Business 9609/31 October/November 2020: question paper and mark scheme

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1 Analyse the possible disadvantages for country Q of NH opening hotels 10 there. Level Knowledge Application Analysis 3 marks 2 marks 5 marks 2 3 marks 2 marks 3–5 marks Developed 2 points applied Good use of theory knowledge or three to explain relevant points about disadvantages disadvantages 1 1–2 marks 1 mark 1–2 marks One or two relevant 1 point applied Some use of theory points made about to explain disadvantages disadvantages 0 No creditable content Note: • Advantages should not be rewarded • Disadvantages should relate to country Q not NH, but allow points which recognise that NH may bring less benefit than if domestic hotels were expanding. Knowledge • Domestic businesses at risk due to competition • Competition may eventually be decreased • Jobs, especially management, may not go to domestic employees • Jobs created may be low paid, part time, temporary • Profits may be taken out of country Q • Pressure on domestic businesses due to competition for workers • Pollution from business activity Application Use of context points could include reference to: • three hotels • NH becoming a multi-national business • types of work in hotels • hundreds of jobs • Minister for Tourism, advisers • Impact of hotels on area of natural beauty Analysis Development of knowledge/application points: • Domestic hotels may face competition for labour pushing up wages and costs • NH may take customers away from existing hotels resulting in domestic hotels closing • Higher paid jobs in new hotels may go to employees from country X, therefore, bringing no benefit to country Q employment 1 • NH may repatriate profits to country X which will worsen the current account on balance of payments • Repatriation of profits rather than reinvesting in the hotel therefore not boosting demand in the local economy • NH may damage the environment in the AONB imposing external costs on society

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2(a)(i) Refer to Table 1. Calculate for 2019 the: 2 overall average capacity utilisation for NH Capacity utilization = No. of rooms occupied x 100/total no. of rooms % (1 mark if no relevant calculation) 1300 + 1000 + 1600 = 3900 (1) 1600 + 1400 + 2000 = 5000 (1) = 3900 × 100/5000 = 78% (2) Allow 78 (2) 2(a)(ii) variance in total sales revenue per night for NH’s basic hotels. 4 Note: • Correct units required for full marks. Variance = difference between budgeted and actual data (1 mark if no relevant calculation) Forecast revenue = 1800 × 40 = $72 000 (1) Actual revenue = 1600 × 40 = $64 000 (1) 64 000 – 72 000 = –$8000 or $8000 Adverse (4) –8000 or 8000 or $8000 (3) Total Variance = –$34 000 (2) as candidate has correctly calculated basic hotels budgeted and actual. 2(b) Discuss whether introducing lean production will improve NH’s profits. 12 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 or more Application of Good use of Good relevant points two or more theory to judgement points to NH answer shown question 1 1 mark 1 mark 1–2 marks 1–2 marks One relevant One point Some use of Some point made applied to NH theory to judgement answer shown question 0 No creditable content Note: • Own figure rule from 2(a) and (b) applies. Knowledge • Definition of profits • Explanation of lean production – cutting waste, meeting customers’ expectations, inventory control, trained employees, flexible systems, TQM, Kaizen Application • 78% capacity utilisation in hotels • Lean production in hotels e.g. inventory, holding of towels, food etc. • Inflexible workforce – only trained in one role • Lack of empowerment – tasks detailed and how long they should take • Lack of response by Head Office to letters • Limited ability to change Head Office instructions Analysis • Increasing profits requires lower costs and/or increased sales revenue, LP increases efficiency and therefore reduces unit costs • Increasing capacity utilisation may increase revenue potentially resulting in higher profits • Costs can be lowered by cutting inventory holding costs (lower levels consumables and food), more JIT, better information flows, more flexible systems with less rigid control • Addressing quality assurance by using TQM would increase employee training and flexibility and could therefore reduce complaints leading to fewer poor reviews and more bookings • Valuing staff comments and empowering them can lead to significant improvements and more bookings. Kaizen could be introduced to encourage this. 2(b) • Training to give employees a range of skills so that flexible working can be adopted • Linking demand via bookings to staff and resource provision could cut costs and improve efficiency • Introducing zero hour contracts would reduce costs by increasing flexible response to demand Evaluation • Changes incur costs which might be bigger than rise in profits • Changes require a change in management approach and systems – will Jolin be able to do this? • Importance of lean production compared to e.g. marketing or external economic and market conditions • TQM must be integrated into lean production

