Business 9609/33 May/June 2021: question paper and mark scheme

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0 No creditable content

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1 Analyse the opportunities to SBC of the current economic 10 environment in country X. Level Knowledge Application Analysis 3 marks 2 marks 5 marks 2 3 marks 2 marks 4–5 marks Good knowledge Two points Good use of shown of applied theory/reasoned opportunities/ argument to explain the impacts of them likely impact of opportunities 1 1–2 marks 1 mark 1–3 marks Knowledge shown One point Some use of of applied theory/reasoned opportunities and argument to explain the impacts of them likely impact of opportunities 0 No creditable content Knowledge: • Economic environment as part of the external environment. • Changing structure from traditional manufacturing to service industries as part of economic development • Explanation of terms, such as meaning of economic growth, unemployment, inflation. • Government intervention such as spending and grants. • Credit understanding that government may try to use policies to control other economic variables, such as rate of unemployment. • Understanding of government investment in new technological infrastructure. Application • More jobs in service/technology sector, more need for SBC training courses • Stable economy (economic growth 3% per year and inflation 2.5%) means likelihood of further growth in demand for education and related services such as the ‘grade booster’ courses • Real economic growth of approximately 0.5% • Government intervention/policies improving infrastructure/grants/sponsored training all leading to more potential demand. 1 Analysis • If country X continues to experience economic growth incomes will rise resulting in more potential revenue and profit. • High unemployment among low skilled labour might result in increasing demand for SBC’s services as workers look to retrain. This will increase demand for basic skills courses and increase revenue. • High unemployment may result in government investing in skills training and thus boost demand for SBC. • Impact of variables such as high unemployment (cheap labour costs but not for skilled labour) low inflation (easier to plan finances, e.g. for government contract facilities) • Grants available to new businesses will increase demand from entrepreneurs who require basic business skills training. • As country X grows further the need for different types of technology and Business courses will increase further leading to business growth. ARA 1 1–2 marks 1–2 marks 1–2 marks 1–3 marks Knowledge Some Some use of Some judgement shown in answer shown of application to theory/reasone and/or conclusion. factors the case d argument to Weakly supported conclusion. explain the advantages and disadvantages or uses.

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2(a)(i) Refer to Table 1. Calculate for SBC the: 2 return on capital employed in 2020 ROCE = profit / capital employed ×100 (1 mark if no calculation) Profit = 9.5 – 0.5 – 6.2 – 0.3 – 1.1 = 1.4 m (1) 1.4 / 12.1 × 100 = 11.57% (2 marks) OFR e.g. if not all costs deducted from revenue to calculate profit (1) 2(a)(ii) profit margin in 2020 2 PM = profit / sales revenue ×100 (1 mark if no calculation) Profit = 9.5 – 0.5 – 6.2 – 0.3 – 1.1 = 1.4 m (1) PM = 1.4 / 9.5 × 100 = 14.74% (2) GPM = 3.3 / 9.5 × 100 = 34.7% (1) OFR for use of profit from 2(a)(i) (2) 2(a)(iii) forecast gearing ratio in 2021, assuming the website development is 4 financed using a bank loan. Website development will cost $250 000 Gearing = NCL / capital employed × 100 OR NCL / Shareholder equity × 100 (1 mark if no calculation) NCL = 6.6 + 0.25 = 6.85 (1) CE = 12.6 + 0.25 = 12.85 (1) 2(a)(iii) New gearing will be 6.85 / 12.85 × 100 (3) = 53.31% (4) Other answers: 6.85 / 12.6 × 100 = 54.4% (3) 6.6 / 12.6 × 100 = 52.4% (2) 2(b) Assess whether SBC should change its legal structure to a public 12 limited company. Level Knowledge Application Analysis Evaluation 2 marks 2 marks 4 marks 4 marks 2 2 marks Two 2 marks 3–4 marks 3–4 marks relevant Two points Good use of Good points applied theory / judgement reasoned shown in argument to answer and explain the conclusion. reasons for and against 1 1 mark 1 mark 1-2 marks 1–2 marks One relevant One point Some use of Some point applied theory/reason judgement ed argument shown in to explain the answer and reasons for conclusion. and against 0 No creditable content OFR applies for results. Knowledge • Definition of plc • Knowledge of factors in decision and method of changing to a plc - Additional finance - More permanent finance - Cost of public share issue - Need for a prospectus, underwriting of share issue, legal costs - Impact on ownership & control of SBC • Knowledge of importance of gearing/reliance on bank loans - Banks will consider gearing in lending decisions - Interest payment associated with greater debt finance • Knowledge of relevance of profit margins and ROCE - Profits as a source of finance or potential attraction to investors Application • Comparison of figures from Appendix 1, use of results. • ROCE, profit margins • Gearing would be 52.53% so on the high side (already 52.38% without new loan) • Reference to possible uses of share capital as source of finance for Option 1 or 2 • Shareholders have had to accept low dividends. • Expansion opportunities for SBC that require financing and high cost of land in CBD • Options 1 & 2 require significant investment. 2(b) Analysis Building of chains of arguments linked to Knowledge and Application points: • Impact on existing shareholders/family, would there be a control risk? • Financial implications dilution of ownership versus extra capital. • Other factors developed, e.g. implications of profitability results on possible future returns and desirability of shares. • If demand for shares is low, then implication of share price / company value. Evaluation • Balance of evidence – best time? • Short versus long term interests? • Sateja and her family can convert to a plc to raise finance but retain control by holding more than 50% of shares. • Depends on attitude of the family towards retaining control. • How important is it to be able to take advantage of the current opportunities in the market? • Accuracy of forecast data? • Liquidity of SBC? • What might happen without conversion to plc? 2 3 marks 3 marks 3–4 marks 4–6 marks Good Points well Good use of Some judgement shown in the main knowledge applied to the theory / body of the answer and an attempt shown of case reasoned to support conclusion. factors argument to OR explain the Well supported advantages conclusion/recommendation focused and on the case. disadvantages or uses

