Paper 1 Summer 2013

Question 1

Added value

Answer 1

Difference between the cost of purchasing raw materials and the price of the finished goods are sold for

Question 2

Operational decisions might add value to a product

Answer 2

• Product design: distinctive offer to consumers
• Efficiency of production process (e.g. reduce waste, cut costs)
• Focus on quality standard attractive to consumers
• Efficient stock ordering and management systems
• Deciding on suitable production methods

Question 3

Mission Statement

Answer 3

Statement of what the business stands for - its core purpose and focus.
- Aims:
+ State central purpose
+ Motivate employees
+ Stimulate interest external interested parties.
+ Corporate culture
+ Provides guiding principles for business activity

Question 4

How mission Statement might be effectively communicated to stakeholders

Answer 4

• Place in business and strategic business plans
• Publish in company websites
• Use internal newsletters and magazines
• Use advertising and marketing literature
• Staff training/ appraisal
• Publish in published company accounts

Question 5

Ads of using ‘sampling’ in market research

Answer 5

• Saves:
  + Cost: sample rather than the total population
  + Time
• Provide focused detailed data
• More accurate when conducted by skilled/ qualified interviewers and conducted w/ care
• Appropriate selection: remove bias, achieve max precision

Question 6

Bank overdraft

Answer 6

An arrangement by a bank to allow a business to borrow up to an agreed limit as and when it is required.

Question 7

Disads of bank overdraft

Answer 7

• High interest charges
• Banks can ‘call in’ overdrafts at very short notice
• Need to be secured against business assets which puts them at risk
• Cannot be used for large borrwing

Question 8

Why marketing objectives need to be closely link to corporate objectives

Answer 8

• Corporate objectives: profit maximisation, growth, market share, Corporate Social Responsibility (CSR), survival, provide a clear guide for business action and strategy.
• Designed to support and achieve the corporate objectives.
• Pursuit of short term profit targets will require sales to be maximised at highest prices possible.
• Pursuit of longer-term profit objectives may adopt a ‘societal marketing’ approach to incorporate CSR.
• Fit with overall aims and mission of a business.

Question 9

Why portfolio analysis important if the business is to achieve its marketing objectives.

Answer 9

• Marketing objectives: increase market share, increase total sales, product development, rebrand products –> product portfolio needs to be understood and regularly analysed.
• Highly competitive area, vital that width and depth of the product mix is regularly considered.
• Review the ‘optimal product mix’ in the light of current marketing strengths, potential demand estimates, resource issues, and the general market environment.
• Benefits of product portfolio analysis: opportunity to identify market strengths, weaknesses, with a view to improve performance.
• Reference may be made to tools of analysis and should be rewarded as part of relevant analysis – but this is a question of WHY portfolio analysis rather than HOW.

Question 10

‘leader’ should set a clear direction and vision for an organisation, whereas a ‘manager’ should control and allocate resources.

Answer 10

• Distinction is between a ‘passive’ manager and a ‘dynamic’ leader and that they are two very different roles/functions.
• Leadership role (charismatic characteristics): inspire, motivate, win hearts, break new ground, achieve organisational purpose and objectives.
• Reference may be made to leadership theory and leadership roles.
• Management role in terms of objectives, planning, co-ordinating, controlling and motivating – with some reference to theory such as Mintzberg.
• Answers may well argue that good leaders can be bad managers, and good managers can also be very effective leaders.
• The theory of leadership and management suggests distinctive functions but also overlapping responsibilities and opportunities.

Question 11

Why a business environment might be described as dynamic

Answer 11

– It is rarely static -> Volatility and turbulence.
– Legislative/governmental influences change from time to time.
– Economic and social movements: affect demand and supply.
– Technology: making new opportunities and threats.
– Local, national, international competition
– A business may be a part of the change dynamic, as well as needing to react to change initiated by other factors.
– Financial factors: currencies, exchange rates etc.
– credit relevant environmental change factors identified.

Question 12

Only purpose of private sector businesses is to make profit, not to pursue corporate responsibility objectives.

Answer 12

– More profit will allow a ‘trickle down’ effect and supply the resources to deal with social issues.

– Entrepreneurs and managers should maintain a clear focus on ‘bottom line’ issues.

– Markets and prices are distorted – let businesses and markets do what they do best.

– Alternatively it is argued that the social cost of profit focus alone is too high.

– Possible and necessary to combine profit pursuit with socially responsible business practices.

– Vital to continually assess the impact of business activity on the environment and to require more responsible action.

– Corporate social responsibility: essential part of reputation management and can act as a competitive advantage.

Question 13

Retained profit

Answer 13

The profit left after all deductions including dividends have been made, which is ‘ploughed back’ into a company as a potential source of (investment) finance.

