Business 9609/31 May/June 2022: question paper and mark scheme

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1 Analyse two benefits to HD of increasing its focus on corporate social 10 responsibility (CSR). Leve Knowledge Application Analysis l 3 marks 2 marks 5 marks 2 3 marks 2 marks 4–5 marks Two relevant Two points applied Good use of theory benefits and to HD and/or reasoned definition of CSR. argument to explain benefits 1 1–2 marks 1 mark 1–3 marks Definition of CSR One point applied to Some use of theory (1) HD and/or reasoned Definition of CSR argument to explain and one relevant benefits benefit (2) 0 No creditable content Note: Do not credit reproduction of phrases or data in the case study without use and/or comment. Benefits should relate to HD. Limitations should not be rewarded. Knowledge: CSR is the policies that demonstrate a business is acting ethically and for the well-being of society and stakeholders. Issues associated with CSR include accounting practices, bribery to win contracts, poor health and safety, environmental responsibility, use of ethical supply chains. Role of triple bottom line related to CSR. Social audits monitor/measure CSR in a business. Pressure groups with particular concerns are stakeholders and they attempt to move organisations in a particular direction. CSR is becoming more important as a factor for businesses and consumers in their purchasing decisions. Benefits may include: Greater brand loyalty Increased sales Better employee retention and improved recruitment Provides a USP to HD Reduced pressure from pressure groups 1 Application: Making use of the business context: HD designs, manufactures and supplies circuit boards, not easily recycled Metals used are difficult to recycle – CSR could include designing circuit boards that can be more easily recyclable Supplying to certain customers e.g. social media, police, security forces, governments may have particular CSR implications. Some manufacturers make payments not shown in accounts – unethical. High labour turnover in Design Division – CSR could reduce this. Increasing levels of competition – CSR as a differentiator or USP for HD Two pressure groups and government have requested a social audit – could this cost be avoided with focus on CSR? Analysis: Building of chains of arguments linked to Knowledge and Application points raised above, drawing out an implication or consequence for HD. Increased monitoring and implementation of CSR could result in increased sales to e.g. universities, some governments Some activities of HD may appear to be problematic regarding CSR, a positive social audit will lead to transparency and improved public image. With increasing competition HD will benefit from further developing competitive advantage. A greater focus on CSR could provide a USP and enable HD to increase sales or increase price as demand may become more price inelastic. Legal, financial and environmental legislation is more likely to be complied with so less risk and possibility of fines. Increased focus on CSR may make HD a more attractive organisation to work for leading to easier recruitment and better labour retention which will reduce costs.

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2(a)(i) Refer to Table 1 and lines 45–48. Calculate the: 3 (i) difference in labour turnover between the Design Division and the Manufacturing Division for January to May 2022 Labour turnover is number of employees leaving employment / Number employed in a time period × 100 (1 mark if no rewardable calculation) Design: 5 / 18 × 100 = 27.78(%) (1) Manufacturing: 1 / 22 × 100 = 4.55 (%) (1) Difference = 27.78 – 4.55 = 23.23(%) or 23.2(%) (3) Likely variations 28 – 5 = 23 27.8 – 4.6 = 23.2 3 marks for 23 to 23.45 Other answer 5 – 1 = 4 (1) OFR 2(a)(ii) (ii) capacity utilisation in May 2022. 2 Capacity utilisation = current output level / maximum output level × 100 (1 mark if no rewardable calculation) 1.05 / 1 × 100 (1) = 105% or 105 (2) NOT 105 m or $105 m (max 1 mark for relevant working) 2(b) You may refer to your answer to (2a) and other information. 12 Recommend how HD could solve the problem of operating over maximum capacity. Justify your recommendation. Level Knowledge Application Analysis Evaluation 2 marks 2 marks 3–4 marks 3–4 marks 2 2 marks 2 marks 3–4 marks 3–4 marks Two relevant Two points Good use of Good points made applied to HD theory and/or judgment reasoned shown argument to answer question 1 1 mark 1 mark 1–2 marks 1–2 marks One relevant One point Some use of Some point made applied to HD theory and/or judgment reasoned shown argument to answer question 0 No creditable content Note: Own figure rule from 2(a) applies. Knowledge: Capacity utilisation is the proportion of maximum output capacity currently being used. Maximum capacity is the highest level of sustained output that can be achieved. Outsourcing is using another business to undertake a part of the production process rather than doing it within the business using its own resources Expansion will increase capacity Factors in decision – Short term v long term solution – Cost of options – Impact on quality – Timescale Application: Making use of the business context: HD make and supply circuit boards 40% standard circuit boards, 60% custom made – linked to consideration of which to outsource Significant increase in demand linked to 5% over capacity and future capacity utilisation Lack of time for machine maintenance and link to