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3 Evaluate the importance to SBC of using social media to maintain and 16 increase customer loyalty. 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/reason judgement ed argument shown in to explain the answer and likely conclusion importance 1 1 mark 1 mark 1–3 marks 1–3 marks One relevant One point Some use of Some point applied theory/reason judgement ed argument shown in to explain answer and likely conclusion importance 0 No creditable content Knowledge • Social media definition: social media is any digital tool that allows users to quickly create and share content with the public. Social media encompasses a wide range of websites and apps such as Instagram, Facebook and YouTube • Role of social media in marketing: Element of the promotional mix within the marketing mix. • Links with gaining new customers and retaining loyal ones (customer relationship marketing) • Marketing strategy, including budget, objectives, integrated marketing mix. Application • SBC are expanding and launching new services, such as different business qualifications to different target markets • Need to keep business customers loyal (CRM) • Need to communicate new technology and Business courses to existing and new customers/offer launch promotions • SBC may need to market new government sponsored technology ‘starter’ courses, who is target market? Easily reached by social media? • References to cost of web-based promotion versus traditional. • References to reasons why customers (business and individual) may find web-based/social media promotion and communication easy/difficult to access. • Cost of website development of $250 000 • Specific references to options 1 and 2. 3 Analysis • Development of why social media/online marketing may be important or not – will it retain customers? How might this improve competitiveness? • Likely implications of different target market for different services B2B and B2C. SBC may need to use different social media platforms in order to reach different segments of the market this will increase costs • How will the use of social media affect different aspects of marketing strategy (not just marketing mix) • Possible impacts on company image and reputation of social media presence • Social media communication builds customer loyalty as quick responses to customers’ messages can create a reputation for being responsive to customer needs. • Unhappy customers can quickly send out negative messages about SBC. This will be visible to SBC’s target audiences through social media and review websites. This can damage SBC’s brand and lower sales. • Relatively low cost providing a more effective use of SBC’s limited marketing budget. Evaluation • Future use and the need to keep up with new developments. • Importance of maintaining and updating. • Judgement as to how important social media may be – what else may be more important? • Possible groups of customers who may be ‘missed’ by concentration on online promotion, what percentage of customers are the ‘social media generation’ ARA 3 7–10 marks Good judgement throughout with well supported conclusion/recommendations focused on the case

