings both depend heavily on correct cost estimates. 9609/11/M/J/18 - Discuss why a new business should focus more on managing its cash than making a profit. [12] • Cash flow is critical for new businesses. • It is common for profitable businesses to run out of cash. • It is vital to have sufficient cash in the short term – profit may have to wait for the long term. • It is important that the distinction between cash and profit is recognised by the business. • New businesses are often given much less time to pay suppliers, given shorter credit periods. • Banks and lenders will require quick and agreed time repayment. • Finance may be difficult for new businesses to obtain, so they need to build up their own cash reserves. • So, cash flow management is critical for new business survival. • The process of generating revenue requires cash, so especially for a new business, cash is more important than profit. • A focus on cash in the early days of a new business may well lead to profit in the long run. Evaluation might well recognise that in the long run, both cash and profit are important. Profit is a long term key objective and sufficient cash is needed in the short term to support any profit made. 9609/12/M/J/18 – Define the term ‘capital expenditure’. [2] The expenditure on fixed or non-current assets (1) e.g. buildings and machinery (1) that are expected to last for more than one year (1). 9609/12/M/J/18 - Briefly explain two reasons why a bank might refuse to lend money to an entrepreneur. [3]
9609/13/M/J/18 – Define the term ‘marginal cost’. [2] The cost / extra cost of producing one more unit of output (2). 9609/13/M/J/18 - Briefly explain, with examples, two other types of business costs. [3] • Fixed costs – costs that do not vary with output in the short-term e.g. rent of premises. • Variable costs – costs that change with output e.g. cost of materials used in making a computer. • Semi-variable costs – these have a fixed and variable element, e.g. the basic wage of a salesperson (fixed) and commission earned (variable). • Direct costs – costs that can clearly be identified with each unit of production and can be allocated to a cost centre, e.g. the wages of a garage mechanic. • Indirect costs – costs that cannot be clearly identified with a unit of production and cannot be allocated directly to a cost centre – e.g. the cost of cleaning a retail shop. 9609/13/M/J/18 – Analyse the advantages of venture capital as a source of finance for a small business. [8] • Venture capitalists are organisations or wealthy individuals who lend risk capital for start-up or expansion. • Small companies may find it difficult to raise capital even if they are profitable. • Venture capitalists supply essential financial backing for small businesses. • They are usually easy to locate and many available at a relatively low cost. • They are usually under strict supervision by regulatory bodies. • Angel investors operate on a smaller scale. • There is no repayment schedule – it is an investment so there is no repayment of debt as a cost of doing business. • An immediate source of temporary finance unavailable elsewhere. • Venture capitalists can also provide important advice, guidance, and consultation – can help with financial management. 9609/13/M/J/18 - Discuss the view that non-financial measures of business performance are just as important as financial measures of business performance. [12] • Focus on quantitative financial data such as financial ratios seen as limiting and possibly misleading. • Financial data can be historic and manipulated. • Financial data gives only a partial picture of performance and misses out measures such as innovation, quality, employee relations, intangible assets – the qualitative drivers of performance. • Non-financial factors such as customer loyalty, brand value, intellectual capital may well point to a significant part of the value of a business. • Financial factors take no account of such factors. • Non-financial measures may well be more closely linked to the longterm performance of a business while traditional financial measures may place too much emphasis on short term issues – focus on strategy rather than just tactics. Evaluative comments could be made about the need for a more integrated set of performance measures – a balanced scorecard approach. 9609/11/O/N/18 – Define the term ‘crowd funding’. [2] A source of business finance (1) for a unique project/new business/venture (1) when a business sets up a fund (1) to raise monetary contributions/donations from the public (1) usually on an on-line platform/website (1). 9609/11/O/N/18 - Briefly explain two advantages of crowd funding for a new business. [3] • Gain capital for a business start-up. • Can be used to buy assets or improve cash flow. • Ideas that may not appeal to conventional investors can often get financed more easily. • Gain finance when it would not otherwise be possible (bank loan/no financial records). • Gain finance quickly and cheaply with no upfront fees or documents. • Easy to gain the finance using online websites. • Often no interest rate required or often lower than traditional borrowing. • May be a donation and money may not be paid back at all. • Crowd funding websites allow new business to promote their businesses to many thousands/millions of potential investors / customers. • This is a useful opportunity to explain the business. • Good way to test public’s reaction to product/idea. • Investors can often become loyal customers. 