Business 9609/31 May/June 2020: question paper and mark scheme

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0 No creditable content

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1 Analyse the benefits to JGS of outsourcing. 10 Knowledge Application Analysis Level 3 marks 2 marks 5 marks 2 3 marks 2 marks 3–5 marks Two or more relevant Points made are Good use of theory points made about applied to JGS to explain benefits benefits 1 1–2 marks 1 mark 1–2 marks One or two relevant Some application to Some use of theory points made about JGS to explain benefits benefits 0 No creditable content Note to examiners: Disadvantages should not be rewarded. Benefits should relate to JGS, not e.g. to employees or other stakeholders. Answers could include: • Enables business to focus on key issues relating to competition and expansion • Opportunities for more flexibility • No ongoing commitments of wages, pensions • Reduced operating costs • Enables specialists to provide services Application could include reference to mountain walks, village families hosting accommodation and food, guides, competition for contracts. Analysis Possible implication of points made e.g. reduced operating costs means greater profit, focus on key issues means competition is monitored more closely. 1 1–2 marks 1–2 marks 1–3 marks 1–3 marks Some Some Limited use of Limited attempt to show judgment understandin application to reasoned either within the answer g shown JGS argument or use OR of theory to a weakly supported conclusion/ support points recommendation with some focus on made JGS

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2(a) Refer to Table 1 and lines 24–26. Calculate the: 2(a)(i) average seasonal variation for quarter 3 2 Identification of values for quarter 3 (1 mark) (–6000 + –14 000)/2 = –$10 000 (2 marks) 2(a)(ii) forecast sales for quarter 3 in 2021, assuming a forecast trend of $86 560. 2 Forecast sales = trend plus average seasonal variation (1 mark) 86 560 + (–10 000) = $76 560 (2 marks) 2(b) Refer to lines 20–21. Calculate the income elasticity of demand (YED) of 2 the residents of country K for JGS tours. YED = % change in demand / % change in income (1 mark) 20 / 5 = 4 (2 marks) 2(c) Refer to your answers to 2(a) and (b) and any other information. Discuss 12 whether sales forecasts based on past sales of JGS are likely to be accurate. Knowledge Application Analysis Evaluation Level 2 marks 2 marks 3–4 marks 3–4 marks 2 2 marks 2 marks 3–4 marks 3–4 marks Two or more Application of Good use of Good relevant points two or more theory to judgment points to JGS answer shown question 1 1 mark 1 mark 1–2 marks 1–2 marks One relevant Some Some use of Some point made application to theory to judgment JGS answer shown question 0 No creditable content Note to examiners: Own figure rule from 2(a) and (b) applies. If only answers to 2(a) / (b) or similar information used max L1 A and E. Knowledge • Time series analysis takes into account seasonal changes and trends • Forecast is based on past behaviour projected into the future • The future may not behave as the past • Market / economic environment changes may or may not be as forecasted • Other factors may influence the forecast Application Reference to mountain walks, possible price increase, government policy on small businesses, possible changes to outsourcing conditions, market conditions in client countries, country K, possible implementation of Options Analysis • Accurately takes into account seasonal changes and trends to give reliable forecast • Future may not reflect past behaviour exactly • Changes to external environment may influence forecast • Internal changes may affect take-up of holidays • There may be reasons why less customers come from country K making forecast less accurate Evaluation • Justified conclusion as correctness of forecasts • Technique only as good as data • Rapidly changing market environment means forecast less accurate • Many uncertainties reduce reliability of the forecast • Can rapid growth of customers continue in same way? 2 3 marks 3 marks 3–4 marks 4–6 marks Good Good Good use of Some judgment shown in the main understandin application to reasoned body of the answer and an attempt g shown JGS argument or use to support conclusion/ of theory to recommendation, focused on JGS explain points OR made to explain effective and well supported points made conclusion/ recommendation focused on JGS