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4(a)(i) Refer to Table 2. Calculate, for the proposed government contract, the 4 forecast: total contribution for the five years. Total contribution = sales revenue – total variable cost (1) Revenue = 20 × 25 000 × 5 = 2 500 000 (1) Variable costs = 18 × 25 000 × 5 = 2 250 000 (1) Total Contribution = 2.5 m – 2.25 m (3) = 0.25 m (4) OR Contribution = selling price – variable costs (1) Contribution per student = $20 – $18 = $2 (1 marks) Contribution per year = $2 × 25 000 = $50 000 (2 marks) Contribution for 5 years = $250 000 (4 marks) 4(a)(ii) profit for the five years. 2 Profit = (Total) Contribution – fixed costs OR Total revenue – total costs (1) $250 000 – ($90 000 + $75 000) = $85 000 (2) No set-up costs included in calculation: 250 000 – 75 000 = $175 000 (1) Revenue and/or Total cost calculation (1) Revenue = 2.5 m Total cost = 2.415 m 4(b) You may refer to your answers to 4(a) and other information. 12 Recommend whether SBC should accept the government contract. 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 applied theory/reason judgement ed argument shown in to explain why answer and the contract conclusion. should be accepted 1 1 mark 1 mark 1–2 marks 1–2 marks One relevant One point Some use of Some point applied theory/reason judgement ed argument shown in to explain why answer and the contract conclusion. should be accepted 0 No creditable content OFR applies for results. Knowledge • Factors in the decision: - Contribution - Profit - Future sales - Availability of employees - Finance needed • General understanding of government contracts • General benefits to business of working with the government Application • Reference to and application of results • Comparison with contribution from business customers who pay $25 ($7 per student) • Potential to use college graduates as trainee tutors • Reference to other points from the text, including appendix 1 financial information • Future possible government contracts? They are keen to promote entrepreneurship • Financing the room set-up costs of $90 000 4(b) Analysis Building of chains of argument linked to Knowledge and Application points: • Analysis of reasons why contract should be accepted, positive contribution, could lead to more government work, reliable income, enables new facilities to be set up. • Analysis of reasons why not, higher contribution from business customers, will tutors be available? Might they need to pay higher rates? • Potential to use college graduates as trainee tutors could help to reduce variable cost and hence improve the contribution. • Development of reference to results/comparison of figures with Appendix 1 and comment Evaluation • Accept or not? • Short/long term? • Government stability? • Depends on nature of contract. If the contract is at a fixed price then during the 5 years SBC’s costs could rise significantly and therefore the contribution in future years could become negative. • Will estimated numbers be reliable such as the maintenance costs of $15 000? Does finance depend on this? • Profit on the contract not very significant $17 000 per year, but could lead on to more profitable contracts?

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5 Evaluate the importance of workforce planning to the success of SBC. 16 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/reason judgement ed argument shown in answer and conclusion 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 in argument answer and conclusion 0 No creditable content Knowledge • Definition of workforce planning – HRM organising and selecting employees to meet the needs of the business. • Use of different types of contracts to make business flexible and save labour costs, part-time, short-term, zero hours. • Implications for staff turnover and motivation. • Link between quality and workforce skills. • Meaning of quality in a service industry. Application • SBC need skilled staff for course tutoring. • Proposal to train new employees to deliver technology training. • Tutors on part-time contracts, flexible staffing. • Reference to issues from the case – shortage of good tutors. • Possibility of future move to permanent contracts offered to best tutors. • Reference to labour costs and revenues from government contract. Analysis Building of chains of arguments linked to Knowledge and Application points: • Possible workforce planning solutions developed and linked to levels of labour costs for the government contract. • Development of links between flexible contracts and motivation. • Could training new tutors be a good solution – costs and benefits? • Competition from other colleges – possible impact on wage levels. • Possible implications for existing courses if there is pressure on staffing. 5 Evaluation • Essential to plan properly as government contract is important and could be lost if quality is not good. • How planning may / may not lead to profitability. • Difficult to predict future labour costs five years ahead. • Long term effect on staff motivation/turnover. • Management and delegation issues – can existing management cope? Questions 6 and 7 use the following marking grid. Level Knowledge Application Analysis Evaluation 3 marks 3 marks 4 marks 10 marks