quality 2(b) Manufacturing employees under pressure and link to quality Low labour turnover in Manufacturing Division Gearing is low (16.7%) and link to finance for expansion HD’s mission to produce ‘world class software solutions’ linked to outsourcing and control of quality Analysis: The current problem is orders are outpacing resources available which may lead to dissatisfied customers Sustainability of the level of overcapacity – only 5% but demand is increasing Outsource manufacturing advantages – Flexible to changing patterns of demand so enable HD to reduce output if sales decline without facing higher average costs Outsourcing disadvantages – Loss of control over quality could risk reputation of HD resulting in dissatisfied customers Investment in a bigger factory will be more expensive in the short-term, increasing costs. May result in operating at excess capacity initially, increasing the average cost of production of circuit boards. Factory expansion will enable HD to retain direct control over quality which is one reason why HD has been successful and helps to differentiate them from competition Expansion will take time and potentially disrupt current customer orders leading to dissatisfaction. Alternatives to outsourcing and expansion Reduce level of sales to 1m or less. However, will conflict with corporate objectives. Could consult with electronic engineers as they are motivated, self- directed and professional. Could generate ideas to solve overcapacity. Restructure Manufacturing Division to be more flexible and less centralised so more efficient. Quality assurance audit leading to streamlining of production and increase in maximum possible output. Investment in capital equipment to increase productivity and maximum capacity Evaluation: Only award EVAL if the candidate has also demonstrated APP. Justified recommendation of method(s). Justified rejection of method(s). – Loss of control over quality threatens HD’s USP of high quality and is therefore significant risk Justified ranking of methods. Importance of involving employees in any decision. Is the problem short term or long term? Little information on availability of finance. No guarantee of success

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3 Evaluate the extent to which the organisational structure of the Design 16 Division contributes to the success of HD. 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 made applied to HD theory and/or judgment reasoned shown argument to answer question 1 1 mark 1 mark 1–3 marks 1–3 marks One relevant One point Some use of Some point made applied to HD theory and/or judgment reasoned shown argument to answer question 0 No creditable content Note: Answer could focus on type of structure, delegation, control, centralisation or any combination of these. Knowledge: Understanding of: relationship between objectives and structure types of structure - functional, hierarchical, matrix formal and informal structures delegation and accountability - advantages/disadvantages control, authority and trust centralisation - advantages/disadvantages line and staff management. Application: Making use of the business context: Functional organisation of HD – Design, Manufacture, Marketing, Admin. 3 Structure successful Matrix structure of Design Division – Design engineers work in teams for life of each project linked to drawing range of relevant skills together. – Teams choose own leader – delegation increasing motivation – Teams choose own customer liaison – link to meeting customer needs HD has excellent reputation for supplying quality boards HD is a successful company – grown over 20 years. Structure not successful Project completion dates are delayed Absenteeism and labour turnover in Design Division is increasing and higher than in manufacturing which uses hierarchical structure Comments from design engineer – Two managers to report – causes confusion – Constantly changing teams – creates uncertainty Monitoring of progress on contracted work appears non-existent. Other factors in success not related to structure Self-directed graduate engineers and directors Flexibility of working from home – link to motivation Analysis: Design work lends itself to independent self-motivated people. HD has decentralised decision making in Design Division which assists skilled employees to think creatively. No hierarchy in Design Division so how are decisions made? This may be a reason for late completion of projects. Over capacity indicates lack of planning due to lack of strategic focus Informal structure with low control, high delegation and trust resulting in motivation and better quality design of circuit boards Structure contributes to lowering of morale and consequent problems of increased labour turnover which increases costs Labour turnover is lower in the manufacturing division – could be because of increased sense of purpose due to hierarchical structure and closer supervision Evaluation: Only award EVAL if the candidate has also demonstrated APP. Successful matrix structure depends on individuals. Matrix structure well suited to design tasks and business objectives Company obviously successful after 20 years with current structure No evidence of conflicts between employees, managers and workers Problems such as differing Divisional rates of labour turnover indicate that the structure needs to be changed or modified in the direction of more control, formality, and centralisation – e.g. team leaders.