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3 JGS is planning to increase the number of employees. Recommend an 16 appropriate organisational structure for JGS. Justify your recommendation. Knowledge Application Analysis Evaluation Level 2 marks 2 marks 6 marks 6 marks 2 2 marks 2 marks 4–6 marks 4–6 marks Two or more Application of Good use of Good judgment relevant points two or more theory to shown points to JGS answer question 1 1 mark 1 mark 1–3 marks 1–3 marks One relevant Some Some use of Some point made application to theory to judgment JGS answer shown question 0 No creditable content Note to examiners: Answer should focus on structure not motivation/leadership. Answers could include: Any/all from: flexibility/advantages/disadvantages of temporary or flexible contracts, objectives of structure, types of structure, formal and informal structures, delegation and accountability, control, authority, trust, centralisation. Application • Change from self-employed to employed • Regional managers and extra office employees • Jan and Gorl have different approaches • Nature of business: tourism, walks, village accommodation, international customers • Government change to employment regulations Analysis Change from self-employed to employed: Advantages: • May bring security to and commitment from villagers • Easier to administer • Easier to plan ahead as number of employees known Disadvantages • Less flexible • More expensive in administration – pensions, tax • Short run loss of certainty while contracts negotiated 3 Centralising by owners means • Clear goals/guidelines • Faster decision making • Better consistency and coordination of activities • Formal hierarchy means clear chain of command and communications • Managers have good knowledge of the workforce and can detect promotion candidates and direct customers to appropriate houses/guides • Employees have clear set objectives, structure and guidance • Customers have clear expectations that will be met hence satisfaction is increased Delegation to employees means: • Employees feel valued and will be creative, faster decision taking • Employees increase confidence and skills • Easier to detect promotion candidates • Managers freed to focus on strategic thinking • Employees freer to develop relationships with customers based on their individual strengths Evaluation • Still a small business so Jan and Gorl are able to know office and regional employees. Means either approach is beneficial • Employee guides and hosts will be dealing directly with customers so must have some trust and authority to act in accordance with conditions as they see them • Necessary to have control via expectations, contractual requirements and JGS policy • Is it worth considering a change to JGS as a company to better deal with expansion and possible need for finance? • Combination of approaches e.g. possible to have tight control of office and regional managers but more trust for villagers • Employment contracts will inevitably mean more formality and control 3 7–10 marks Good judgment shown throughout with well supported conclusion/ recommendation, focused on JGS

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4(a) Refer to Table 2. Calculate the: 4(a)(i) number of customers needed for a tour to break even 3 Break even = FC / unit contribution (1) Unit contribution = price – AVC Unit contribution = 480 – 370 = 110 (1) Break even means zero profit or loss or formula TR=TC (1 mark) or TR = P × q TC = FC + q × VC FC / contribution per unit (1 mark) 480q = 550 + 370q 110q = 550 (1 mark) Break even number of customers = 5 (3 marks) 4(a)(ii) total contribution from a tour with two customers 2 Total contribution = TR – VC (1 mark) 480 × 2 – 370 × 2 = $220 (2 marks) 4(a)(iii) profit or loss from a tour with two customers. 3 Profit/loss = TR – (FC + VC) (1 mark) Profit = Total contribution - FC 480 × 2 – (550 + 370 × 2) (2 marks) = -$330 (3 marks) OR 2 × 110 – 550 = $–330 4(b) Refer to your answers to 4(a) and any other information. Recommend 12 whether a tour should go ahead with only two customers booked on it. Justify your recommendation. Knowledge Application Analysis Evaluation Level 2 marks 2 marks 3–4 marks 3–4 marks 2 2 marks 2 marks 3–4 marks 3–4 marks Two or more Application of Good use of Good relevant points two or more theory to judgment points to JGS answer shown question 1 1 mark 1 mark 1–2 marks 1–2 marks One relevant Some Some use of Some point made application to theory to judgment JGS answer shown question 0 No creditable content Note to examiners: Own figure rule from 4(a) applies. If only answer to 4(a) or similar information used max L1 A and E, Knowledge Definitions of contribution and profit. Reasons why a positive contribution order may or may not be accepted. Application Guides, mountain walks, foreign customers, break even 5 customers, contribution or profit/loss quoted. Analysis • Contribution is positive ($220) hence will contribute to fixed costs making it advisable to take the booking. More customers may appear before tour takes place • Profit negative (–$330) hence a loss on this trip so not advisable to take the booking, as is against policy • Goodwill from villagers maintained as getting some income • Guides may not want to look after only two and seek work from other businesses or may like small number and want more work • Service industry focused on customers and their satisfaction so important not to let down customers who have booked leading to possible loss of business • Possible costs involved in cancelling a booking • Disagreement between Jan and Gorl could harm business operation • Taking bookings with two means less possibility of cancellation and helps planning 4(b) Evaluation Take these bookings as advantages of trip going ahead outweigh disadvantages • Main reason is that a contribution to fixed cost is made plus the business is generating work and customers Do not take these bookings as disadvantages of trip going ahead outweigh the advantages • Main reason is that a loss is made plus is against policy • Another point is that the financial cost data may not be accurate. If costs turn out to be higher, then positive contribution may not be made or if costs turn out lower then more contribution is made • Need to be certain of the accuracy and reliability of the data • Difficult to quantify the non-financial advantages and disadvantages so better to not take these booking as only the revenue is certain

