CASE STUDY INTRODUCTION & OVERVIEW



IB DIPLOMA IN BUSINESS & MANAGEMENT2016 CASE STUDY TOOLKITTODOS OS MERCADOSCASE STUDY TOOLKITSupport Notes and Practice Exam-Style Questions and Answers for Students Preparingto sit the IB Diploma Business Management Paper 1 in May 2016TABLE OF CONTENTS TOC \o "1-2" CASE STUDY INTRODUCTION & OVERVIEW PAGEREF _Toc445063740 \h 3INTRODUCTION PAGEREF _Toc445063741 \h 3KEY THEMES PAGEREF _Toc445063742 \h 3CASE STUDY KEY TERMS PAGEREF _Toc445063743 \h 7EXAM-STYLE QUESTIONS AND ANSWERS PAGEREF _Toc445063744 \h 19UNIT 1: BUSINESS ORGANIZATION AND ENVIRONMENT PAGEREF _Toc445063745 \h 20UNIT 2: HUMAN RESOURCE MANAGEMENT PAGEREF _Toc445063746 \h 36UNIT 3: FINANCE AND ACCOUNTS PAGEREF _Toc445063747 \h 47UNIT 4: MARKETING PAGEREF _Toc445063748 \h 52UNIT 5: OPERATIONS MANAGEMENT PAGEREF _Toc445063749 \h 62PRACTICE EXAM PAPER SL PAGEREF _Toc445063750 \h 66PRACTICE EXAM PAPER HL PAGEREF _Toc445063751 \h 69IB DIPLOMA IN BUSINESS & MANAGEMENT2016 CASE STUDY TOOLKITTODOS OS MERCADOSCASE STUDY INTRODUCTION & OVERVIEWINTRODUCTIONThe case study business for 2016 is Todos os Mercados (“TM”).TM is a multinational supermarket retailer operating in across the world, including South America (where it based) and France (where the main character in the case study – Henri – lives and works).The context of the case study business is crucial to your answers. The key things to bear in mind are:Multinational – TM already used to operating across continentsMarket leader – size and scale is important to TMSubstantial resources: TM is a quoted company and will have access to substantial financial, operational, marketing and HRM resourcesKEY THEMESThe key themes arising from the case study, mapped to the IB Business Management syllabus can be summarized as follows.Unit 1: Business Organization and the EnvironmentTM is a public company and its strategy is to a large extent influenced by its profit-driven objectivesThe most important point to remember about TM is that competes by trying to offer the lowest prices in the market. All aspects of its business management is organised to support this aim. TM is organised to achieve maximum efficiency and lowest cost. Some aspects of this are positive (customers enjoy the benefit of very low prices and wide product choice). Other aspects may be viewed negatively (key stakeholders such as employees and suppliers seem to be poorly treated)TM operates in an intensively competitive market – supermarket retailing. The competitive environment is likely to get even tougher as the effect of wider use of e-commerce is felt. The suggestion from the case study is that TM has not been as quick as other global competitors to embrace e-commerce. Is it too late?TM is big – and it seems to use its power and size to get what it wants! Just ask TM’s suppliers who seem to be under pressure to give TM the best possible terms. Just ask TM’s employees who are paid the minimum allowed and no more. Perhaps it is no surprise that TM is increasingly under scrutiny from pressure groups who are pointing to its poor record on business ethics and social responsibility. Can a MNC continue to succeed globally if it does not act ethically or meet is broader social responsibilities?Like any MNC, TM is not immune from changes in the economic environment. The recent downturn in economic conditions in France is featured in the case study, although this seems to have had a broadly positive effect on TM’s business there. In a recession, consumers increasingly look for value for money, since disposable household incomes are under pressure. Will TM’s lowest-price positioning continue to be successful as economic conditions improve?Unit 2: Human Resource ManagementWho would want to be an employee or manager working for TM? Financial rewards are very low, the workplace rules and procedures are strict, and the discipline is tough. So why would you work at TM? Because it is a major employer and it is a successful business that provides secure employment, provided you follow the rules. In many locations, the TM hypermarket will be one of the largest employers.The most important feature of human resource management is the organisational culture at TM. It is the culture that influences all aspects of how people are managed in the business and how decisions are taken.The culture at TM is all about command and control – from the centre. Centralisation is key – all aspects of the business are determined by the senior management team at TM in South America. Whilst there are some advantages to centralization for an MNC the overall effect at the TM hypermarket in St. Laurent appears to be negative.Employee morale at St. Laurent looks very poor. If Daniel Pink were to visit the TM hypermarket there he would find little evidence of his three intrinsic motivators - autonomy, purpose and mastery. However, if he were still alive, motivational theorist Taylor would certainly approve of the autocratic, scientific approach to motivation being taken by TM.The one thing you can say about working at TM is that employees and managers know what is expected of them and where they stand in the organisational hierarchy. However, there is clear evidence that this “hard” approach to human resource management is building significant resentment. A key question to consider, therefore, is whether TM’s HRM strategy is increasingly becoming a significant weakness in the business.Unit 3: Finance and accountsWe are provided with very little financial information about TM. Prepare for that to be provided as additional information in the Paper 1 exam. It is likely that you could be asked to look at some summary financial information for TM. Remember that lines [86-87] state that “the [MBA] case study contains financial information for TM, which Henri uses to calculate financial ratios. He is shocked.”Why might Henri be shocked? There are some possible clues in the case. Suppliers are said to have been persuaded to have given TM even more favourable purchasing terms. Might that be reflected in a very high creditor days figure, which, it can be argued, is evidence of TM not acting ethically with suppliers.Might Henri’s shock be related to TM’s liquidity ratios. Remember that large supermarkets often have a very low current ratio, since they have very few trade debtors (customers pay in cash); relatively low stocks, and very large amounts owed to suppliers (trade creditors). TM’s current ratio might be extremely low, but is Henri right to be shocked?Another possible cause of Henri’s shock may lie in the profitability ratios for TM. Perhaps the gross profit margin is much higher than he expected? Perhaps TM is earning extremely high overall profits, which might seem somewhat unfair to staff and management at St. Laurent who are paid so little.Unit 4: MarketingIt is often said that marketing success in retailing is all about three factors: location, location and location. However, for TM there is a different recipe for success – pricePrice is the dominant part of the marketing mix for TM and is the foundation for its growth so far. It has one, simple aim: to have the lowest prices in the market – and every aspect of the business (particularly operations and HRM) is organised to support that aimTM is a classic “low-cost” operator or “discount” retailer. Customers associate TM with value. So, in order to keep its competitive advantage, it is essential that TM operates as efficiently and cost-effectively as possible.In recent years however, another element of the marketing mix has started to become more important: product. Extending the product range first to a wide variety of non-grocery goods (e.g. automotive parts, office supplies) and then to a range of in-store services (e.g. pharmacy, banking) has enabled TM to make full use of its large hypermarkets. TM has aligned low prices with wide product range. No wonder that when a TM hypermarket opens in a new location, other local retail businesses suffer. They struggle to survive, let alone compete.This powerful combination of low price and one-stop shopping might seem to be unbeatable. However, TM faces a threat from e-commerce which it seems TM has been slow to embrace.Where