Business 9609/41 October/November 2024: question paper and mark scheme

Mark scheme

1 Evaluate the extent to which corporate planning could have prevented the ‘Fly-away’ promotion crisis. 20 Indicative content Responses may include: AO1 Knowledge and understanding Knowledge (max 1 mark) can be awarded for any relevant business knowledge about planning: • the process of setting goals for a business and developing a strategy to achieve them, including: • Defining goals/objectives • Creating a plan • Identifying/allocating resources • Monitoring progress • Functional (Marketing, Operations HR, Finance) decision making Award for any explanation of corporate planning and implementation, up to a max of 2 marks, including: • Objectives for the entire organisation • Long term objectives and strategy/plans • Business priorities • Role of corporate culture • Role of transformational leadership • Role of contingency planning • Role of crisis management • Role of strategic (planning) approaches (blue ocean strategy, scenario planning, SWOT analysis, PEST analysis, Porter’s five forces, core competency framework, Ansoff matrix, force field analysis, decisions trees) AO2 Application Application (max 2 marks) can be awarded for • Cost to be shared equally between AB and DF. • Demand is much greater than expectations. • DF refuses the majority of ‘Fly-away’ applications. • Negative comments from angry customers trend on social media. • The ‘Fly-away’ promotion crisis is highlighted on consumer TV programmes. • Use of data in appendix 1 (not repetition of basic data) 1 AO3 Analysis Analysis is likely to be based upon DF’s planning ( and and ) Analysis of the corporate planning; Advantages • Improve communication – better planning could have helped marketing communicate better with other functions to anticipate the problems • Adapt to change – would have allowed DF to anticipate and adapt to changes as the strategy unfolded • Improved decision making – would have allowed the management to consider more options and make better decisions as to how the promotion should run or if it should have run at all • Focus on resources – planning would have helped ensure enough resources – financial or otherwise – were in place to help the promotion be successful • Drive growth – planning would have helped identify all possible growth avenues for DL and maybe look at alternatives to the promotion Disadvantages • Overplanning – plans may have been too detailed in some areas and lacking in others that decisions may have become too complex • Complacency – planning may lead management to become complacent and not consider all the options as they were focused on this particular promotion instead of other ways to achieve growth. • Limited flexibility- planning may have been too tight that it limits the flexibility for DF to respond when things did start to go wrong, the plans need an element of adaptability to ensure DF can respond in a timely manner • Limited creativity – planning may have limited the creativity to help solve this crises quickly and ‘nip it in the bud’ before social media got hold of it. AO4 Evaluation Evaluation ( and and ) including: Evaluation will largely depend on the points raised in the analysis. • A judgement over the extent to which DF’s corporate planning could have prevented the ‘Fly-away’ promotion crisis • Discussion over what elements of corporate planning could have been used and what that judgement could depend upon; • External environment will have influenced the demand for and reputation of the promotion 1 • Competition – DF’s response was to a competitive environment and their actions forced DF to come up with something more creative, and risky, to win customers/market share • Shareholder expectations – these were low given the recent ratio performance and pressure to perform better/increase sales/increase market share may have led to risky promotions being put together • Customer reactions – this was always going to be a good deal so did DF underestimate customers or have flawed market research which led to the crises? Accept all valid responses.

