Business 9609/32 May/June 2021: question paper and mark scheme

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Mark scheme

1 Analyse the impact on Inolla of two changes in the economic 10 environment in country Q. Level Knowledge Application Analysis 3 marks 2 marks 5 marks 2 3 marks 2 marks 4–5 marks Knowledge of Two points Good use of theory two changes in applied and/or reasoned economic argument to explain environment and impact of one or two impact. changes in the economic environment. 1 1–2 marks 1 mark 1–3 marks Knowledge of One point Some use of theory one change in applied and/or reasoned economic argument to explain environment and impact of one or two / or impact. changes in the economic environment. Knowledge • Economic environment includes consideration of: - Economic growth by changes in real GDP - Inflation; a sustained increase in the average price level - The unemployment rate; measures the percentage of the labour market without work - Interest rates; the cost of borrowing, monetary policy - The exchange rate; measures the value of a currency against another currency • Impact includes consideration of costs, revenue, profit, decisions taken in response to changes. Application • Unemployment is low (has decreased to 3.8%) and will impact recruitment of labour. This could be linked to the higher labour turnover Inolla is experiencing. • Economic growth is forecast to be 5% next three years. Incomes rising, link to premium product of Inolla. • An increase in interest rates (due to threat of inflation) may impact investment decisions as cost of borrowing is higher. This could be linked to strategic decisions and investment in ERP. • Cost of importing components and batteries from country P may be affected by the rising value of the currency. • Pricing of exports affected by appreciation. • These changes can impact strategic plan to enter the shared micromobility market: exports to other countries 1 Analysis • Recruiting workers will be more difficult due to low unemployment. May force Inolla to offer wages above the minimum wage to prevent high labour turnover and to attract employees as output expands • Expansion plans require financing. With an increase in interest rates it will be less attractive to borrow money as costs will be higher reducing the return on investment. • Economic growth should lead to an increase in demand for electric scooters as Inolla uses premium pricing. Increased demand will lead to higher revenue and potentially higher profits. • Appreciation will reduce cost of batteries from country P and thus reduce costs allowing a higher profit margin. Cheaper for Inolla to import components. • Appreciation will make it more expensive for importers to purchase scooters from Inolla and therefore reduce export sales. ARA 1 1–2 marks 1–2 marks 1–2 marks 1–3 marks Some Some Limited use Limited attempt to show judgement either understanding application of reasoned within the answer shown to the case argument or OR use of a weakly supported conclusion/ theory to recommendation with some focus on the support business in the case points made

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2(a)(i) Refer to Table 1. Calculate for 2020: 3 labour turnover (Number of employees leaving / average number of employees) × 100 (1) 2020 labour turnover = 12 / 40 × 100 (2) 30% OR 30 (3) Other answers 2019 labour turnover = 20% OR 20 (2) 2(a)(ii) labour productivity 3 Labour productivity = Annual output / Employees (1 mark if no relevant calculation) Annual output = 6000 × 12 = 72 000 (1) 2020 labour productivity = 72 000 / 40 (2) = 1800 (3) Alternatively: Monthly labour productivity = 6000/ 40 (1) = 150 (2) 150 × 12 = 1800 (3) 2(b) You may refer to your answer to 2(a) and other information. Assess the 12 effectiveness of Inolla’s approach to human resource management (HRM). Level Knowledge Application Analysis Evaluation 2 marks 2 marks 4 marks 4 marks 2 2 marks 2 marks 3–4 marks 3–4 marks Two relevant Two points Good use of Good points which applied theory and/or judgement includes reasoned shown, e.g. knowledge of argument to well impact of analyse supported Inolla’s approach conclusion approach and/or approaches to HRM 1 1 mark 1 mark 1–2 marks 1–2 marks Knowledge of One point Some use of Some role of HRM applied theory and/or judgement or reasoned shown, e.g. approaches argument to one factor to HRM or analyse very impact of approach important Inolla’s approach Knowledge • Identification of role of HRM and objectives (1 mark max) - Recruitment & selection - Appraisal of employees - Workforce planning - Training • Distinction between hard and soft HRM - Hard - treating employees as a cost, autocratic leadership. - Soft – focus on training and development, democratic style of leadership, empowerment. • Knowledge of Taylor, Mayo and Herzberg et al and approaches to managing human resources. • Knowledge of measuring effectiveness such as absenteeism rates and labour turnover. Application Use of results to 2(a) / case study information. (OFR applies) • Productivity has decreased by 200 scooters per employee. • Labour turnover has increased from 20% to 30% • Lack of flexibility in shift patterns. • Weekly production targets given. • No union allowed to negotiate on behalf of employees. • Absenteeism has increased. Total days lost in 2020 is 320. • Link to use of quality control inspectors and the battery fires. • Training in one specific skill 2(b) Analysis Hard approach to managing employees may negatively impact Inolla: • Alienate some employees and this may explain why labour turnover has increased. • Increased labour turnover may disrupt production, and this could