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4(a)(i) Refer to Tables 2 and 3. Calculate HD’s: 4 (i) return on capital employed (ROCE) ROCE = operating profit / capital employed × 100 OR Capital employed = equity + non-current liabilities + reserves OR non-current assets + current assets – current liabilities (1 if no rewardable calculation) Capital employed = 4 + 10 + 10 = 24 (2) ROCE = 8 / 24 × 100 (3) = 33.3(%) (4) 8 / 14 × 100 = 57(%) (3) if correct equation stated 8 / 20 × 100 = 40(%) (3) if correct equation stated Any other answer that is 8 / y × 100 is 2 marks if correct equation for ROCE is also stated. OFR 4(a)(ii) (ii) gearing ratio 3 Non-current liabilities (NCL) / shareholder equity × 100 OR debt / shareholder equity × 100 (1 mark if no rewardable calculation) shareholder equity = 10 + 10 = 20 (1) NCL / capital employed × 100 (1 mark if no rewardable calculation) Capital employed = 4 + 10 + 10 = 24 (1) Gearing = 4 / 24 × 100 (2) = 16.7% or 17% (3) Gearing = 4 / 20 × 100 (2) = 20% (3) Note: If candidate uses incorrect capital employed figure from 4(a)(i) then OFR applies and candidate can still gain full marks. 4(a)(iii) (iii) dividend cover 2 Maximum of 1 mark for any of the following Profit after tax / dividends payable Profit after tax = 8 – 4 = 4 Dividend cover = 8 – 4 / 4 = 4 / 4 Two marks for dividend cover = 1 Other answer Operating profit / Dividends paid: 8 / 4 = 2 (1) 4(b) You may refer to your answer to (4a) and other information. 12 Recommend whether the directors of HD should accept MW’s joint venture offer. Justify your recommendation. Level Knowledge Application Analysis Evaluation 2 marks 2 marks 3–4 marks 3–4 marks 2 2 marks 2 marks 3–4 marks 3–4 marks Two relevant Two points Good use of Good points made applied to HD theory and/or judgment reasoned shown e.g. argument to well supported answer conclusion question 1 1 mark 1 mark 1–2 marks 1–2 marks One relevant One point Some use of Some point made applied to HD theory and/or judgment reasoned shown argument to answer question 0 No creditable content Note: Own figure rule from 4(a) applies Knowledge: Joint venture – two or more businesses agree to work closely together on a particular project and create a separate business division to do so. Factors in the decision – Impact on profitability – Financing – Gearing ratio – Business objective – Investment appraisal results – Core competency – Liquidity – Impact on employees Application: Making use of the business context: Circuit boards/software – HD core competence Niche market – limited sales opportunity Two year estimated life – short MW idea, HD develop and market, MW manufacture so capacity utilisation not an issue Use of information from Tables 2 and 3 – profit after tax $4 m – finance available? – Gearing is low at 16.7% – link to finance – Liquidity – current ratio is high at 5:1 – link to finance 4(b) Reference to forecast profit/profitability of venture (HD Revenue $5 m, profit $0.5). Profitability of 10%. Contrast with current operating profit margin of 20% One marketing employee - link to HD’s role in marketing the product High labour turnover of design engineers – link to capacity to take on extra design work Analysis: Chains of arguments relating to advantages and/or disadvantages of joint venture Low capital cost so easily affordable Comparison of existing company profitability (20%) to forecast profitability for the joint venture (10%) per year. Small but significant % of HD revenue and profits. If revenue for 2022- June 2023 stays same as for 2021–22 joint venture will contribute 11.1% revenue and 5.9% profits. Proposal matches HD core competencies so more likely to be successful Development requires resources from HD – employee time in particular. This could be a problem with only one marketing employee Niche market implies low sales, possibly high competition Does MW have the ability/skills to manufacture the new product? New project could motivate employees No detailed relevant financial data available yet Accuracy of forecasts on revenue and operating profit? Reliance on another business for the project success. Evaluation: Only award EVAL if the candidate has also demonstrated APP. A justified recommendation to accept or not A justified recommendation to explore the proposal and acquire more information The project may open up new markets so is worthwhile if it covers costs. HD need to act to solve increasing problems. Is the forecast financial data accurate enough to make a decision? Does the financial forecast indicate enough revenue to make project worthwhile? Does HD need MW to target this niche?