will future growth come from given that TM has already expanded its geographical reach outside South America (market development) and significantly expanded the product range (product development). The next phase of growth looks like it will come from a possible expansion into Asia. Depending on how TM decides to expand into Asia, this could be a high-risk strategy. Many MNC retailers have come badly unstuck in Asia believing that their marketing mix would work in markets that turn out to be much more competitive and harder to enter than they first thought. In the exam, make sure you are prepared, if asked, to analyse the different options open to TM.Unit 5: Operations ManagementTo understand TM’s approach to operations management you need to link it to its aim (lowest prices) and organisational culture (low cost).TM’s operations are managed in order to support operating at the lowest possible cost. Non-core activities have been outsourced (and no doubt those suppliers have been squeezed too). Lean production is the strategy, looking to cut out waste and minimise the amount of stock in the business.However, it is the scale of TM that is perhaps the most important factor in the business operating efficiently. There are clear economies of scale benefits to TM from being a market leader, not the least being the ability of the business to negotiate the best purchasing terms from suppliers.Henri’s MBC class study of TM suggests that customized production is a significant threat to TM. Really? To a hypermarket retailing business? No. Much more significant is the growing influence of e-commerce and the implications of that for TM’s operations. That is where the real threat (or opportunity) lies.IB DIPLOMA IN BUSINESS & MANAGEMENT2016 CASE STUDY TOOLKITTODOS OS MERCADOSCASE STUDY KEY TERMSIn this part of the IB Toolkit we identify and define the key business terms featuring in the case study. We have also outlined, where relevant, the key context in which the term is used.TermLineDefinition & Case Study ContextSole trader5A business that is owned by one person and which is not incorporated. The owner (sole trader) therefore does not benefit from the protection of limited liability – the sole trader is wholly liable for the liabilities of the business. Henri Trouve’s family hardware store, like many single-store retailers, was operated as a sole trader until it went into liquidation. Unique selling point (USP)6A unique feature of a product or service that makes it stand out compared with the competition. A USP helps differentiate a business or brand, which can be a source of competitive advantage, but only if the USP actually matters to customers! The Trouvé family hardware store made excellent customer service its USP – although that wasn’t enough to enable it to compete in the long-term against the strength of the TM hypermarket, whose USP has focused on offering the very lowest prices.Multinational company (MNC)10A MNC is a business that is based or registered in one country but has outlets/ affiliates or does business in other countries. Globalisation is one of the major reasons for the growth in MNCs. A number of businesses in order to grow and develop have had to take on a global or international perspective. TM is a good example, operating extensively in South America, Europe, and looking at expansion into Asia.Hypermarket11A superstore combining a supermarket and a department store. The result is an expansive retail facility carrying a wide range of products under one roof, including full groceries lines and general merchandise. TM’s hypermarket format has been extended to include a wide variety of services in addition to a comprehensive range of food and non-food products.Public limited company11An incorporated company whose shares may be bought and sold by the public. Most public limited companies have their shares listed (“quoted”) on public stock exchanges in major financial centres like New York, London, Paris, Hong Kong and Shanghai. A key consequence of operating as a PLC is that the firm is subject to greater public scrutiny.Liquidation14When a business is legally closed and the assets and liabilities of the business are sold and paid. Liquidation normally happens when a business fails, as was the case with the Trouvé hardware store which failed when it was not able to secure additional sources of finance.External sources of finance14Sources of finance such as bank loans, bank overdrafts and credit from suppliers which are received from outside the business. Henri’s family hardware store was forced to close because it was not able to secure enough finance from such external sources. This also suggests that the hardware store was not profitable, and so did not have a strong flow of internal finance such as retained profits, to keep it going.Salesperson17An employee who job is to “close the sale” by communicating with customers. In a hypermarket, a salesperson is likely to have a wider variety of tasks, including providing customers with product information, guiding them around the store etc.Management responsibility17Where an employee has some control over decision-making, even if this is relatively limited. Henri is manager of the Hypermarket hardware section, but feels his management responsibility is very limited – which suggests that TM does not allow the store management hierarchy much (if any) autonomy over decision-making. You might argue that they are “managers” in name only!Aim18An aim is a statement of where a business wants to go in the future, its goals. It is a statement of purpose. For TM there appears to be just one aim – to have the lowest prices in the market – and the whole of how the business is organised and operated is designed to support this aim.Mission statement18A mission statement sets out the business vision and values that enables employees, managers and external stakeholders (such as customers and suppliers) to understand the underlying basis for the actions of the business. TM’s mission is entirely aligned with its stated main aim – to have the lowest prices in the market. That sounds like a mission that is predominantly focused on TM being price competitive and attracting price and budget-conscious customers.Promotional material18The range of promotional materials and activities that combined to form the promotional mix. For TM this will include all in-store promotional materials (e.g. posters, point-of-sale displays) as well as advertising media (e.g. newspaper adverts, online advertising).Lean production methods19Lean production is an approach to business management that focuses on cutting out waste, whilst ensuring quality. This approach can be applied to all aspects of a business – from design, through production to distribution. Lean production aims to cut costs by making the business more efficient and responsive to market needs. For TM, a strategy of lean production is consistent with its stated aim of having the lowest prices in the market. It uses a variety of lean production approaches to do this, including JIT and outsourcing.Just-in-time (JIT)20JIT is a system used in lean production which means that inventories (stocks) only arrive just as they are needed. The main aim of JIT is to reduce the costs of holding stocks. For TM, JIT will involve complex systems that interact with key suppliers to its hypermarkets. Suppliers will be required to deliver stocks to the hypermarkets as they are needed. This is a difficult task, since there will be products for which demand varies unpredictably and which might, therefore, run out of stock before the supplier can resupply the stores.Outsourcing20Outsourcing involves the delegation of one or more business processes to an external provider, who then owns, manages and administers the selected processes to an agreed standard. There are usually two main aims of outsourcing: (1) to reduce costs and (2) to buy-in specialist services rather than try do things that the business does not have the skills or experience to do. For TM the main motivation for outsourcing seems to be about reducing costs.Cost of sales20Cost of sales measures the cost of the goods and services bought into from suppliers. After