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3 Recommend a strategy that could improve the motivation of employees 16 of NH. Justify your recommendation. Knowledge Application Analysis Evaluation Level 2 marks 2 marks 6 marks 6 marks 2 marks 2 marks 4–6 marks 4–6 marks Two or more Application of Good use of Good 2 relevant points two or more theory to judgment points to NH answer shown question 1 mark 1 mark 1–3 marks 1–3 marks One relevant One point Some use of Some 1 point made applied to NH theory to judgment answer shown question 0 No creditable content Note: • Answer should focus on methods for improving motivation. • Employees can include managers. Knowledge • Definition of motivation - It is the process of stimulating people to actions to accomplish goals. • Methods of motivation: a Financial: Taylor and Scientific Management b Non-financial: Herzberg - job enrichment/enlargement; Maslow – hierarchy of needs; Mayo – teamwork, communication. • Explanation of MBO, targets and appraisal system • Centralising/decentralising decision making • More delegation, less control, more trust • Other possible methods – change contract conditions, pay more, training, more employee involvement in decision making Application • Lack of communication e.g. not responding to employee letters • Strict labour cost budgets • Only trained for one job role • Use made of Table 3 data as evidence of poor motivation • Autocratic management in NH • Centralised, tight control of managers re budgets, numbers, employees • One way communication • Detailed worksheets, lack of consultation/supervision time • Reference to data in Table 2 • Human Resource Director and MBO • Reduce high labour turnover and employee theft 3 Analysis • Strict labour cost budgets so no room for financial rewards currently • Data indicates dissatisfaction and increasing lack of motivation as well as increasing costs • MBO – advantages include more employee involvement, motivation increases, commitment to reaching targets, clear indications of what is required • MBO – disadvantages include time consuming, targets too easy (underachievement) or too strict (demotivating), not flexible • Decentralising advantages – flexible, motivating, employee involvement, decisions made closer to problems so more likely to be good • Decentralising disadvantages - employees/managers may not have skills needed to make good decisions, cost of training, slow response, loss of clear overall objectives, rogue decisions • Links between move to decentralising and trust/delegation and motivation • Other strategies – pay more, full time contracts, trade union consultation, job enrichment and job enlargement with implications • Effect of changes on labour turnover Evaluation • Any change is major for NH so needs to be prepared and thought through. Jolin may be a big obstacle to change • Any change will be difficult as organisation culture is very fixed and formal • Different approaches may be appropriate for employees and managers – maybe MBO for managers, and higher pay, more consultation, less defined targets, control over small decisions for employees. • Data shows a change must be implemented • A recommended strategy with justification