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5 Evaluate the changes HD should make to the marketing of its products 16 in response to the website manager’s market report (lines 85–94). 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 made applied to HD theory and/or judgment reasoned shown argument to answer question 1 1 mark 1 mark 1–3 marks 1–3 marks One relevant One point Some use of Some point made applied to HD theory and/or judgment reasoned shown argument to answer question 0 No creditable content Knowledge: Understanding of marketing mix strategy or planning Explanation of specialist/niche markets Explanation of international marketing Explanation of globalisation and economic globalisation Knowledge of BRICs, trade blocs / customs unions. Application: Making use of the business context: HD design, manufacture and supply circuit boards to specialised market in which quality more important than price HD’s high reputation. Findings in market report – Price becoming more important – Changing geographical location of customer enquiries – BRICs markets – Increased proportion of enquiries not being converted Sales breakdown is 40% Q, 30% US, 30% other. Directors have ambitious objectives including long-term growth. HD’s existing marketing strategy/methods are limited to use of website Change in product to make more environmentally friendly Role of website manager as responsible for marketing 5 Analysis: Building of chains of arguments linked to Knowledge and Application points raised above drawing out an implication or consequence for HD. Currently very successful company with increasing sales based on reputation that could be used in promotional activity to further increase sales International sales already important to HD and offer possibility for expansion. Geographical shift in enquiries indicates need to develop international markets. Increased focus on CSR as a marketing tool to differentiate HD and build brand image to increase sales Globalisation and multinational companies mean international and domestic competition more intense so may need to increase promotional spending or reduce price to be more competitive. Evaluation: Only award EVAL if the candidate has also demonstrated APP. Reasons why it is essential to review marketing strategy – Increasing economic collaboration may restrict market opportunities in some areas so need to act quickly – More competition so international marketing becomes more important to maintain sales – Other factors may be more important in international markets – e.g. price, quality, technology to make sales Need for more data regarding location of customers Possible changes in country Q may diminish importance of international marketing Justified conclusions on any changes or on no change Need for change in organisational structure to enhance focus on marketing e.g. dedicated marketing specialist required. 6, 7 Questions 6 and 7 use this marking grid: Level Knowledge Applicatio Analysis Evaluation 3 marks n 4 marks 10 marks 3 marks 3 7–10 marks Good judgment shown throughout with well supported conclusion / recommendation, focused on HD 2 3 marks 3 marks 3–4 marks 4–6 marks Good Good Good use of Some judgment understandin application reasoned shown in the main g shown to HD argument or body of the answer use of and an attempt to theory to support conclusion / explain recommendation, points made focused on HD OR effective and well supported conclusion / recommendation focused on HD 1 1–2 marks 1–2 marks 1–3 marks 1–3 marks Some Some Limited use Limited attempt to understandin application of reasoned show judgment g shown to HD argument or either within the use of answer theory to OR support a weakly supported points made conclusion / recommendation with some focus on HD 0 No creditable content

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6 Evaluate the usefulness of SWOT analysis as part of the strategic 20 analysis required before HD's directors make the choice between option 1 and option 2. Note: If there is no reference to or knowledge of SWOT analysis, limit to K 2, APP 2, AN 0, EVAL 0, for other points related to the choice between the two options. Knowledge: Explanation of SWOT as a strategic analysis technique – Strengths, Weaknesses, Opportunities, Threats – Helps understand the internal and external environment – Helps decision making and identifying growth strategies Place of SWOT within strategic management Explanation of other strategic analysis techniques – PEST, Boston Matrix, Porter’s 5 Forces, core competencies e.g. Core competence: The main strengths or strategic advantages of a business. Porter’s 5 forces analysis includes: buyer power, supplier power, threat of substitutes, ease of entry and competitive rivalry. Need to understand the external environment – requiring a detailed PEST analysis Significance of objectives in decision making Application: Making use of the business context: Reference to SWOT analysis results – Takeover of manufacturer - links to weakness of operating at over capacity – Design, develop and manufacture a new product - links to opportunities of developing innovative products HD design, manufacture and supply circuit boards. Corporate objective of continued long term growth. HD’s mission statement: ‘to provide world class software...’ 