adjusting for changes in stocks held, cost of sales can then be used to calculate the gross profit margin for individual products, services, departments and stores. For TM, cost of sales will be a crucial part of achieving its aim of having the lowest prices in the market. Many retailers use a “cost-plus” approach to setting selling prices. So, in order to have the lowest selling prices, you need to have the lowest cost prices from suppliers!Marketing mix22The overall mix of marketing activities and strategies that combine to achieve the market marketing objectives. The traditional marketing mix comprises the “4Ps” – Product, Price, Promotion and Place (distribution). For TM it is clear that Price is seen as the most important element of the marketing mix. However, increasingly Product is becoming important too as TM has significantly expanded its range of goods and services offered in the hypermarkets.Low-price strategy23A strategy in which a business attempts to compete (and have competitive advantage) by having lower prices than its competitors. In retailing, price has always been viewed as a key competitive weapon – witness how often grocery retailers engage in “price-wars” or offer core products very low prices “loss-leaders” in order to encourage shoppers into store. However, a low-price strategy can only be sustained in the long-term if the business also has similarly low-cost supplies!Purchasing terms23The terms on which a business buys goods and services from its suppliers. These terms are not just about price (although that is important). Purchasing terms will also include agreement on (1) when a supplier invoice will be paid (2) quality requirements and how a retailer may return unsold goods (3) arrangements for delivery to stores etc. For TM the suggestion is that it has “squeezed” its suppliers as part of its low-price strategy. Perhaps it has extended the time it takes to pay them? Look out for evidence of this if the exam paper asks you to calculate trade creditor days as part of some ratio analysis.Suppliers24The businesses who provide goods and services to another business. As a global MNC, TM will have a complex and widespread range of suppliers. For example, it will buy from other global MNCs who manufacturer consumer goods (e.g. Unilever, Nestle). In each of the countries in which it operates, TM will buy from national suppliers as as well as smaller suppliers of locally-sourced produce. Don’t forget that TM has also expanded its range of services provided in store, which will have extended the type of suppliers to include financial services, optician and pharmacy providers.Market share24The proportion of a market held by a business or brand. Market share is usually measured in terms of market sales or volume. For retailers like TM, market share is a crucial measure of success since it helps identify which businesses in the market are most competitive. Small changes in market share can have a significant effect on TM’s profitability. Don’t forget that market share can be measured at different levels. For example, TM may have a market share in the French grocery retailing market of, say, 10%. However, in the area around St. Laurent, its market share will be much higher and, as a result, it has a very strong competitive position in the local market.Market leadership25The business or brand with the highest market share, measured either by sales volume or value. The case study states that both “high market share” and “market leadership” are important for TM, though we are not told whether TM is, indeed, the market leader. A key benefit of market leadership is that a business may be able to benefit from “economies of scale” (such as purchasing economies), so it is easy to see why TM wants to be the market leader since this is consistent with its aim of having the lowest prices in the market.Internal growth26Methods by which a business grows that come from “within” the business. This is sometimes also known as “organic growth” and is generally seen as a less risky option compared with “external growth”. For TM there are numerous sources of internal growth. For example, opening more stores in a country in which it already operates is a classic internal growth strategy for a retailer. Similarly, increasing the amount of selling space in stores is a source of internal growth. TM has done this by expanding the range of goods sold, including many more consumer services.External growth26Methods of growing a business from the outside. External growth typically involves acquiring another business or merging with one. TM is said to have tried to grow externally through franchising (see below) which was a failure. No mention is made of TM having attempted takeovers of other retailers, or entering into joint ventures – which is a method that has traditionally been used by retailers to enter new international markets in Asia. Look out for potential case study information on TM evaluating external growth as a way of entering Asia.Franchising26Franchising involves a business (the franchisor) providing another business (the franchisee) with a licence to operate a specified business using the franchisor’s brand name and business format. Franchising is a popular method of operation in retail industries, including grocery retailing with global franchises such as Spar. However, we are told that TM’s attempts at franchising were not successful.Services market28Markets involving the provision of services to consumers, such as financial services and health services. TM has expanded its product range to include a much wider range of in-store services.New markets32Markets in which a business does not currently operate. This is a dimension on the important Ansoff Matrix. Whilst TM already operates as a MNC in South America and Europe, we are told it is considering expansion into Asia – which will be a new market for TM. Expect (and prepare) to see this feature as a key decision to evaluate in your exam paper!Autocratic34An autocratic management style is one where the manager makes decisions unilaterally, and without much regard for subordinates. For TM, this management style arises from the centre of the organisation i.e. from the the senior management at the top of the organisational hierarchy. The result is that managers and employees further down the hierarchy (e.g. at a hypermarket) have no role in decision-making. They simply have to do as they are told!Centralized34Centralized decision-making is an approach where all important decisions are taken be a small group of senior management. Decision-making is about authority. A key question is whether authority should rest with senior management at the centre of a business (centralised), or whether it should be delegated further down the hierarchy, away from the centre (decentralised). TM has a highly centralised approach to decision-making.Human resource management34Human resource management (usually shortened to "HRM") is concerned with the design, implementation and maintenance of strategies to manage people for optimum business performance. In other words, HRM is about how people are managed by a business in order to meet the strategic objectives of the business. TM’s approach to HRM can be described as being “hard” in nature. There is lots of evidence in the case study that TM treats employees simply as a resource in the business, not a key asset of the business.Empowered35Empowerment involves giving employees the power to do their job. The concept of empowerment is closely linked to motivation and customer service. Employees need to feel that their actions count – and empowerment is about making this happen. Empowerment is a catch-all term that covers: (1) giving authority to make decisions to front-line staff; (2) encouraging employee feedback, and 93) showing trust in employees to do the right thing for the business. There is very little evidence that TM believes in empowerment as a strategy in HRM!Organizational structure38The organisational structure of a business determines to a large extent how the business is managed. The organisational structure of a business is important because it determines (1) authority and responsibility – who is responsible for whom and who is in charge (2) individual job roles and titles (3) the people to whom others are accountable and (4) the formal routes through which communication flows in the business. Whilst we are not given a formal organisational structure chart for TM we can safely assume that the structure has a “tall” structure (i.e. many levels in the chain of command) and is bureaucratic in nature. This would be consistent with an approach to HRM based on centralisation and a lack of empowerment. Command and control at TM comes from the centre!Labour turnover39Labour turnover is defined as the proportion of a firm's workforce that leaves during the course of a year. Labour turnover is a key measure of labour retention – the ability of a business to keep its employees. In retailing, labour turnover tends to be quite high, partly because of the seasonal nature of demand and also because most jobs in retailing are relatively low-paid. We are told that in 2013 labour turnover at the hypermarket in St. Laurent was much lower than expected – due to the lack of alternative jobs in the area. So more staff at the hypermarket decided to stay there despite it being a relatively unpleasant working environment!Recession40A period where the value of economic activity falls for more than two quarters (i.e. at least six months). Recessions are common when an economy enters a “downturn” resulting in lower consumer demand and higher unemployment. However, for TM a recession might prove to be a growth opportunity. Remember that its aim is to offer the lowest prices in the market. Such a strategy is likely to appeal to an increasing proportion of consumers during a time when household incomes are under pressure.Corporate social responsibility (CSR)46Corporate social responsibility (usually shortened to CSR) covers the voluntary activities undertaken by a business to operate in an economic, social and environmentally sustainable way. We are told that TM has a “poor record” of CSR. What might this mean? Perhaps it has been criticised for unfair treatment of suppliers? Perhaps it is seen as acting unethically when it puts other smaller retailers out of business by opening in a new location?Pressure groups46A pressure group is an organisation with shared aims which seeks to influence policy through political means, without seeking political office itself. We are told that “many pressure groups are urging TM to adopt ethical behaviour” which suggests that TM has a poor track record of operating ethically. Perhaps it has been buying goods from unsustainable sources; perhaps its treatment of employees is being criticised, or its relationships with suppliers?Ethical behaviour47Ethics are moral guidelines which govern good behaviour. So behaving ethically is doing what is morally right. Behaving ethically in business is widely regarded as good business practice. As noted above (in pressure groups) TM is being urged to adopt ethical behaviour, which suggests it hasn’t been acting morally correctly. Don’t forget, though, that views on what is morally correct involves value judgements.Line manager48Line managers have responsibility for directly managing individual employees or teams. In turn, they report to a higher level of management on the performance and well-being of the employees or teams they manage. Delphine Jacques is Henri’s line manager.Chain of command49The Chain of command determines the order in which authority and power in a business is organised and delegated from top management to every employee at every level of the business. Commands flow downward along the chain of command and accountability flows upward. For example, at TM, Delphine Jacques will be given instructions by her superiors up the chain of command and she must pass them down to Henri. Company policy50The formal rules and regulations with which employees are required to comply. Compliance with company policy is usually part of an employment contract, and breaches of company policy are disciplinary matters. Promoted internally54This refers to the internal recruitment of staff rather than the employment of someone from outside the business. For example, an existing employee might apply for the job of his or her line manager if it becomes available. If selected, this would qualify as internal recruitment. We are told that Delphine Jacques is one of the “few employees to have been promoted internally” which might be a consequence of TM having a relatively high level of labour turnover. The lack of many internal promotion opportunities might be a reason why staff choose to leave?Worker’s rights59These refer to the legal protections and rights provided to employees through employment and other laws. For example, depending on the location of the business, an employee is likely to have legal rights relating to employment contracts, minimum pay, holiday entitlements and protection against discrimination. Remember that TM is operating in France, which is part of the European Union, and therefore must comply with substantial and complex employment legislation.Motivational strategies62The financial and non-financial approaches taken by a business to motivate its employees and managers. We are told that TM uses motivational strategies that are “completely different” from those advocated by management writer Daniel Pink (which were based around Autonomy, Purpose and Mastery). In your exam, be prepared to compare and contrast the approaches advocated by Pink and those adopted by TM!Management style64A management style is an overall method of, and approach to leadership used by a manager. We are told that Henri has a paternalistic style (see below) which might be somewhat inconsistent with the style required or expected by his superiors at TM!Paternalistic leader65Paternalistic leaders (or managers) give more attention to the social needs and views of their workers. Managers are interested in how happy workers feel and in many ways they act as a father figure (pater means father in Latin). They consult employees over issues and listen to their feedback or opinions. The manager will however make the actual decisions (in the best interests of the workers) as they believe the staff still need direction and in this way it is still somewhat of an autocratic approach. The style is closely linked with Mayo's Human Relation view of motivation and also the social needs of Maslow.Worker solidarity68Where employees act together in order to increase their bargaining power or to provide protection against employers. We might assume from the case study that, currently, TM’s workforce is not unionised – might this be what Henri has in mind?External factors79Factors that are outside of the control of the business, but which impact on the business’ activities and performance. The PESTLE framework is a good way of analysing these.Economic conditions81The overall strength of the economy, as measured by key indicators such as the rate of economic growth (GDP), levels of employment & unemployment, household disposable incomes, consumer spending and confidence, business investment & confidence etc. Economic conditions in France, like much of the Euro Zone, have been weak recently, although that might not necessarily be bad news for TM and its low-price strategy!Demographic trends82Demographic trends reveal developments and changes in human population. More specifically, demographic trends relate to changes in a population's age, gender, geographical location, marital status, educational attainment, employment status, household income, race, religion, and health. Which of these might be “hindering economic recovery” in France?Economic recovery82An improvement in the rate of economic growth, for example as an economy moves out of recession into a period of economic growth – even if that growth is quite weak initially.E-commerce84Digital transactions initiated on a commercial basis between consumers and businesses. E-commerce includes a wide variety of transactions including those initiated using mobile devices. E-commerce has become a significant feature of retail markets, although in grocery retailing it is not as widely used as in other segments such