be why productivity has fallen. • New employees take time to recruit and train and therefore this reduces productivity and increases unit costs. • Failure to recognise union could cause conflict with employees resulting in disruption to production. This could affect customer satisfaction and therefore sales could decrease. • Unions could be used to drive productivity agreements and thus reduce costs. • Unions could provide a means of communicating effectively with employees and this helps achieve objectives such as increasing productivity. • More extensive training could make employees more flexible and therefore Inolla could be more responsive to customer demands. • Empowering employees may increase motivation and help assure quality, improving Inolla’s brand reputation and increasing sales. • Training in one specific skill may impact flexibility of workforce Benefits of hard HRM may include: • Controls costs by only paying minimum wage which increases Inolla’s competitiveness. • Recognising trade union could drive up costs making the electric scooters more expensive or reducing profit margins. • Minimises training costs leaving more cash available for alternative uses such as marketing. • Some employees will respond positively to being given direct orders and supervision increasing • Better control of employees as more closely supervised. • Decisions may be made more quickly making Inolla more responsive to changes Evaluation • Elements that the evaluation/judgement might depend on: - Given the economic situation employees can easily find other employment so this would suggest that Inolla should take a softer approach to human resource. - Premium prices require a product that meets quality standards. Will a hard approach ensure this cost effectively as quality inspectors required and employees not given responsibility? - Extent to which hard approach reduces costs and importance of controlling costs to competitiveness. • Other factors that might have contributed to the declining workforce performance. Is Li-chun correct in terms of cause and effect? - Is it Neten that is the problem rather than the hard approach - Is labour turnover due to economic growth providing more opportunities for workers. ARA 2 3 marks 3 marks 3–4 marks 4–6 marks Good Good Good use of Some judgement shown in the main body understanding application reasoned of the answer and an attempt to support shown to the case argument or conclusion/ recommendation, focused on use of the business in the case theory to OR explain effective and well supported conclusion/ points made recommendation, focused on the business in the case

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3 Evaluate whether Inolla will need to change its marketing strategy to 16 increase sales to businesses that rent out scooters in the shared micromobility market. 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 relevant Two points Good use of Good points applied theory and/or judgement reasoned shown argument to explain need for a change to marketing strategy 1 1 mark 1 mark 1–3 marks 1–3 marks One relevant One point Some use of Some point applied theory and/or judgement reasoned shown argument to explain need for a change to marketing strategy Knowledge • Marketing strategy includes marketing objectives, budget and a coordinated marketing mix. (max 1 mark for identifying elements) • Understanding of different techniques within the marketing mix such as different forms of promotion and pricing • Difference between B2B (a business selling to other businesses) and B2C (a business selling to consumers) • Market research to understand the market Application • Selling to shared micromobility businesses is B2B. • Scooters will need to be more durable for the B2B market than for selling direct to consumers. • Businesses will purchase in high volumes and price will be important. • Some businesses produce their own scooters. • Competition is likely to be significant – larger firms with economies of scale exist. Comment on existing approach – viral marketing, social media and advertising buses and trains, premium prices less likely to appeal to business customers. • Product changes might include offering servicing (maintenance)of scooters. 3 Analysis Chains of reasoning highlighting likely elements of marketing strategy: • Price more important and clear pricing strategy required that is competitive and identifies not only the upfront cost but also costs of servicing if required. • Promotion more likely to include trade shows, email marketing, trade (industry) press, website, production of brochures for potential customers. • Salespeople may be important for building trust and motivating companies to buy. • B2B marketers must persuade decision makers of a company therefore information must be concise and clear. Evaluation • Identification of most important element of marketing strategy and justification. - Need for servicing of scooters? - Businesses less likely to be influenced by persuasive advertising. More interested in information. - Need for market research prior to the marketing strategy as this is a new market. - Need to continue with existing marketing strategy as higher demand from consumers will increase pressure on business customers to purchase from Inolla. - The extent to which the strategy needs to change. Some elements may be retained others changed. • Marketing budget may be constrained by the cash outflows associated with increasing output if extension or new factory is built. ARA 3 7–10 marks Good judgement shown throughout with well supported conclusion/ recommendation, focused on the business in the case