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6 Evaluate the usefulness to SBC of force field analysis as a means of 20 making the strategic choice between option A and option B. Knowledge • Meaning of strategic choice as part of strategic management. • Definition and understanding of force field analysis as a technique of strategic choice. • Reference to other strategic choice techniques such as Ansoff Matrix, decision trees and investment appraisal. • General importance of SM for a growing business that needs to make choices • Reference to strategic analysis techniques when preparing for choice such as SWOT, PEST, Boston matrix, Porter’s Five Forces, Core competencies and others. • What will success look like in this context? Application • Option 1 is potentially product development, whereas Option 2 market development (Ansoff) • Use of the driving/restraining forces for two options – appendix 1 data. • Force field analysis –the balance between driving and restraining forces? - Use of these forces in answer such as SBC’s expertise in delivering course • Comparison of options using the Appendix 1 and other techniques. - Comparison of likely risks/returns. Decision tree probabilities: Option A has a higher estimated chance of success 0.7 v 0.6. - Payback of Option B is two years longer. - Initial cost and high gearing 6 Analysis • How techniques may be used and the advantages and disadvantages. - Force field analysis encourages managers to consider different aspects of a decision. - By identifying restraining forces action can be taken to mitigate negative effects and reduce risk. - Visual summary of factors in a decision. Helps focus attention on the most important forces affecting the decision. Facilitates discussion of these points to enhance decision making. - Forces can be weighted thus improving decision making. - Subjective forces are objectified by giving them a weighting focusing attention on important issues and making it easier to compare force for and against change. • Role of other techniques in decision making that consider the quantitative aspects of the choices. - Use of probabilities in decision trees therefore reducing risk for SBC of option choice. - Payback enables SBC to choose option with quickest payback which will have a positive impact on SBC’s liquidity • The use of techniques to analyse aspects of the options. • How different SC techniques may be used (Ansoff, decision tree) to make choice. • Link with SBC future objectives, e.g. how could conversion to plc be relevant? Evaluation • Very dynamic nature of this market, need to keep up with trends in demand and technology. • Impact of management objectives and attitudes – will director’s vote be final decision maker? Or will Sateja make the final choice? • Weighting of the driving and restraining forces is subjective. Has Sateja manipulated the data to support her preferred option of joint venture? Bias and hidden agenda in formulating the analysis. Disagreements about relative importance. • Forces may be missed from the analysis. • Justification of most useful choice technique with supporting argument. Comparison of use of force field analysis with other SC techniques • Elements that the evaluation/judgement might depend on: - Effective integration of analysis and choice techniques will be important. - Ability of the individual(s) completing the FFA. - Accuracy of forecast data? • Significance of other factors that may also be important: - FFA unlikely to be sufficient to make decision. Needs to be used alongside other choice techniques taking into account both quantitative and qualitative factors. - Impact of management objectives and attitudes. - Availability of finance (these may be included in the FFA). - Other information that could be useful? In particular, PEST factors for countries X and Y

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7 Evaluate the importance to SBC of effective strategic implementation if 20 option B is chosen. Knowledge • What is a joint venture • strategic implementation? • Different aspects of strategic implementation – managing change, business planning, contingency planning. • How strategic implementation fits with strategic analysis and strategic choice and why it is important, in terms of putting a plan/choice into action. • Business planning as part of implementation, including mission, objectives and functional business plan sections. • Understanding of SA techniques as part of the implementation process. Application • Option B involves a joint venture in a different country, with associated challenges and risks. • Comment on problems controlling new colleges ‘from a distance’, including lack of knowledge about local conditions. • Culture of social enterprise company may be quite different, making it difficult to achieve consistency in tuition and courses. • Internet and other technology is going to be important. • How stable is country Y, given possible change in government? • Relevance of contingency planning to different uncertainties. • Need to raise $3m. • Possible change of legal status to a plc. • Gearing currently 53% • Lack of knowledge and experience in country Y • Recruitment of qualified tutors in country Y • Low competition from existing colleges in country Y Analysis • Role of market research in reducing risk – link to lack of knowledge and experience in country Y • Consideration of financial implications and how to raise finance: - Managing cashflow - Debt finance V conversion to plc - Implications of source of finance in terms of gearing and control • How strategic implementation may be carried out effectively – change management, business planning, contingency planning. • Predictable versus unpredictable risks. • Development and impact of APP points. Evaluation • Will there need to be a significant change in planning if Option B is implemented? • What are the main factors that could lead to effective implementation? • Costs versus benefits of aspects of SI, e.g. CP • PEST factors will be very important for future success in Country Y. Not possible to plan for all eventualities, therefore no guarantee of success.