as fashion. Customized production84This is linked to e-commerce. Customized production involves the personalisation of products based on specific customer requirements. This is much easier to achieve now due to the integration of e-commerce into manufacturing processes.Financial ratios86The key performance ratios that indicate how well a business is performing from a financial perspective. For TM these will include profitability ratios (gross margin, operating margin), ROCE and liquidity ratios. Expect to be given sufficient information in the exam to be asked to calculate and interpret key ratios for TM, perhaps compared with their competitors.Profit-driven objectives94Corporate (business) objectives that are focused on the achievement of target levels of profit and profitability. It is safe to assume that TM has an overall objective of profit maximisation, which it believes will be most likely to be achieved by maximising its market share and being market leader.Employment contracts100Legal agreements between a company and its employees that set out the terms and conditions of employment. A breach of contract can result in dismissal.IB DIPLOMA IN BUSINESS & MANAGEMENT2016 CASE STUDY TOOLKITTODOS OS MERCADOSEXAM-STYLE QUESTIONS AND ANSWERSIn this section, we have provided a series of exam-style questions together with outline responses.The command word level is indicated in the question.Please note that these responses are not intended to represent the only possible answers to the question.A good revision exercise will be to think about the question and annotate your copy of these questions and answers with your own thoughts.This section does not represent ALL the possible questions that might be set in the exam!Make sure in the real exam that you only answer the precise question asked – not one have prepared!UNIT 1: BUSINESS ORGANIZATION AND ENVIRONMENT1.1 Introduction to business managementExplain two benefits to TM of entering the services market [4 marks, AO2, SL/HL]Possible benefits include:By entering the services market, TM expands its product range and so is able to take a greater market share of consumer spending in its store’s locations. Consequence: higher revenues per store which should also improve store profitability.TM benefits from greater perceived level of customer service. Customers more likely to visit a TM hypermarket if many more of their product and service needs can be met from one visit. Consequence: higher level of customer loyalty, which should translate into greater repeat visits and higher market share.Services have the potential to achieve a higher gross profit margin than food and non-food products (which are bought-in from suppliers). Consequence: TM’s gross profit margin may rise if services generate an increasing proportion of TM’s revenues.Outline two possible reasons why the Trouvé business struggled to compete with TM when it opened just outside St. Laurent [4 marks, AO2, SL/HL]TM’s store opening would have benefited from TM’s market reputation for offering a vast product range user the hypermarket format – something the Trouvé hardware store could not match. Local customers would almost certainly already know the TM brand and would be likely to try it initially. TM’s market positioning of offering the lowest prices in the market would have meant that the Trouvé store would have struggled to compete on price. The differences in prices for comparable products between the Trouvé store and the hardware section at TM are likely to have been significant given TM’s strong bargaining power with suppliers and aggressive pricing strategy. Consequence: customers who placed emphasis on value for money would have been very likely to switch their custom aware from the Trouvé store.1.2 Types of organisationsWith reference to TM, outline two key features of operating as a public limited company [4 marks, AO1, SL/HL]Shares in a public company may be bought and sold by the public – provided that the shares are listed on a recognised stock exchange. Key benefit for a business like TM: their shares have greater liquidity (more easily bought and sold).Quoted businesses like TM are better able to raise significant external finance through the issue of new share capital, for example through a rights issue. The shares in quoted firms like TM can also be used as part of the price for potential external growth options such as takeovers.The activities and financial affairs of quoted companies like TM are subject to greater public scrutiny, including by professional investors, governments and regulators and by pressure groups. This is because public companies are required to disclosed much more detailed information about themselves.Explain two advantages of TM operating as a public limited company [4 marks, AO2, SL/HL]There are many potential commercial benefits from operating as a PLC, including:Better able to raise significant new external finance through share issuesGreater public profileStronger reputation with key stakeholders, including major suppliers1.3 Organisational objectivesExplain the importance of mission statements in managing a multinational business [4 marks, AO2, SL/HL]Operating MNCs is complex, involving separate management teams and employees in more than country; across different time zones and trading in countries with widely different cultures. It is important for every employee and manager of an MNC to have a clear idea of the overall purpose and direction of the business, wherever they work. A mission statement is a key part of achieving this.Mission statement describes how a business intends to execute its vision. This provides a clear sense of direction and purpose regardless of how the MNC decides to “localise” its strategy in the individual countries in which it operates.In the context of TM, distinguish between a stated main aim and a mission statement [4 marks, AO2, SL/HL]Aim: a stated long-term goal of a business as determined by the top management of the business. A business like TM will usually have just a few aims which help shape the strategic direction of the business and influence the more detailed corporate and functional objectives.A mission statement declares what the overall purpose of the business is. The mission statement sets the scene for stakeholders in the business by setting out factors such as: why the business exists; its ambition; its philosophy etc.In the context of TM, explain what is is meant by the phrase “profit-driven objectives” (line 95) [4 marks, AO2, SL/HL]Profit-driven objectives are set at the corporate level (i.e. top level) and state what the overall business wants to achieve in terms of absolute profit (e.g. total net profit) and profitability (e.g. net profit margin). For TM it is likely that profit-driven objectives will be based around a strategy of profit maximisation – i.e. trying to achieve the highest possible level of profit. This is closely linked to the concept of “shareholder value – whereby TM will attempt to maximise the value of the company (represented by the TM share price) by maximising the profits it earns.The term profit-driven objectives also implies that other potential corporate objectives are not prominent at TM. For example, it might be argued that pursuing “profit-driven” objectives can be inconsistent with objectives such as operating ethically or in a socially-responsible way.Outline two implications for the functional management arising from TM’s objective to have the lowest prices in the market [4 marks, AO1, SL/HL] Operations: it is vital that TM operations focus on efficiency and productivity in order for TM to miminise operating costs. TM operates a variety of lean production methods, which is consistent with a strategy of operating at the lowest cost.Human resource management: similar to operations, it is important that labour productivity is high in order for the unit costs of TM’s stores to be low. Staff costs will be a significant element of fixed costs and overheads in the business. There are various ways that TM can try to achieve high labour productivity; TM’s approach to HRM seems to be based on strict control of staff costs (e.g. low wages, autocratic and centralized