Question 14

Ads of retained profit

Answer 14

– Do not carry the costs of external funding.
– Readily available/liquid for speed investment.
– Avoids secured loans and risk to company assets.
– Flexibility in deciding whether or how much of retained profits to use.
– Does not affect the gearing ratio harmfully.

Question 15

Random sampling

Answer 15

A sample where each member of a target population has an equal chance of being included in a sample.

Question 16

Ads of quota sampling

Answer 16

• Quota: a method of research where an interviewer selects an appropriate number of respondents from a stratified population.
  – Ensure the sample includes certain characteristics of the population in proportion to those in the total population

– Compare to random sampling:
\+ Easier to organise
\+ Cheaper to collect
\+ More reliable
– Useful for collecting immediate reaction to an event.

Question 17

How ethics could influence the objectives and activities of a private sector business.

Answer 17

• Ethics: moral guidelines determines business decision-making
• Objectives of private sector businesses: profit maximisation, market share, growth, maximising short-term revenue, maximising shareholder value.

– Stop questionable taking/giving bribes in order to secure sales/location.
– Engage in less polluting production processes.
– Pursue social responsibility rather than just profit.
– Stop exploiting workers/suppliers.
– Extra focus/emphasis on safety issues.
– Amending advertising/marketing in pursuit of higher ethical standards.
– Stop price fixing, collusion with competitors.
– Costs money/reduces profits in the short term.

Question 18

Productivity

Answer 18

The ratio of outputs to inputs during production

Question 19

Increase levels of productivity

Answer 19

– Purchase and use more technically advanced machines/equipment.
– More efficient operational management, e.g. effective maintenance of machinery – effective supervision/motivation of staff.
– Raise skill levels of staff.

Question 20

Potential benefit to a business if employees are involved in the decision-making process.

Answer 20

• The context is staff involvement, participation, feedback, lots of information/communication (democratic approach)
  – Staff expected to contribute fully – e.g. suggestions/quality circles.
  – New solutions expected.
  – In the process higher order needs of staff satisfied.
  – Change likely to be better accepted and managed.
  – High staff motivation and business is more productive.
  – Depends on the experience and degree of responsibility staff prepared to accept, together with quality/sensitivity of management.

Question 21

Possible impact on the motivation of employees in a hotel of the appointment of a General Manager who introduces an autocratic leadership style.

Answer 21

– Autocratic leadership: the leader takes most decisions, little information to staff, close supervision, little staff involvement.
– Appropriate for some staff, e.g. room maids, kitchen and cleaning staff (potentially controversial!) and purchasing.
– Less appropriate to other staff, e.g. front of house staff,
marketing, finance, etc. so for some staff the impact may be demotivating but for others it may give them additional incentives to perform.
– Some relevant motivation theory/theorists may be suggested as evidence.

Question 22

Whether technological developments offer more threats than opportunities for operations decisions

Answer 22

• Opportunities:
  + CAD and CAM: allowing quicker new product development, and streamlined robotic machinery – cost saving – innovation – flexibility – linked to supplies.
  + IT developments – speed, accuracy, over all departments.
  + Internet – worldwide marketing, communication, intranets.
• Threats:
  + Internal – staff reduction, de-skilling
  + External threats – new technology may facilitate outsourcing and transfer of production to more cost-effective international areas.
  + It may all depend on the particular type and impact of technology, and on the specific nature of the business and its operations.

– The country context is then added to these factors.

Question 23

Why a luxury car manufacturer should consider both the tangible and intangible attributes of its products.

Answer 23

– The tangible ‘bells and whistles’ of a product, such as distinctive features, quality levels,

functionalities may be an insufficient measure of worth and value.

– A product may have significant intangible attributes which may add considerable asset

value to the balance sheet of a company.

– Intangibles such as reputation, goodwill, established brand, patents, copyright, can be

items of significant value but they do not have a physical presence.

– For some industries, e.g. music, publishing, scientific research, luxury cars, these

intangibles may be a significant source of asset value.

Question 24

Ads and Disads of using extension strategies to lengthen the life of a product.

Answer 24

– The ability and opportunity depends, of course, on how
strong consumer associations with the brand are.

Ads:
– Potentially cost-effective in that it delays the need for potentially expensive launch of new products.
– Stretch a brand and identity and achieve new sales revenue
– Lead to diversification, not just extending the life of a product.
– Reduces risk by exploiting the brand name to enhance the consumer perception ofbrand equity.
– Increased profitability.

Disads:
– Also potentially significant risks with brand extension.
– Can, with bad decisions, dilute and/or damage the wider brand and its equity – through a flawed production extension.
– Product may not be amenable to an extension strategy and resources could be wasted.
– Extension strategy might not be well thought out.
– High rate of failure for extending/stretching brands.
– Cause uncertainty in the mind of the consumer.
– Lead to ‘over extension’ where the ‘new’ attributes are hardly noticeable.