9609/11/O/N/18 – Analyse the advantages and disadvantages for a new business of using an overdraft to help manage its cash flow. [8] Overdraft financing is provided when businesses make payments from their business current account exceeding the available cash balance. Cash flow management means delaying outflows of cash as long as possible while encouraging anyone who owes you money to pay it as rapidly as possible. All businesses and especially new businesses must carefully manage cash flows and there may, from time to time, be negative cash flows. The advantages of using an overdraft include: • Can usually be arranged quickly. • A very flexible short-term addition of cash. • Allows a business to give customers time to pay. • Can be planned for in advance. • Interest is paid only when overdrawn. • No need for collateral for small overdraft. However, the disadvantages include: • Can be very expensive – high rates of interest, arrangement fee, high charges if an overdraft limit is exceeded. • May be a disincentive for arranging trade credit agreements with suppliers. • May be a disincentive to recoup money owning. • Very much a short-term solution – unlikely to contribute to a long-term healthy cash flow position. • The amount loaned is repayable on demand by the bank. Overdraft in the short-term may be the only option for a new business. 9609/11/O/N/18 - Discuss the view that a new business should be more concerned with cash flow than with profit. [12] • Cash flow is critical for new businesses. • It is common for profitable businesses to run out of cash. • It is vital to have sufficient cash in the short term – profit may have to wait for the long term. • It is important that the distinction between cash and profit is recognised by the business. • New businesses are often given much less time to pay suppliers, given shorter credit periods. • Banks and lenders will require quick and agreed time repayment. • Finance may be difficult for new businesses to obtain, so they need to build up their own cash reserves. • So, cash flow management is critical for new business survival. • The process of generating revenue requires cash, so especially for a new business, cash is more important than profit. • A focus on cash in the early days of a new business may well lead to profit in the long run. Evaluation might well recognise that in the long run, both cash and profit are important. Profit is a long term key objective and sufficient cash is needed in the short term to support any profit made. 9609/12/O/N/18 – Explain how a large manufacturing business could finance investment in new machinery. [5] • The context suggests a significant amount of capital investment. • It depends on the assumptions made about the existing financial position of the business – has it significant retained earnings? – has it assets to sell? • Internal sources may be limited and insufficient to finance all the expenditure required. • Externally the following might be sources of finance:– – Equity finance if a plc. – Bank loans. – Government grants. – Hire purchase/leasing. 9609/13/O/N/18 – Define the term ‘debt factoring’. [2] The selling of the claims on trade receivables (1) to a debt factoring company / third party (1) which will give immediate cash but not the full amount of the trade receivables (1). 9609/13/O/N/18 - Briefly explain two disadvantages of using debt factoring to improve the cash flow of a business. [3] • It is a short-term solution only for a cash flow problem. • It may prevent a business dealing with the core problem. • It may be costlier than other short-term solutions. • It will eat into profit margins in the short-term. • You do not get the full amount owed to the business. 9609/12/F/M/19 – Define the term ‘statement of financial position’. [2] A record of the assets / everything a business owns (1). A record of the liabilities / everything a business owes (1). A reflection of the worth of the company (1). Shows the total capital / capital employed in a business (1) 9609/12/F/M/19 - Briefly explain two uses an investor might make of a statement of financial position. [3]
9609/12/F/M/19 – Analyse the benefits for a new business of producing a cash flow forecast. [8] A Cash Flow Forecast is an estimate of the amount of money you expect to flow in and out of your business and includes all your projected income and expenses.
9609/12/F/M/19 - Discuss how a large food retailer might best improve its profitability ratios. [12] Gross profit margin and profit margin calculated from income statement using revenue, cost of sales and expenses.
9609/11/M/J/19 - Define the term ‘retained earnings’. [2] The profits made by a business that are not distributed to shareholders (1). Profits left after all deductions have been made / dividends have been paid (1). Profits re-invested in the business (1). Profits kept as a reserve (1). A source of internal finance (1). 9609/11/M/J/19 - Briefly explain the distinction between short-term and long-term sources of business finance. [3] Short-term financing.
Long-term financing
9609/11/M/J/19 - Discuss the view that the limitations of income statements and statements of financial position significantly reduce their usefulness as measures of business performance. [20]
Evaluation could include:
9609/12/M/J/19 – Analyse the advantages of crowd funding as a source of finance for small businesses. [8]
9609/12/M/J/19 - ‘Financial measures are the most important indicator of business performance.’ Discuss this view. [12]
9609/13/M/J/19 - Explain why cost information is important for business decision-making. [5]
9609/13/M/J/19 – Analyse the external sources of finance a multinational car manufacturer may use to finance the production of a new electric car. [8]
9609/13/M/J/19 - An ability to understand income statements and statements of financial position is the most important quality required of a senior manager in a business. Discuss this view. [12]
|
Analyse the likely benefits to a car manufacturing company of using capital intensive processes
zusammenhängende Posts
Urheberrechte © © 2024 wiewird Inc.