management).Finance: TM’s use of lean production – and in particular just-in-time arrangements with suppliers – is partly designed to minimise the amount of working capital in the business. By minimising store inventories, TM can reduce the costs of obsolete and slow-moving products and also free-up finance.With reference to TM, describe two ways in which corporate social responsibility could be important [4 marks, AO2, SL/HL]TM is a major employer in the locations in which it operates. Two key stakeholders affected by TM’s importance to each local economy are, therefore, employees and the local community. We have seen with the case of TM opening a hypermarket near St. Laurent that TM’s entry into a local market can boost local employment, but also negatively affect smaller shops. A positive programme of CSR by TM in each local market might help address concerns by the local community about the impact on smaller shops.A key part of CSR is meeting the obligations of a business to society by acting ethically. If evidence emerges that a MNC like TM has behaved unethically towards key stakeholders, the impact on the business value could be significant. Examine the implications for TM from having a poor record of corporate social responsibility (CSR) [6 marks, AO3, SL/HL]Lines 45-46 state that TM has a poor record of corporate social responsibility:From the case study, there are two likely causes of that poor record of CSR:Unethical treatment of suppliers: lines 23-24 indicate that as TM has grown in scale, it has been able to impose more favourable purchasing terms from suppliers. This is likely to involve requiring lower purchase prices, but also supplier support for TM promotional campaigns, and also extended payment terms to enable TM to delay payments to suppliers. Has this damaged the business of smaller suppliers who might be reliant on TM’s orders? Possible implications of unethical treatment of suppliers: TM’s reputation with key manufacturers of branded products will be damaged. Industry regulators may investigate TM’s supplier treatment in certain countries with the possibility of substantial fines.A workforce that is treated badly: line 85 states that the MBA class has a case study on TM suggesting that the one significant weakness in the business is “a workforce that is treated badly”. This suggests that TM’s approach to human resource management is public knowledge (perhaps linked to the pressure groups mentioned).Possible implications of treating the workforce badly: taking a “hard” approach to HRM and treating employees as a resource rather than an asset is unlikely to help TM achieve its profit-driven objective in the long-term. Well-managed, modern business treat employees as key stakeholders and as assets. In the longer-term, TM might expect to suffer from higher labour turnover than their competitors, lower labour productivity and higher absenteeism. You might also argue that the quality of customer service in TM stores is likely to suffer as a result of a badly managed workforce, which may adversely affect customer loyalty.Suggest two reasons why pressure groups are urging TM to “adopt ethical behaviour” [4 marks, AO2, SL/HL]Effective pressure group action, fuelled by greater media exposure (particularly via social media) is having a more significant effect on businesses. The case study suggests two likely causes of unethical behaviour by TM:Treatment of suppliersTreatment of employeesThe actions of pressure groups will be intended to:Directly persuade TM to change its practices towards suppliers and employeesPersuade other key stakeholders (including larger shareholders) such as government, regulators and the general public to exert pressure on TM. This has an indirect impact on TM, but potentially just as powerful, particularly if a perception that TM is an unethical business starts to negatively affect the TM share price.Outline two benefits to TM from adopting ethical behaviour [4 marks, AO1, SL/HL]Possible ways for TM to behave more ethically:Treat suppliers more fairly (more favourable purchasing terms)Potential benefits:More suppliers will be prepared to work with TMLean production more likely to be successful – JIT requires strong partnerships & collaboration with key suppliersTreat the workforce better (e.g. empowerment, decentralized approach to local managementPotential benefits:Improved employee morale – leading to greater productivity and efficiencyHigher quality of customer serviceImproved ability to recruit staff, particularly when economic conditions improveUsing a SWOT analysis framework, outline two strengths of, and two opportunities for, TM [4 marks, AO1, SL/HL]Strengths:Highly efficient: an organisational culture based on strict cost control that supports the strategy of price competitivenessSignificant scale: as a market leader, TM is able to access significant economies of scale (particularly purchasing economies) which drive unit costs down and support the low-price strategyGlobal reach: TM is already a substantial multinational retailer with operations in South America and Europe. This makes TM a key partner for manufacturers of global consumer brands – they need access to TM’s store to maximise sales.Opportunities:Expansion into Asia: the rapid growth of the middle class in countries like China, Thailand and Vietnam presents a substantial growth opportunity for multinational retailers.Expansion of service sector product range: TM has only recently extended the product range at its hypermarkets to include services such as pharmacies, financial services and telecommunications. Each of these services has substantial revenue and profit potential, particularly if TM can replicate its successful low-price market positioning.Market penetration in existing markets: As market leader, TM clearly has opportunities to extend its leadership further through internal growth (e.g. opening new hypermarkets in locations it is currently not in). Another internal growth opportunity would be to enter the convenience store segment – one of the fastest-growing segments of the overall grocery retailing sector in Europe. An external growth opportunity that would enable TM to build market leadership further would be through acquisitions (takeovers), perhaps of a smaller, regional supermarket chain in locations where it has a low market share. However, this option would be likely to result in a review by competition regulators.Using a SWOT analysis framework, outline two weaknesses of, and two threats to, TM [4 marks, AO1, SL/HL]Weaknesses:Human resource management: the evidence suggests that, from the perspective of employee stakeholders and possibly the local community, TM has a weakness in the way it manages its people. Is the weakness really about organisational culture? TM is based in South America – is there a fundamental difference in the way that HRM is conducted there compared with, say, France? What is the evidence of HMR being a weakness at TM? Labour turnover? Possibly. Low employee morale? Yes – there is increasing evidence of this, perhaps highlighted by the pressure groups.Low-price strategy: might this also be considered a potential weakness? Whilst it may have helped TM expand internationally, can it be sustained? What happens when consumers increasingly look for better quality, or higher standards of customer service? Will TM’s low-price strategy become a potential competitive weakness?Threats:E-commerce: [mentioned in line 84]. E-commerce has disrupted almost all consumer and business markets, and supermarket retailing is no exception. For most multinational supermarket retailers, the key threat is Amazon, which is investing heavily to build its share of grocery retailing in many developed economies. In China, the rapid adoption of mobile-commerce has also created substantial demand for digital transactions. E-commerce platforms such as Tmall (operated by Alibaba) now have a significant share of retailing sales.Customised production: [mentioned in line 84] This links to e-commerce. Digital platforms are increasingly enabling consumers to personalize their retail choices (e.g. size, colours) and to buy personalized products directly from