Question 25

Share capital

Answer 25

• the total value of capital raised from shareholders by the issue of shares

Question 26

Disads of share capital

Answer 26

– Raising additional equity finance can be costly and time-consuming – legal and regulating issues.
– Come under close scrutiny and the management will need to supply detailed information.
– Lose a certain amount of power to make management decisions (depends on the investors).
– The shares of the business will, initially, become diluted (new investors may assume high degree of control).
– Become over-capitalised.
– Increased vulnerability to take-over.

Question 27

Product life cycle

Answer 27

– the pattern of sales recorded by a product from launch to withdrawal from the market. The different stages a product might experience from introduction to decline.

Question 28

Actions to extend product life cycle

Answer 28

– Develop new markets for existing products, e.g. export markets.
– Develop new uses for existing products.
– Re-launch involving new packaging.
– Re-launch involving new advertising.
– Reposition the brand in terms of image.

Question 29

‘transformation process’ in the production of goods and services

Answer 29

• Def: “the conversion of inputs (e.g. land, labour and capital) into outputs in either manufacturing or service industries” – leading to tangible goods and intangible services.
  – In all businesses, the production process is essentially the same, i.e. a ‘transformation process’.
  – Aim is to ‘add value’.
  – Efficient transformation process can lead to (high) profit.
  – The extent and amount of profit gained will depend on the efficiency and effectiveness of the ‘transformation process’ and hence require constant management attention.

Question 30

Public limited company

Answer 30

– Limited liability.
– Legal personality.
– Public reports and accounts required.
– Shares, traded on Stock Exchange.
– Often large companies.
– Continuity assured.
– Capital can be raised and dividends paid out.
– Management separate from ownership.

Question 31

Ads of sole trader -> partnership

Answer 31

– Shared decision making.
– Additional capital injection.
– Business risk shared.
– Opportunity for specialisation in management areas.

Question 32

Why a Marketing Director needs to understand price elasticity of demand.

Answer 32

– Price is a key part of the marketing mix and pricing decisions need to be right
– PED is the easure of the responsiveness of demand following a change in price, significant issue to consider when fixing/changing prices.
– PED facilitates making more accurate sales forecasts if, for example, production costs necessitate a price increase.
– Assists in making pricing decisions – where and by how much to change.
– Vital analytical tool/concept in pricing decisions.

Question 33

Discuss the factors that the company needs to consider when deciding on its pricing strategy to enter highly competitive market

Answer 33

– Reviewing the short-term and long-term objectives
– Costs of production – running the buses – do they need to be covered in the short-term if share is established? (Price penetration?)
– How strong is the competition? – Loss leader pricing.
– Is it possible to segment the market and focus on a few potentially profitable ranks? – Price discrimination.
– Product differentiation – better quality busses – more flexible timetables etc. – may be as important as the price.
– Pricing methods are relevant and should be rewarded but they need to be presented in terms of pricing strategy options and marketing mix options rather than just a list of pricing methods.

Question 34

Factors a Human Resources Director could consider when seeking to improve staff morale.

Answer 34

• Staff morale: Spirit of company’s workforce, the degree of trust and confidence, held, support for company objectives, management, leadership; poor productivity -> lack of loyalty, absenteeism
  – Needs to analyse and understand where staff morale is low and needs improving

– Internal factors are the likely ones HR need to focus on, e.g. uncertainty, rumour, poor results, poor quality products/services, poor management and leadership, poor marketing etc.

– Depending on the data and the quality of analysis, HR need to find some sustainable initiatives to make an improvement in staff morale.

– Negative -> Positive:
\+ Build trust
\+ Root out poor management
\+ Plan for some ‘early wins’
\+ Engage the staff
\+ Improved service conditions
\+ Training and development
\+ Review intrinsic and extrinsic reward systems
\+ Review organisational structure and levels of responsibility etc.

Question 35

Role business entrepreneurs could play in the future development of your country.

Answer 35

– The stage of development (economic) that a country is presently in.
– The quality of the skills of the entrepreneurs.
– The support and encouragement given to the entrepreneurs by the government of a country.
– The external issues that may affect a country in the future, given a dynamic and political external environment.

– Stimulating business enterprise as the engine of economic progress
– Support infrastructure development and progress.
– Create jobs – multiplies effect on economy.
– Foster entrepreneurial spirit – innovation – change.
– Create opportunities for funding – taking advantage perhaps of international funding
– Enter into partnerships with government-funded structures and organisations.
– Educate people of the potential benefits of market activity and private sector