Business 9609/41 May/June 2023: question paper and mark scheme

Mark scheme

1 Evaluate whether LH made the correct strategic decision to take over PS. 20 AO1 Knowledge AO2 Application AO3 Analysis AO4 Evaluation Level and understanding 2 marks 8 marks 7 marks 3 marks Description Description Description Description 3 7–8 marks 6–7 marks Developed analysis of Effective evaluation the overall strategy that A developed judgement/conclusion identifies connections is made in the business context between causes, impacts that draws together developed and/or consequences. evaluative comments which balance some key arguments in the business context. 2 2–3 marks 2 marks 4–6 marks 3–5 marks Developed Developed Developed analysis of Developed evaluation knowledge of application of individual strategic A developed relevant key term(s) relevant point(s) element(s) that identifies judgement/conclusion is and/or factor(s) is to the business connections between made. used to answer the context. causes, impacts and/or Developed evaluative question. consequences. comments which balance some key arguments. 1 1 mark 1 mark 1–3 marks 1–2 marks Limited knowledge Limited Limited analysis that Limited evaluation of relevant key application of identifies connections A judgement/conclusion is term(s) and/or relevant point(s) between causes, impacts made with limited supporting factor(s) is used to to the business and/or consequences. comment/evidence. answer the question. context. An attempt is made to balance the arguments. 0 0 marks 0 marks 0 marks 0 marks No creditable No creditable No creditable response. No creditable response. response. response. 1 Indicative content Responses may include: AO1 Knowledge and understanding Knowledge of business concepts (max 3 s), including: Strategy – a plan of action to achieve a long-term aim Developing business strategies – SWOT analysis Business growth – external growth – takeover and mergers Ratios – liquidity, profitability and financial efficiency Quality management – meeting customer expectations and quality control Any understanding of other terms, ratios or concepts in the case or appendices. AO2 Application Indicated by as 1 mark (max 2 s): Purchase of international luxury gift supplier Brand name of PS used to retain international brand awareness Elements from SWOT analysis Elements from financial data Use of online review extracts Any use of the case that is in context of the answer. AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. (max 3) Developed analysis of individual strategic element - candidate shows two or more links in the chain of analysis. Developed analysis of overall strategy – candidate shows a counter answer to the chain of analysis (2-sided answer). OPM increasing by about 10% 2016 to 2017 which signifies Loretta’s short term profit maximisation plan was working and therefore may have produced sufficient profits for investment opportunities. Gearing reduced by 33% which allowed for borrowing for investment in the international growth markets which would satisfy Loretta’s 5 year rapid expansion target to be met. Acid test ratio of 0.7 (low for a stock intensive operation) signified that stock management systems were effective which would neutralise PS’s inefficient inventory control and improve the low DPS if it was a result of poor operating margins. 1 Increasing dividends may have left less available for expansion. Trade receivables increased by over 7x, showing that corporate buyers want longer/better payment terms which decreases cashflow/increases financial risk. The business was bought for international brand awareness in 2018 however by 2021 the name was dropped which indicates that the investment into the brand may have failed. PS wide range of national suppliers would have negated LH weakness of a limited number of regional suppliers therefore increasing choice, however an acid test ratio drop of 0.5 between 2017 and 2019 implies that too much stock was held which could have affected the cashflow and may have been a reason for lack of investment into cyber security. The rapid development of international corporate clients in 2019–20 increased gearing by 8x over 2 years and increased further by 5% indicating that cashflow was poor and debts were high, which may have negatively impacted the dividend per share and caused shareholder unrest which may be a reason Loretta had to present figures and may have contributed to her replacement in 2023. AO4 Evaluation Limited evaluation - unsupported judgement and/or a weak attempt at evaluative comment Developed evaluation – supported judgement and/or reasonable evaluative comment Developed evaluation in context – supported judgement in context and/or reasonable evaluative comment in context. Evaluation will largely depend on the points raised in the analysis of the data of LH. The efficiencies of LH didn’t lead to synergies with PH who lacked economies of scale and meant that the original objective of profit maximisation was ignored, however this may have been expected with the rapid expansion that was planned. To what extent did the high gearing and reducing profit margins and falling DPS in 2019–20 lead to the cyber-attack? Was there a lack of investment into online security? The takeover of PS has had a significant negative impact on the financial position of LH, which may be an issue for a rapidly expanding, relatively new company. Overall judgement required about the balance between the accounting and qualitative elements of LH’s strategic decision making. Accept all valid responses. 