Mark scheme

2 Advise DF on the likely impact of ratio results on its choice of future growth strategy. 20 Indicative content AO1 Knowledge and understanding Knowledge (max 1 mark)of/basic use of ratio analysis for a business, including knowledge of formulae/definition: • Current ratio; liquidity ratio • Acid test ratio; liquidity ratio • Gross profit margin; Profitability ratios • Operating profit margin; Profitability ratios • Return on capital employed (ROCE) Profitability ratios • Trade receivables turnover; Financial efficiency ratios • Trade payables turnover; Financial efficiency ratios • Rate of inventory turnover Financial efficiency ratios • Gearing • Price/earnings ratio; Investment ratios; Award for explaining the use of the ratio AO2 Application Application (max 2 marks) can be awarded for application to DF’s ratio results in 2023 (Appendix 2) to the growth strategies in Appendix 3, including: Strategy A – external growth through horizontal takeover of a competitor with a high level of competitive rivalry, high chance of success, but need for organisational restructure. • GPM increasing to 25% this secures supplies and may bring down cost of sales, increasing GPM further • ROCE consistent at 10%, may help secure supplies and bring down costs (Economies of scale?) • Current ratio shows some liquid assets – possibly money to fund growth from their own funds? • Trade Pay/Rec shows a good working capital cycle – this would also secure one of its suppliers making this ratio stronger • Inventory turnover is poor – may not be able to sell inventory they have in a saturated market especially a very competitive one. • PE ratio is still worse than 2014 – needs to do something to reassure shareholders – like securing a supplier? • Gearing has increased but is still low – indicating room to borrow funds for the takeover if needed 2 Strategy B – internal growth through increased R&D spending on AI, low competitive rivalry in this market (presumably for AI floor cleaners), but only medium chance of success and cost of recruiting research engineers. • GPM could be affected if more goes on R and D • ROCE is consistent but could fall if significant profits are diverted to R & D • Current ratio shows some liquid funds for investment – but is that enough for this R& D? • Trade Pay/Rec – good working capital cycle could fund the ongoing R&D • Inventory turnover is poor – for current model but new model could see a surge in demand, bringing this back up • PE ratio is getting worse – new strategy needs to reassure shareholders by getting them a better return. AO3 Analysis Analysis is likely to be based on how the ratio results may help DF to choose a future growth strategy ( and and )and may include: Growth strategy A – external growth (horizontal takeover) • Gearing may allow DF to analyse whether it will be able to raise finance to purchase enough of a stake in the manufacturer to take it over. • Increasing GPM (since 2020) may signal a turn in fortunes for DF – suggesting it is the right time for external growth. • Current ratio suggests that there are under-used assets in the firm – may be cash or inventory that is not being better utilised. • Increasing efficiency in both trade receivables and trade payables gives improved cash flow. • Reducing PE ratio may suggest a reduction in shareholder confidence (public limited company). Will the shareholders support a takeover – high chance of success may help convince them. Growth strategy B – internal growth (R&D) • Improvement in GPM since 2020 (and consistent ROCE since 2020) may suggest DF has the funding to research new AI technology – need shareholder ratio data to make a determination. • DF has good liquidity to fund R&D, but the increased gearing may mean that long-term borrowing might be difficult. Need costings to fully analyse this. • Improvements to efficiency may suggest DF is ready to move into a new area/product – however these are fairly recent so may need to continue to focus on its core business before launching a new product. • Reducing PE ratio may lead shareholders to want a focus on returns, not spending on R&D. 2 Alternatively, candidates may analyse the advantages and disadvantages of using ratios in decision making including: • Advantages • Provides a snapshot of the business and its current position • Trends can be identified to support a decision • Can be used to compare performance with competitors • Disadvantages • Relies on past date – is backward looking • Doesn’t consider non-financial factors • Can be manipulated/window dressed • Maybe difficult to compare with other businesses due to how accounts are constructed. AO4 Evaluation Evaluation ( and and ) Evaluation will depend upon the points of analysis that have been discussed previously. Reference to the level of impact compared to the ratio results needs to be made to award evaluation marks. • A judgment on whether the ratios support strategy A or B OR • A judgement on whether ratios are not enough to support the decision needed to grow in the future and other strategic tools are needed to help formulate decision OR • A judgement that ratios are sufficient to make the decisions about the future growth • What the judgement(s) may depends upon; the external environment, the ratio/accounting data for the manufacturer suggested for a takeover, missing DF ratio results, shareholder expectations etc. Accept all valid responses.