manufacturers, thereby missing out the retail distribution channel.Construct a fully labelled Ansoff matrix to show how TM has grown to-date [4 marks, AO4, SL/HL]Existing Products & Existing Markets[Market Penetration]New Products into Existing Markets[Product Development]Opening new TM stores in existing national marketsExtending the core supermarket grocery product rangeExtending the product range to include a much wider range of consumer goods (electronics, furniture, automotive, office supplies)Entering the services market – banking facilities, insurance, pharmacies, opticians, mobile phone servicesExisting Products into New Markets[Market Development]New Products into New Markets[Diversification]Opening existing format TM hypermarkets in new countriesFailed attempt at franchising1.4 StakeholdersWith reference to TM, examine possible areas of conflict between the stakeholders of the company [6 marks, AO3, SL/HL]Two potential areas of conflict between TM stakeholders include:Shareholders (internal stakeholders) v Suppliers (external stakeholders)Source of conflict: TM using its market (bargaining) power against suppliers to negotiate favourable purchasing terms. Likely to be supported by shareholders if this approach to managing suppliers enables TM to achieve higher profit margins and profits. Whilst suppliers will want to sell to TM (their business is likely to be important) they will not want these sales to be unprofitable.Senior management at TM (internal stakeholders) v Employees (internal stakeholders)Source of conflict: there is clear evidence of poor relations between the senior management of TM based in South America and local store management and employees.The tension between management at the centre and local employees is essentially caused by TM’s approach to HRM. TM treat employees as a resource – to be managed as cost effectively and efficiently as possible. TM employees resent the highly restrictive working environment and poor financial rewards.Explain the interests of two of TM’s external stakeholders [4 marks, AO2, SL/HL]Two key examples of external stakeholders for TM include:Suppliers: TM will have a wide supplier base, ranging from major multinational companies making branded consumer goods (e.g. Proctor & Gamble, Unilever, Nestle, Danone) through to suppliers of locally-sourced goods (e.g. fresh produce, local specialities) and also the suppliers of outsourced services. Local community: the operation of a TM hypermarket has a significant impact on those living locally. It brings substantial employment, but also threatens the livelihood of existing retailers. It generates additional economic activity (e.g. suppliers of outsourced services), but also additional noise and congestion. A key interest for the local community is whether, overall, a TM hypermarket provides net benefits for them.1.5 External environmentExplain how changes in the economic environment in France may create opportunities for TM [4 marks, AO2, SL/HL]The state of the economic environment in France will be closely linked to that of the European Single Market and European Union in general. In recent years, France has experienced weak economic conditions after the significant recession that followed the global financial crisis in 2007-9.It can be argued that the economic downturn in France as provided a significant opportunity for TM. This is because, in such circumstances, households and consumers have lower disposable income. Many will change their shopping habits to look for the best value for money. TM will be an attractive option since it offers the lowest prices in the market and we are told that families typically save between $2,000 and $5,000 by shopping at TM [lines 43-44].Another opportunity for TM is when the employment market in France is weak and unemployment is rising or high. In this circumstance TM employees are less likely to seek alternative employment elsewhere, and there will also be less pressure for wage increases.Examine how external factors are posing a threat to TM’s hypermarkets based in France [6 marks, AO3, SL/HL]Two potential external threats to TM’s business in France include:Growing use of e-commerce by competitors: a threat to TM’s market share if it does not respondPressure for MNCs like TM to act in a more ethical and socially responsible way: the potential impact on customer loyalty is one threat this poses, as is the potential for greater regulation of TM if it found to have acting inappropriatelyComplete a PEST analysis for TM [6 marks, AO4, SL/HL]PoliticalAlthough TM is based in South America, it’s operations in each country must take account of the legal and regulatory environment there. TM hypermarkets in France subject to French and EU legislation and regulation; particularly strict rules regarding employment and competition. TM will need to be careful that its treatment of employees does not breach EU & French laws and that it does not operate in a way that is damaging to fair competiton.EconomicAs a MNC operating in large consumer markets in many countries, TM is exposed to a variety of economic conditions, which will vary over time and between different marketsFrench economic has been weak in recent years; likely to have benefited TM’s business there, overallSocialKey issue is whether TM is behaving ethically and acting in a socially-responsible way. Increasing scrutiny from pressure groups suggests that TM may be threatened by its current approach to CSR.Demographic trends (ageing population) are hindering economic growth in France. Relevant to TM in France; but don’t forget that TM operates as an MNC.TechnologicalThe key change is e-commerce which is fundamentally changing the way consumers shop and disrupting business models in all sectors, including supermarket retailing.1.6 Growth and evolutionWith reference to TM, describe two economies of scale that arise from being a market leader [4 marks, AO1, SL/HL]Economies of scale are the cost advantages that a business can exploit by expanding their scale of operations. The effect of economies of scale is to reduce average (unit) costs. Two examples of economies of scale for TM are:Purchasing economies of scale: As a market leader, TM will be a major customer for many of its suppliers. Indeed, some suppliers may be reliant on the sales they make to TM. This gives TM potentially significant bargaining power with suppliers and we are told that it has already enabled TM to gain more favourable purchasing terms from suppliers.Marketing economies of scale: many marketing costs are fixed in nature – for example the costs of building brand awareness, or television advertising campaigns. As the TM store portfolio grows in each country and across international borders, marketing costs that are fixed can be spread over a larger number of stores.With reference to TM, distinguish between internal and external growth [4 marks, AO2, SL/HL]Internal growth:Methods by which a business grows that come from “within” the business. This is sometimes also known as “organic growth” and is generally seen as a less risky option compared with “external growth”. For TM there are numerous sources of internal growth. For example, opening more stores in a country in which it already operates is a classic internal growth strategy for a retailer. Similarly, increasing the amount of selling space in stores is a source of internal growth. TM has done this by expanding the range of goods sold, including many more consumer services.External growth:Methods of growing a business from the outside. External growth typically involves acquiring another business or merging with one. TM is said to have tried to grow externally through franchising which was a failure. No mention is made of TM having attempted takeovers of other retailers, or entering into joint ventures – which is a method that has traditionally been used by retailers to enter new international markets in Asia.With reference to TM, explain two ways in which the business has expanded using internal growth [4 marks, AO2, SL/HL]TM has historically grown using internal growth approaches, for example:Opening more stores in a country in which it already operates (e.g. expanding the TM