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4(a)(i) Refer to lines 71-74 and Table 2. Calculate the: 4 accounting rate of return (ARR) Rationale Content Marks Correct answer with or without 27.5% OR 28% 4 units. Working not required 55% OR 56% Alternative formula Correct working without ARR = 275 000 / 1 000 000 × 3 answer 100 OR Annual profit (units not 1.65 m / 6 = 0.275 m OR necessary) 0.28 m OR OFR based on error in OR 275 000 ARR calculation: - original investment not 0.442 / 1 × 100 = 44.2% OR deducted 0.442 / 0.5 × 100 = 88.4% - profit not divided by 6 1.65 / 1.0 × 100 = 165% OR 1.65 / 0.5 × 100 = 330% Profit 2.65 m – 1.0 m = 1.65 m 2 OR OFR for annual profit - original investment not 2.65 m / 6 = 0.442 m deducted OR OFR based on error in 2.65 / 1.0 × 100 = 265% OR ARR calculation: 2.65 / 0.5 × 100 = 530% - original investment not deducted and not divided by 6 Total cash inflows 2.65 m 1 OR Correct formula (annual profit / capital cost) × 100 OR (annual profit / average investment) × 100 No creditable content 0 OFR 4(a)(ii) payback 4 300 000 / 450 000 × 12 (2) = 8 months (3) Payback = 2 years 8 months (4) or 2.67 years (4) or 2.7 years (4) 2 years 232 – 248 days (4) 2.8 (3) Year Cash flow Cumulative cash flow 0 (1 000 000) (1 000 000) 1 300 (700 000) 2 400 (300 000) 3 450 150 000 4 500 650 000 5 500 1 150 000 6 500 1 650 000 1 mark for Accurate cumulative cash flow for first year or more. OR Payback is in the 3rd year. 4(b) You may refer to your results to 4(a) and other information. 12 Recommend whether Inolla should invest in enterprise resource planning (ERP). Justify your recommendation. Level Knowledge Application Analysis Evaluation 2 marks 2 marks 4 marks 4 marks 2 2 marks 2 marks 3–4 marks 3–4 marks Two relevant Two points Good use of Good points made applied theory and/or judgement reasoned shown e.g. argument well supported conclusion 1 1 mark 1 mark 1–2 marks 1–2 marks Knowledge One point Some use of Some shown of applied theory and/or judgement ERP or factor reasoned shown in decision argument OFR Knowledge • Definition of ERP: the use of a computer application to plan the purchase and use of resources in an organisation to improve efficiency. Part of supply chain management. • Benefits of ERP - Helps with inventory control - Reduces costs of operations - Links information between departments - Choosing best suppliers and most cost-effective suppliers and supporting JIT manufacturing - Allocating jobs to appropriate production employees • Other factors in decision - Cost - Availability of finance - Impact on employees - ARR and Payback results Application • Weakness of Inolla is low inventory turnover. • High cost of holding inventory of batteries etc • Payback within 3 years. Relatively quick as the ERP system has a 6 year life. • ARR is high at 27.5% • NPV data $1.141m 4(b) Analysis • ERP will support introduction of JIT which will reduce costs of stockholding. • May enable increase to capacity as less inventory will be held. This will facilitate meeting increasing demand for scooters. • ERP is costly and high gearing of Inolla increases risk of further borrowing. This may result in cash flow problems for Inolla if increased savings take time to be realised. • Employee training to deal with computer systems will be a cost (but should be included in the net cost savings data). • ERP provides more effective sharing of information between departments which can lead to a more integrated approach to achieving Inolla’s objectives. • Introducing ERP may cause disruption to production in the short-term reducing output whilst it is installed. Evaluation • Cost savings are estimates made by the ERP specialist. Can these figures be trusted as specialist will wish to sell to Inolla? • If ERP used to reduce inventory holding and costs, then success depends in part on the reliability of battery suppliers in country P to deliver on time. • Other factors to consider e.g. - NPV or IRR as this considers time value of money. - Depends on availability of finance linked to high gearing and likely increase in interest rates. - How long will it take to implement the ERP system? - Resistance to change from employees. - Will specialist IT employees be required and how expensive is that? • There are other ways to increase efficiency such as Quality Circles and Kaizen

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5 Evaluate whether Inolla should subcontract production of electric 16 scooters to solve the problem of insufficient capacity. Level Knowledge Application Analysis Evaluation 2 marks 2 marks 6 marks 6 marks 2 2 marks 2 marks 4–6 marks 4–6 marks Good use of Good Two relevant Two points theory and/or judgement points applied reasoned shown argument 1 1 mark 1 mark 1–3 marks 1–3 marks Some use of Some One relevant One point theory and/or judgement point applied reasoned shown argument Knowledge • Definition of subcontracting: contracting a second business to fulfil part or all of the output / function / service. • Definition of capacity / capacity constraint / capacity utilisation Understanding of possible factors to consider: • Flexibility of using a subcontractor. • Issues relating to control of quality when using a subcontractor. • Short term cost savings compared to expansion. Knowledge of other ways of increasing production such as: • Increasing productivity of employees through training • Extending existing factory • Building a new factory Application Use of case information: • Avoids cost of building a factory extension or going public. • High gearing of Inolla. • 400% increase in demand. • Subcontractor in country P with sufficient capacity. • Subcontractor has a good reputation for quality and already supplies a competitor. • Subcontractor had recent negative publicity for poor working conditions in the factory. • Use of ERP to increase capacity. 