1 Exemplar and annotations The decision was an example of external growth, a way of growing a business by a merger of takeover to improve efficiency , Loretta’s identification of PS as an international luxury gift supplier , LH would benefit from existing customers , increasing profitability , this is evident in the financial data by LH as revenue increased from 30 million in 2017 to 56 million in 2019 and 61 million in 2020 after the takeover . It can be argued that PS’ luxurious brand image negatively affected LH as their standards may have been difficult to control. Strategic analysis is the analysis of the current business situation and researching the best method of business strategy to achieve long term objectives . The business strategic implementation would be the process by which the business’ chosen strategy is introduced in the setting of their long-term objectives . LH’s gearing ratio has increased, meaning that LH may not be as profitable as they could ,due to the immense amount of borrowing to finance takeover and extra expenses . But in the long term it seems that if LH can keep up their profitability, they would be able to pay back their loans . To conclude, LH’s short-term objective of profit maximisation appears to not be met due to the external growth of LH’s takeover of PS . LH may not have been able to keep up with the demand which could hurt their reputation . The consumers of LH would have been negatively affected by the takeover as they would be expecting luxurious high- quality food and gift baskets. LH would have taken a loss if the product did not meet customer expectations . LH should consider the external environment when completing the take-over . For example, if the government implement economic policies, LH could face higher interest rates and it would be difficult to lower their gearing ratio which is increasing . AO1 – 3/3 AO2 – 2/2 AO3 – 8/8 AO4 – 7/7 Total 20 marks Judgement is a yes or no. Comment is anything weighing up the other side of the argument.

Mark scheme

2 Advise Sanjay on an operations strategy for LH to overcome the problems it is experiencing. 20 AO1 Knowledge AO2 Application AO3 Analysis AO4 Evaluation Level and understanding 2 marks 8 marks 7 marks 3 marks Description Description Description Description 3 7–8 marks 6–7 marks Developed analysis of Effective evaluation the overall strategy that A developed judgement/conclusion identifies connections is made in the business context between causes, impacts that draws together developed and/or consequences. evaluative comments which balance some key arguments in the business context. 2 2–3 marks 2 marks 4–6 marks 3–5 marks Developed Developed Developed analysis of Developed evaluation knowledge of application of individual strategic A developed relevant key term(s) relevant point(s) element(s) that identifies judgement/conclusion is and/or factor(s) is to the business connections between made. used to answer the context. causes, impacts and/or Developed evaluative question. consequences. comments which balance some key arguments. 1 1 mark 1 mark 1–3 marks 1–2 marks Limited knowledge Limited Limited analysis that Limited evaluation of relevant key application of identifies connections A judgement/conclusion is term(s) and/or relevant point(s) between causes, impacts made with limited supporting factor(s) is used to to the business and/or consequences. comment/evidence. answer the question. context. An attempt is made to balance the arguments. 0 0 marks 0 marks 0 marks 0 marks No creditable No creditable No creditable response. No creditable response. response. response. 2 Indicative content Responses may include: AO1 Knowledge and understanding Knowledge of business concepts (max 3 s), including: Strategies for international marketing Scale of operations Quality control and quality assurance Inventory management Operational decisions – IT and AI in operations management Flexibility and innovation Enterprise and resource planning Production methods including lean production Any understanding of other terms or concepts in the case or appendices. AO2 Application Indicated by as 1 mark (max 2 s): LH objectives Use of online review extracts Extracts from SWOT analysis Cyber-attack, incomplete supplier lists and lost customer data Considerable reputational damage due to data loss (use of App 3) Relevant elements from appendices and LH business. AO3 Analysis Limited analysis – candidate shows one link in the chain of analysis. (max 3) Developed analysis of individual strategic element - candidate shows two or more links in the chain of analysis. Developed analysis of overall strategy – candidate shows a counter answer to the chain of analysis (2-sided answer). 