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4(a)(i) Refer to Table 4 and Table 5 and lines 82–92. Assume NH takes over 3 EatBest in 2021 and no other factors change. Calculate the forecast: profit before tax for the year ended 31 October 2021 Note: • Correct units required for full marks Amended NH income statement year ended 31 October 2021 $m marks Sales revenue 170 Cost of sales 46 Gross profit 124 Expenses 109 Operating profit 15 Interest 6.5 1 Profit before tax 8.5 3 Interest: 6.5(m) (1) Profit before tax: $8.5m (3) 8.5 or 8.5m (2) OFR applies 4(a)(ii) net assets at 31 October 2021. 5 Note: • Correct units required for full marks Amended NH statement of financial position at 31 October 2021 $m marks Comment Non-current assets 120 1 80 + 40 as valued Current assets 38.5 1 CA + 10% Total assets 158.5 2 Max 2 marks for TA if both NCA and CA correct Non-current liabilities (110) 1 60 + Borrowing 50 Current liabilities (22) 1 CL + 10% Total liabilities (132) 2 Max 2 marks for TL if both NCL and CL correct Net assets 26.5 5 Net assets = total assets – total liabilities (1 mark if no valid calculation) Net assets = $26.5m (5) 26.5 or 26.5m (4) If candidates make the changes to CA and CL, but not NCA and NCL, = $36.5m (3) OFR 4(b) Refer to your answers to 4(a) and any other information. 12 Discuss whether NH’s shareholders should support the proposed takeover of EatBest. Knowledge Application Analysis Evaluation Level 2 marks 2 marks 3–4 marks 3–4 marks 2 marks 2 marks 3–4 marks 3–4 marks Two or more Application of Good use of Good 2 relevant points two or more theory to judgment points answer shown question 1 mark 1 mark 1–2 marks 1–2 marks One relevant One point Some use of Some 1 point made applied theory to judgment answer shown question 0 No creditable content Note: • Own figure rule from Q4 applies • If only answer to 4(a) or other information used Max L1 AN and EVAL • Answers must address shareholder issues, such as profit and dividends, not just general advantages and disadvantages Knowledge • Definition of shareholders • Definition of takeover • Type of integration - conglomerate • Identification of shareholder objectives o Expansion o Profit o Dividends o Shareholder value • Impact on other stakeholders e.g. employees, customers and local community Application • EatBest restaurants may complement NH services • NH profits have decreased • Type of hotels EatBest fits best with • Decrease in profit before tax from $16m to $8.5m (46.9%) • Reduction in net assets from $35m to 26.5m (24.3%) • Increase in NCL due to $50m borrowing • Increase in total assets • Change in gearing from 63% (60 / 95 × 100) to 80.6% (110 / 136.5 × 100) 4(b) Analysis • NH are borrowing to finance the takeover significantly increasing gearing which may make it difficult for further borrowing to fund other strategic investments. • NH are also issuing shares giving EatBest shareholders a 20% stake in NH. This is a significant holding and dilutes control of current shareholders • Profit figures are forecast to decrease in the first year so may result in a reduction in dividends • The new business in time may develop effective synergy that may lead to cost reductions and to marketing advantages leading to future higher profits. • The non-current assets of the restaurants may appreciate in value increasing the value of NH. • There may be an effect on staff motivation, promotion prospects that proves beneficial for efficiency and therefore profits. Evaluation • Borrowing $50m for a business valued at $40m therefore is NH paying too much for EatBest? • Initially the shareholders are paying out more for EatBest than the assets they receive are worth so why do it? Especially as profits are set to fall • In long term the business is bigger and may develop significant marketing and cost advantages leading to higher profits • Who are NH shareholders? • Short term decrease in profit is relatively large despite the $50m investment • Effect on share price short medium and long term is unknown so difficult to assess shareholders position

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5 Recommend a possible marketing plan to achieve Jolin’s objectives 16 (lines 80–81). Justify your recommendation. Knowledge Application Analysis Evaluation Level 2 marks 2 marks 6 marks 6 marks 2 marks 2 marks 4–6 marks 4–6 marks Two or more Application of Good use of Good 2 relevant points two or more theory to judgment points to NH answer shown question 1 mark 1 mark 1–3 marks 1–3 marks One relevant Some Some use of Some 1 point made application to theory to judgment NH answer shown question 0 No creditable content Note: • Market research is part of preparation for the marketing plan, rather than part of the plan itself. Knowledge • Explanation of a marketing plan: marketing budget, objectives and coordinated marketing mix • Definition of marketing mix – price, place, product and promotion • Definition of the 4C – customer solution, cost to customer, communication to customer and convenience to customer Application • Objectives to increase occupancy rates from 78% and revenue • Failure to reach forecast occupancy rates in luxury, family and budget hotels • Fixed room price and the three hotel types for different customer profiles • Target consumer in country X and overseas, • Issue with customer service/quality • CU is lowest in family hotels Analysis • Product: complaints indicate quality needs to be addressed, including refurbishment and upgrading facilities • Product: introduce events e.g. music weekends, children’s workshops • Price: no indication that price is an issue. To cover this possibility introduce dynamic pricing to increase occupancy rates, offer discounted deals for some categories e.g. two families booking together • Promotion: tie in deals with e.g. conferences, festivals, concerts, beach attractions for some of the hotels • Promotion: research the success of the various methods used • Promotion: successful as occupancy rates high and NH profitable. Need to be more focused in targeting consumers by research into categories and specified methods to reach them 5 • Work with a greater range of travel agents • Place: hotels fixed location. Could offer service for placing consumers in other hotels if NH is full • These elements should complement each other and work together – e.g. target students in other countries, use university publications and student media, price low enough to meet student expectations, provide basic facilities. Evaluation • No indication of budget available – change to marketing mix could be expensive and cost more than increase in occupancy or revenue. • Assessment of possibility of success of proposals • Conclusion on relative importance of mix elements • Success depends on other factors – economic and market conditions in Country X and other countries • Content also influenced by discussion with senior management • Different approach for the different market segments may be required – not a one size fits all.