5 Analysis • Subcontracting can be flexible as Inolla can increase/decrease orders according to demand. • Loss of control over quality could result in reputation damage if scooters do not meet quality standards thus reducing sales • Subcontractor may benefit from economies of scale and therefore have lower prices thus enabling Inolla to make greater profit • Subcontractor has to make a profit. This could result in a higher price per unit to Inolla. • Subcontracting will be quicker than building a factory in country P enabling Inolla to increase output and meet customer demands in a shorter time frame. • Factory would retain more control over output and quality which is important to their brand image. • Factory would require conversion to plc and this would reduce the control that Li-chun has over the business. Evaluation • Subcontracting would reduce risk as there is no guarantee that their move into the shared micromobility market will be successful. • Attitude of Li-chun to taking Inolla public. Risk to her control of the business and possibility of a hostile takeover. • Depends on the terms of the contract as to how flexible subcontracting is to Inolla. • How important is the negative publicity regarding the poor working conditions with the subcontractor. Price may be more important to business customers. • Significance of the subcontractor supplying their competitor. • Reliability of the subcontractor • If subcontractor has sufficient capacity to meet Inolla’s order does this suggest that the business has a problem? Inolla may be able to achieve a lower contract price. • Factory may be cheaper in the long term • Most important factor with justification ARA Questions 6 and 7 use this marking grid: Level Knowledge 3 Application Analysis Evaluation marks 3 marks 4 marks 10 marks

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6 Evaluate the usefulness of strategic analysis techniques in identifying 20 future growth strategies for Inolla. Knowledge • Definition: the process of conducting research into the business environment within which an organisation operates, and into the organisation itself, to help form future strategies. • Explanation of strategic analysis and its techniques – SWOT, PEST, Boston Matrix, Porter’s 5 Forces, core competencies. • Place of strategic techniques in strategic management • Identification of weaknesses / strengths of the techniques • Need to understand the external environment – requiring a detailed PEST analysis Application Application requires more than repeating the information from Tables 3 and 4. Candidates must actively use the information in developing their answer. • SWOT was completed in 2018 – 3 years ago. It is out of date. • Use of information from Table 3 linked to future growth. • Use of information from Table 4 linked to future growth. - Information covers the shared micromobility market • Accuracy of 2018 SWOT in relation to current situation e.g. issue of quality control and battery fires • Link between SA and introduction of ERP • Core competencies – design Analysis • Analysis of how changes identified might guide strategic decisions - Focus on strengths will reduce risk to the business - Identification of weaknesses that need to be addressed when making decisions or alternatives sought e.g. financing - Anticipating changes to the external environment will enable Inolla to take decisions to reduce risk and take advantage of opportunities • SA will help reduce the risk of decisions taken by Inolla as it will help Inolla build on their core competencies and strengths and highlight weaknesses that need to be resolved. • SA takes time to do in terms of management focus, reducing time available for other tasks. • Boston Matrix as part of product portfolio analysis could help identify cash cows and dogs. This information can be useful in ensuring that Inolla maintains a balanced product portfolio and identify products for divestment. • Porter’s Five Forces: Power of buyers, suppliers, threat of substitutes, barriers to entry and competitive rivalry helps Inolla make decisions about markets to enter and reduces risk by considering factors that affect success. 6 Evaluation Clear judgements as to the importance of strategic analysis and/or techniques including: • Importance of understanding where the business is now in order to generate ideas and/or support for expansion. • Judgement/evaluation about usefulness of strategic analysis techniques supported by argument. • Elements that the evaluation/judgement might depend on such as: - Strategic analysis needs to be reviewed regularly. It appears that Inolla has been slow to use the analysis originally completed - Inolla operates in a dynamic environment so analysis may quickly become outdated. - Subjective nature of SWOT analysis. - An assessment of the importance of timing and a timescale in carrying out analysis. - Subjective interpretation of the models – one manager’s opinion of SWOT may be very different to another’s. - Critical comments on the techniques. • Evaluation of other factors that influence options such as: - Comments that strategic analysis on its own is not enough to fully support a decision. - Attitude of directors - Attitude to risk • Justification of most useful technique(s) with supporting argument. - Ranking the usefulness of the techniques in relation to expansion plans. - Weighing up importance of other stages in strategic management especially objectives and choice techniques in relation to strategic analysis.

