Business 9609/41 May/June 2024: question paper and mark scheme

Mark scheme

1 Evaluate LC’s business performance between 2014 and 2023. 20 Indicative content: Responses may include: AO1 Knowledge and understanding Definition or understanding of business performance Definition of any concepts used in the case to show performance including: Global financial crises Appointment of a new CEO Any definition of appendix 4 ratios Bonuses, contracts, pensions Centralised – decentralised Labour productivity Capital – intensive factory Organisational structures Inventory management The use of financial statements to enable strategic decision making using financial strategies to develop strategies, the contents of an annual report and their usefulness to business and other stakeholders Understanding of appendix 4 concepts such as gross profit margin, current ratio, dividend yield, inventory turnover, acid test The use of accounting data and ratio analysis in strategic decision making including: Assessment of business performance over time and against competitors The impact of accounting data including ratio results on business strategy The impact of debt or equity decisions on ratio results The impact of changes in dividend strategy on ratio results The impact of business growth on ratio results The impact of other business strategies on ratio results No other AO2, AO3 or AO4 marks can be awarded without AO1. 1 AO2 Application Indicated by as 1 mark (max 2 s), Application must support an assessment objective to be in context. Inventory management and budgets controlled centrally by US head office LC develops an enterprise resource plan in response to budgetary constraints LC closes its least profitable, labour-intensive factories LC reduces its product range LC invests in one new capital-intensive factory financed by a bank loan Labour productivity decreases and labour turnover increases Evidence from Appendix 4: Financial statements Rise and fall of GPM between 2014–2023 Fall and rise then fall of OPM between 2014–2023 Rate of inventory turnover doubles from 12–-24 but has remained flat in the last 2 years Dividend yield increases by 2.5 × between 2014–2023 Gearing increases between 2014–2023 [except for slight fall in 2023] Current ratio remains constant at 1:1 Acid test doubles between 2014–2023 (after 2017) Appendix 5 evidence shows strategic changes affecting employees has caused significant negative feedback from them. AO3 Analysis Analysis of the impact of the HR strategy on a business ( and and ) including: 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). 1 Arguments that LC’s financial and accounting strategy were successful include: Liquidity ratios: between 2014 and 2023 have stabilised: which indicate better utilisation of working capital, indicating less raw materials/work in progress, a result of the 2015 ERP programme focusing on JIT which reduces working capital employed Profitability ratios: between 2020 and 2023 have fallen by (GPM) 33% and (OPM) 25%: indicate that LC may have focused on increasing inventory turnover (×2 RoIT) and gaining market share sacrificing short-term profit for long-term profitability which may have a positive impact on the market price. Gearing ratio increased to over 50% between 2014–2023 showing a reliance on long-term borrowing – increase in costs through interest payments reducing profit and dividends to be paid to shareholders Reduction in product range – linked to strategic objective of cost cutting and achieving 10-year plan to pay higher dividends, satisfying shareholders Arguments that LC’s financial and accounting strategy were not successful include: Meeting long-term financial objectives – focus taken off short-term financial issues – from OPM and GPM A focus on finance and accounting has impacted on other areas such as productivity, product range and employee performance which has led to inefficiencies and employee dissatisfaction. AO4 Evaluation L1 limited supporting evidence – answering the question with a brief explanation L2 developed supporting evidence – reason is developed further L3 developed supporting evidence with context – Level 1 and 2 is answered in context. Evaluation will largely depend on the points raised in the analysis. A judgement on the business performance between 2014–2023. A focus on finance and accounting may lead to other intangible assets and competencies being ignored which may be more important than cost reduction. Each geographical area will have their own requirements. These may be lost with centralised leadership brought on by a focus on finance and accounting. The range of products may be more important than a narrow focus, especially with a USP of affordable luxury. Weighing up the arguments about the success of financial and accounting strategies between 2014–2023. Overall judgement required about the success of financial and accounting strategies between 2014–2023. Accept all valid responses.

Mark scheme

2 Advise LC on a new HR strategy to improve employee performance. 20 Indicative content Responses may include: AO1 Knowledge and understanding Knowledge (max 3 marks) can be awarded for any relevant business knowledge about HR Strategy: Definition of HR Strategy (achieving business objectives is also accepted) Example – HR strategy is a plan to improve efficiency through the management of employees Definition of HRM Approaches to human resource management The difference between ‘hard’ and ‘soft’ HRM Flexible working contracts: advantages and disadvantages of temporary contracts or flexible contracts including zero hours contracts, part-time, full-time, annualised hours, flexi-time, home working, shift working, job sharing, compressed working hours, the gig economy The measurement, causes and consequences of poor employee performance Strategies for improving employee performance Management by Objectives (MBO) – implementation and usefulness The changing role of Information Technology (IT) and Artificial Intelligence (AI) in HRM Motivational theories Human resource management Training and development Motivation Management Organisational structure Communication Leadership. No other AO2, AO3 or AO4 marks can be awarded without AO1. 2 AO2 Application Indicated by as 1 mark (max 2 s), Application must support an assessment objective to be in context. ERP plan – 2016; focus on centralised control Change of organisational structure from geographical to functional areas with centralised management control Renegotiated contracts in Appendix 3 2017–18 closure of labour-intensive factories and a subsequent loss of skilled jobs 2020 – investment into automation in capital intensive factory Significant increase in staff turnover and a loss of experience and design skills. AO3 Analysis Analysis of the impact of the HR strategy on a business ( and and ) including: 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). Arguments may follow the following plausible scenarios, or any valid strategy based on the context The loss of benefits in the new 2021 contracts are likely to have been influenced by financial and accounting strategies in response to the change from labour intensive to capital intensive factories. This is likely to have had a negative influence on the employees, who if highly skilled may be able to find employment in competitor factories. Strategies to improve performance could include: – Reinstating salaried contracts for skilled employees, which could improve the motivation to stay with LC as employees see a long-term future. This would reduce recruitment and training costs which would lead to lower costs in the long term. This would also help in setting accurate budgets as staffing levels would be more predictable. – Improving the contracts to provide full-time minimum hours and using bonuses and overtime payment – increase financial rewards – improve employee basic needs (Maslow) allows for focus on non-financial motivators. – Changing to an MBO from a top-down hierarchy to allow for more innovation and responsiveness to local conditions, which may increase the relationship between management and employees, which in turn is likely to mitigate the impact of lower benefits and increase the feeling of loyalty. – Training employees on quality procedures such as QA which will increase the feeling of responsibility and pride in the product, empowering employees in a non-financial method which matches the need to keep employee costs low. – Increase training in fields of AI and automation to show employees their roles are being future-proofed, which will lead to an increase in confidence and job security and a subsequent increase in employee retention figures, which leads to LC keeping the knowledge and skills of employees rather than having to retrain unskilled new hires. 2 AO4 Evaluation L1 limited supporting evidence – answering the question with a brief explanation. L2 developed supporting evidence – reason is developed further. L3 developed supporting evidence with context – Level 1 and 2 is answered in context. A judgement about a human resource strategy for LC to improve employee performance and retention. Judgement may depend upon: financial and budgetary constraints, impact on costs (total and per unit), external influences in the job market, internal and external influences on LC, the extent of HP’s ability to relinquish control of their investment to managers, the likely effect of financial and non-financial motivators on employees. Weighing up the relevant arguments for different HR strategies. The reduction in short-term profit and level of financial risk that LC Board of Directors are willing to accept in their investment. Accept all valid responses.