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6 Evaluate whether successful implementation of a new strategy requires 20 NH to change its organisational structure. Knowledge • Explanation of corporate strategy – strategy to achieve medium to long term objectives of the business. Impacts all areas of the business. • Explanation of Chandler’s assertion that all aspects of an organisation’s structure, from the creation of divisions and departments to the designation of reporting relationships, should be made while keeping the organisation’s strategic intent in mind. • Discussion of how strategy determines competitive advantage • Reference to structure by area, function, product lines or market segments Application • Current corporate strategy for NH. (Is there one?) • Types of hotel and their location • Possible expansion to country Q • Possible takeover of EatBest • Issues of customer service, occupancy, HRM • New marketing plan • Current centralised structure, control culture Analysis Note: Analysis marks require a linking of strategy and structure. • Discussion of possible strategic plans taking account of the issues • Linking strategic plans to reorganised structures e.g. reorganise by function, product, customers or matrix not size, (three hotel types in X, overseas division, restaurant division) and applicability to NH • Delayering and its effects • Advantages and disadvantages of different structures • Linking plans to issues and how reorganisation might impact on them • Possible outcomes if no reorganisation takes place • Chandler stresses importance of centralised decision making – is this working for NH, if not, why not? • Advantages and disadvantages of formal or informal structures within overall structure Evaluation • Recommendation on necessity of restructuring based on justified reasoning • Recommendation of new/existing structure • Assessment of Chandler’s assertion • Possible costs of change – are they worth it? • Discussion of probability that reorganising will achieve objectives • Recommend wait to take a decision once possibilities are agreed (expansion to Q, takeover)

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7 Evaluate the importance of core competencies as a framework for 20 business strategy when NH carries out strategic analysis. Note: Candidates who carry out strategic analysis using one or more techniques can be rewarded but marks will be restricted to lower levels of AN and EV unless links are made to the use of core competencies Knowledge • Explanation of core competencies (Prahalad and Hamel) and their use • Explanation of strategic analysis and its techniques: SWOT; PEST; Boston Matrix; Porter’s Five Forces • Place of strategic analysis in strategic management/planning Application • NH’s perceived competencies: customer service, professional standards, clear leadership • Possible NH core competencies: e.g. providing hospitality, giving customers a good time, enabling visits to meet customer’s needs/wants • Types of hotel and their location • Opportunities: possible expansion to country Q; Eatbest takeover • Weaknesses: current marketing plan; employee motivation; labour turnover; customer service; occupancy; HRM • Threats: economic and market conditions haven’t been favourable Analysis • Identifying NH core competencies (factors are providing access to markets, contributing to positive customer perception, uniqueness) • Reference to other techniques (SWOT, PEST, objectives/mission/vision statements, Boston Matrix, Porter’s five Forces) and how these might provide overall picture for determining strategy • Advantages and disadvantages of core competency analysis Evaluation • Ranking usefulness of techniques in NH’s situation • Strategic techniques are only as good as the information gathering process and ability of the analyst permit • Does NH have anyone with the ability to use core competency analysis and/or the other techniques? Are identified core competencies actually core competencies given the poor customer service • Core competencies can act as catalysts to focus ideas for development • Successful analysis requires to be set in the framework of strategic management/planning • Supported conclusion on role of core competencies in the process of analysis and strategic management. In a dynamic market, core competencies can be short lived