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7 Evaluate the significance of corporate planning in reducing risk as 20 Inolla continues to grow. Knowledge • Business Plan: A written document that describes a business, its objectives and its strategies, the market it is in and its financial forecasts. • Corporate Plan: This is a methodical plan containing details of the organisation’s central objectives and the strategies to be followed to achieve them. • A business / corporate plan: - Gives direction to the business. The plan provides Inolla directors with a clear focus for what the company should be trying to achieve in the medium term. - Helps motivate staff. It provides a sense of purpose. - Enables planning at different levels of the business and ensures all staff are working towards the same goals. - Acts as a means for control and review. Actual outcomes can be compared with the objectives set and the performance of Inolla can be assessed. - Helps ensure that resources are used effectively and that all departments are working together. • The planning process itself is useful. It encourages directors and managers to consider the current situation of the firm and to set objectives accordingly. • Corporate plans will include techniques of strategic analysis such as SWOT and Porter’s Five Forces • How dynamic markets may undermine plans • Potential link between profitability and having clear business plans • Provides clear focus to senior managers. • Enables control and review process. • Of interest to potential investors and staff. • Corporate plan provides clear objectives to then use in setting objectives at departmental and individual level through MBO Application • Li-chun’s research into solutions to problems faced in commuting before setting up Inolla as part of business planning to identify a gap in the market. • Market research into shared micromobility market as part of business planning • Operations close to capacity; planning necessary for subcontracting or expansion. • Lack of a contingency plan for the battery fires? • Planning for introducing ERP • Evidence of some strategic analysis as part of planning process in choosing growth strategies – SWOT 2018 and Porter’s Five Forces analysis. • Cost to Inolla of commissioning the Porter’s Five Forces analysis • Need for a plan if Inolla goes public to generate investor interest. • Business planning and the competitive nature of the micromobility market • Need for planning including marketing strategy for entry into micromobiliity market. 7 Analysis • Contingency planning could have helped minimise the damage to Inolla of battery fires. • Planning necessary to deal with the problem of insufficient capacity. This needs to be done in advance to meet the increasing demand for Inolla’s scooters and avoid negative publicity / dissatisfied customers. • Planning helps reduce risk by anticipating changes in the market and preparing the business for the future. Without a plan Inolla will lack direction and objectives to target. • Planning helps control expenditure and therefore reduces risk of cashflow problems. • Strategic decisions affect all parts of the organisation, so planning is important to coordinate activities. • Planning is time-consuming and can be expensive, the more detail the greater the time and cost. • SWOT analysis / Porter’s Five Forces and links to effective decision- making regarding expansion. Analysis will reduce risk to Inolla in its decision making and thus help to ensure profitability. Evaluation • The business environment is dynamic and there can be unexpected internal and external events. Thus, business planning cannot eliminate risk only reduce it. • Contingency planning necessary to deal with the unexpected but can be expensive. • Reliability of information – how much is spent on market research/data gathering and how relevant is it? Interpretation of information used in planning can be influenced by skills and training of leadership. • Monitoring and review essential to ensure costs are not increasing in this rapidly changing market.