6 Analysis: Analysis is about the use of the techniques to shape decision rather than analysis of factors in the decision. The time, money and effort needed to conduct SWOT analysis and impact on HD Effective SWOT analysis may result in clearer and more relevant business objectives, better strategic decisions and less risk as HD will be better prepared for the future How SWOT analysis will improve business planning and decision making, reduces risk Analysis of how information in Appendix 1 might guide strategic decisions – Focus on strengths will reduce risk to the business – Identification of consequences of weaknesses such as high labour turnover of design engineers for alternative strategic options – Anticipating changes to the external environment such as new technology replacing circuit boards and how that impacts the different strategies Generation of possible objectives relating to option 1 and 2 from the SWOT analysis. Relating SWOT to the options and to corporate objective of growth. Evaluation: Only award EVAL if the candidate has also demonstrated APP. Clear conclusion as to the effectiveness of SWOT analysis Depends on: – How up to date the SWOT analysis is – Subjectivity of individual conducting the SWOT analysis – How comprehensive and detailed the analysis is Importance of understanding where the business is now in order to generate ideas and/or support for expansion Weighing up importance of other stages in strategic management especially objectives and choice techniques in relation to strategic analysis Using only SWOT may be insufficient to identify appropriate strategies. Other strategic analysis and strategic choice techniques are also important: – Understanding the market through appropriate PEST analysis will inform HDs decisions and improve effectiveness of strategy choice – Understanding core competencies will enable HD to focus on strategies that HD will have a competitive advantage in and therefore are likely to be more successful – By using Porter, HD can assess the threat of substitutes etc. to decide whether Strategy 1 or 2 is better. This will reduce the risk of entering the wrong market – Decision tree, investment appraisal, Force Field Analysis, Ansoff’s Matrix. (If these are developed it may lead to additional EVAL marks.)

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7 Evaluate the role of corporate planning in the successful 20 implementation of either option 1 or option 2. Note: Answers may address or be in relation to either option 1 or 2, or to both 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 HD’s 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 HD can be assessed. – Helps ensure that resources are used effectively and that all departments are working together. – Contingency planning 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 5 Forces How dynamic markets may affect 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: Making use of the business context: HD design, manufacture and supply circuit boards. Content of option 1 (focus is production/operations) and option 2 (focus is product development). Cost and implications for finance – Option 1 may need external finance – link to gearing which is relatively low Need for recruitment of design engineers with different skills in Option 2 Corporate objective of continued long-term growth HD’s mission statement: ‘to provide world class software....’ link to low- cost manufacturing and quality Timescale - short to medium term 7 Analysis: Both options involve significant change but in different areas. Business plan integrates functions, finance and management. Relationship of business plan to other elements of strategic implementation. Suggestions for content of plan relating to chosen option. Advantages and disadvantages of producing a business plan. Business plan for an option may enable other aspects of the business to be more effective, increasing chances of success for that option. Involvement in producing the plan can engage employees and lead to more motivation and efficiency. Planning helps reduce risk by anticipating changes in the market and preparing the business for the future. Without a plan HD will lack direction and objectives. 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. Evaluation: Only award EVAL if the candidate has also demonstrated APP. Justified conclusion on importance of corporate planning. Plan only as good as the information, analysis and choice techniques it is based on. Plan effective only if communicated, understood and implemented. Plan must be flexible and adaptable to be effective Plan must integrate functional area plans and contain contingency planning The business environment is dynamic and there can be unexpected internal and external events. 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.