2 Candidates are likely to focus on Sanjay’s objectives. Focusing on IT security is vital to repairing the reputation of LH in customers’ eyes. Security of data is paramount and could lead to fines if negligence was shown to have occurred. This could justify significant investment into completely new IT systems to replace the aging and outdated existing platform. However, the cost and time necessary to implement a new system is likely to be high and this could mean that competitors could take market share whilst new systems are being developed – what happens in the meantime? Inventory control – As customers are unhappy with the quality of the products, LH should use this opportunity to refine its supplier base with proven quality assurance procedures to ensure high customer satisfaction levels as existing supplier lists are lost. However, existing suppliers may have contracts that have been written to ensure economies of scale, pricing and supply. Also, how many customers are complaining of poor quality? Current financial accounts need to be inspected to see whether the unhappiness is reflected in financial accounts or if it is a few loud people writing negative reviews. Does the LH brand demand the same level of consumer awareness as the PS brand? Was the PS brand dropped due to a lack of marketing advantage? Strategies to ensure international reputation is as successful as the national market. Financial strategy required to appease shareholders as DPS which may have already led to previous MD being replaced, however significant investment into IT and security systems is also needed – a poor acid test ratio and high gearing may mean there are few or difficult options. Management information – ensuring that any management conflict from the merger is negated by extending the communications channels used in the expansion into the European market. However, these channels were developed in 2016–17 – has there been investment into these channels or are they too outdated? TQM helps businesses reduce waste therefore reducing costs on defective products. However, it would increase the cost of operations as LH’s production process would become more labour-intensive. ERP would increase coordination within departments which would increase productivity as it also works with just in time. However, this is costly to implement which could halt production. Lean production such as cell production of every unit of the food hamper would improve quality standards and no delays to customers therefore gaining a better reputation within the market. New software to resolve the outdated IT systems will save time as data will not be entered to separate programs one by one and issues like cyber security will not occur. However, high-tech software is costly. 2 AO4 Evaluation Limited evaluation - unsupported judgement and/or a weak attempt at evaluative comment Developed evaluation – supported judgement and/or reasonable evaluative comment Developed evaluation in context - supported judgement in context and/or reasonable evaluative comment in context. Evaluation will largely depend on the points raised in the analysis of the approaches needed to develop a new strategy. The amount of time Sanjay has to implement the new objectives – can LH continue to operate on the existing platform while changes are made? To what extent can/should Sanjay try to plan for a new strategy with the resources that he has? Many of the approaches rely heavily on ability of LH to find new and existing suppliers. Advice to Sanjay should make clear which approaches are likely to be most relevant and useful in this context. Accept all valid responses. Exemplar and annotations Lean production techniques are methods of reducing waste and increasing efficiency. It includes Kaizen continuous improvement, TQM and quality control etc. I think Sanjay should use JIT inventory management and quality assurance. This is because 2022 reviews show that there is a problem with customers receiving the correct goods. Quality assurance involves checking the goods at every stage of production. This will lead to better product quality. With JIT it will also lead to better waste management – the overall result is a better reputation which could guarantee success in international markets. However, they will need reliable suppliers. Improving their outdated IT system can prevent another cyber-attack and consequently gain more sales, revenue and profit which would resolve some of the financial issues seen in appendix 2 . However, this system would require updates and monitoring and even compatible machinery . 2 Overall, I recommend quality assurance and JIT. These do not solve as many problems as the multifaceted ERP computer program but QA is more cost effective than ERP as it only requires employee participation and LH could easily solve the negative reviews from 2022 of LH’s products such as ‘the contents were not what I ordered’ which would improve brand image . However, the point depends upon the finance available to LH. They have 6.71 million dollars of profit available to them but ERP is expansive and requires integration with their corporate customers and suppliers. AO1 – 3/3 AO2 – 2/2 AO3 – 8/8 AO4 – 7/7 Total 20 marks Judgement is a yes or no. Comment is anything weighing up the other side of the argument. There is no need for an evaluative comment for full marks on evaluation.