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5 Discuss whether JGS should maintain high standards of corporate social 16 responsibility (CSR). Level Knowledge Application Analysis Evaluation 2 marks 2 marks 6 marks 6 marks 2 2 marks 2 marks 4–6 marks 4–6 marks Two or more Application of Good use of Good relevant points two or more theory to judgment points to JGS answer shown question 1 1 mark 1 mark 1–3 marks 1–3 marks One relevant Some Some use of Some point made application to theory to judgment JGS answer shown question 0 No creditable content Knowledge • Explanation of CSR, social auditing, environmental considerations with examples e.g. accounting practice Application • High level of ‘mountain’ culture and threats to it • Activity of country P and client country pressure groups • Country P government enquiry Analysis • CSR increasingly important for all businesses as customers, suppliers and governments expect it • Building CSR can lead to a marketing advantage • Engaging with CSR will help maintain the reasons why customers visit, generating more future business • Pressure group activity can lead to businesses with CSR gaining at expense of those that do not engage with CSR • Engaging with CSR can be expensive in resources and money and lead to higher prices and less sales • CSR implemented now may be less expensive than in the future • JGS rely on local villagers to provide services. More likely to get good service if CSR implemented Evaluation • Supported conclusion on concern for CSR • Ranking relevant factors • JGS’s business is based on attracting customers to a particular environment. Not engaging with CSR will definitely remove some of the reasons for customers to visit/buy so must be concerned with it • Acting in advance of the enquiry will be a selling point and minimise government focus on JGS if regulations tightened Questions 6 and 7 use this marking grid: Level Knowledge Application Analysis Evaluation 3 marks 3 marks 4 marks 10 marks

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6 Evaluate whether the decision tree calculation in Table 3 is sufficient for 20 JGS to make a strategic choice between Option 1 and Option 2. Note to examiners: answers that contain an appropriate Ansoff’s Matrix and/or Force Field Analysis can be awarded Kn and App marks. For An marks, there must be a commentary that makes links or implications of the use of the techniques. Knowledge • Place of strategic choice in overall strategic planning • Explanation of decision tree method and use • Role of strategic choice in management • Decision trees as one of three strategic choice techniques • Explanation and/or drawing up of Ansoff Matrix, Force Field Analysis Application • JGS opportunities – expanding business, multinational offer, extension to tourist sites • JGS threats – environmental and cultural degradation, competition • Owner objective of expansion • JGS objective of expansion • Use of data in Table 3 Analysis • EMVs from Table 2 indicate preferred option is 2 • Ansoff’s indicates Option 1 is effectively Market development (medium risk), Option 2 is effectively diversification (high risk) • This analysis is reflected in decision tree figures • Not much information to draw up a force field analysis • Strategic choice is a stage in strategic management and is based on setting objectives and analysis Evaluation • Decision trees show clear understandable information • Takes account of risk and probability of outcomes and is objective • Allows for “what if” analysis • Accuracy and reliability of decision trees rely on accurate data. No indication of how this was obtained. Does Jan have the competency to prepare this reliably? However • Decision trees only provide quantitative information and may be based on poor research • Decision trees cannot take account of future unseen factors and only provide averages • Choice is only a part of strategic management and success depends on effective implementation • Summary/conclusion - likely to be that decision trees provide vital information for JGS but that other techniques are necessary for a fully informed decision

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7 Evaluate the significance of contingency planning for JGS as it prepares 20 to implement its future strategies. Answers could include: • Explanation of contingency planning process possibly including examples • Place of contingency planning in strategic management Application • Reference to JGS plans for the future including expansion of mountain walks, changes to structure, Options 1 and 2 • Applicable activities – guides, village accommodation, internet marketing • Market conditions – CSR considerations (government enquiry), possible rise of competition, income changes in client countries Analysis • Discussion of current activities and their risks • Possible changes and the risks involved in them • Linking process of contingency planning to present and to possible futures for JGS • Possible effects of successful contingency planning and/or implications of not carrying it out advantages • Facilitates quick response • Enables effective PR if needed • Provides confidence for managers and stakeholders disadvantages • Expensive in resources and time that may not be actually used • Needs constant updating/reviewing and takes focus away from core activities • Having a contingency plan might mean a problem is thought to be covered so it is no longer considered • Relation of contingency planning to review and process of strategic management Evaluation • Conclusion on how essential contingency planning is • Requires objectives and to be set in the process of strategic management • Success of contingency planning only as good as the information it is based on. This may be unreliable or inaccurate. • JGS faces change, whatever the outcome of decisions on expansion, structure or the 2 Options so it is essential to be prepared for results of whatever change happens • Small organisation run by expert owners so may not need formal process of contingency planning • Supported conclusion on role of contingency planning in the process of strategic management • Comparison on importance of contingency planning compared to other elements of strategic management