hypermarket portfolio across France)Increasing the amount of selling space in stores by expanding the range of goods sold, including many more consumer services.Explain two advantages of internal growth compared to external growth for TM [4 marks, AO2, SL/HL]One advantage is that internal growth is generally considered to be a less risky strategy compared with external growth, since it usually involves simply doing more of what a business has already proved it is good at! For example, TM can experiment with launching new product ranges in-store, often by piloting them in a sample of suitable locations. If the pilot launches prove popular, it is a straightforward process rolling out the product launch across other TM stores.Another advantage is that internal growth options enable TM to make more efficient use of existing stores and operational infrastructure. A major retailer like TM has significant fixed costs – for example logistics, store rents and the costs of store management. By expanding the product and service range (internal growth), TM can spread these fixed costs over higher output (volume sold), thereby reducing unit costs.Outline two advantages and two disadvantages of TM expanding its range of goods sold and services offered to become a “one-stop” shopping destination [4 marks, AO1, SL/HL]Advantages:Customers who trust the TM brand and are attracted to its lowest-price positioning will shift their spending to TM as it enters new goods and services markets.TM makes more efficient use of the existing selling space in its hypermarkets. A key factor in determining TM’s store profitability is to maximise the sales per area of selling space. Offering a wider range of goods and services increases the ability of TM to allocate selling space to the most profitable product ranges/Disadvantages:TM loses its “focus” in terms of market positioning. Customers may perceive that it is better to shop at a specialist retailer rather than one that is less able to offer detailed advice.Will TM be able to sustain its lowest-price strategy in a much wider range of goods and services markets where it may face more intense competition from existing operators?With reference to TM, outline two key features of operating as a multinational company [4 marks, AO1, SL/HL]A MNC is a business that is based or registered in one country but has outlets/ affiliates or does business in other countries. Key features of MNCs include:Invest significant amounts in technology and logistics to enable them to operate across geographical boundaries and different time-zones. For example, TM management based in France will be reporting back to senior management in South America, which will typically be 5-8 hours behind.Operations in each country may be managed separately, but they are ultimately controlled (and are responsible to) the parent company management (for TM – in South America).Often operate using a variety of brands and business formats, depending on the nature of each geographical market. However, some of the most successful MNCs build a truly global brand name and business format, which is easier to replicate in different countries (e.g. Starbucks, McDonald’s). TM appears to operate as a global retail brand.Discuss the impact of a multinational company like TM on a host country like France [6 marks, AO3, SL/HL]There are various potential advantages and disadvantages to a host country from having MNCs operate there. The key point though is that MNCs are a common and inevitable feature of developed and emerging economies. Advantages:MNCs provide employment - MNCs will usually bring employment benefits for the host country as most employees will be locally recruited. However, these employment benefits might be offset in part by the loss of employment in smaller firms who lose market share to the MNCs.MNCs provide significant tax revenue - profits of MNCs will be subject to local taxes in most cases, which will provide a valuable source of revenue for the domestic government. For example, TM is likely to be profitable in France and will pay tax on those profits to the French government. MNCs facilitate technology transfer – MNCs bring with them technology and expertise that may be new to the host country. A process known as technology transfer occurs if this expertise is transferred to people and businesses in the host country. TM’s global expertise in retailing may be a source of technology transfer in France, perhaps to suppliers who work with the firm.Disadvantages:MNCs provide increased competition for domestic firms - the impact the local industries can be severe, because the presence of MNCs increases the competition in the economy and because MNCs may be able to take advantage of economies of scale to operate at lower unit costs. This appears to have been the case with TM in France. The Trouvé family hardware store will not have been the only small, local retailer forced to close because it could not compete with the scale and low prices of TM.MNCs can avoid taxation by using transfer pricing – this is a highly topical and controversial issue in many countries. MNCs will always aim to reduce the taxes they pay on their profits to a minimum. One way of doing this is through transfer pricing which reduces the taxes they pay in countries with high tax rates and increases the taxable profits in countries with low tax rates. There are many ways this can be achieved, for example by levying “management charges” or by changing the prices of services that are provided by other parts of the MNC. Whilst tax avoidance like this is legal, it is widely seen as unethical and governments around the world are increasingly acting together to make tax avoidance by MNCs much harder to achieve. Is TM’s tax bill in France the reason why Henri is shocked when he calculates some financial ratios as part of his MBA case study> [lines 86-87]Outline four factors that TM will need to consider as it actively investigates development of new markets in Asia [4 marks, AO1, SL/HL] Assuming that TM is intending to expand its existing hypermarket business model into Asia, key factors for TM to consider will be:How attractive is the market? (market size, growth, competitive structure)How large is it (revenues, profits) and how does this differ between countries? (market size)How fast is are the hypermarket segments growing in each country (market growth)What is the PESTLE environment in the target Asian markets? For example, how is supermarket retailing regulated? Are there restrictions on how MNCs like TM can operate? How widespread is the use of e-commerce in Asia? What are the short and medium term economic prospects for target economies?What competitive advantages will TM require in order to succeed in its chosen target markets in Asia?What is the competitive structure in the target markets: leading existing national retailers & other MNC retailers that have already entered the market ahead of TM (e.g. Walmart, Tesco, Carrefour)?How important is branding? What will it take to ensure that the TM brand is recognised and trusted by the target customer base? What marketing mix will be appropriate for a winning strategy? Will TM’s lowest-price strategy work, or are other factors more important to the target audience?What investment will be required in order to establish and then grow a position in the target markets? 1.7 Organizational planning tools (HL only)Explain how the use of a Gantt chart could help TM plan its proposed expansion into Asia [4 marks, AO2, HL] A Gantt chart is a planning tool that helps with the management (sequencing) of key activities in a project. Gantt charts are particularly useful for complex projects where key tasks in a project are dependent on the successful completion of previous tasks.TM’s proposed expansion into Asia is a complex investment project that will involve a series of distinct stages. These would include:Research, analysis and evaluation of the target markets in AsiaA detailed analysis of the competitive position in those markets, including the existing market shares and strategies of competitors thereAnalysis of the most appropriate entry strategy into Asia = for example whether to enter using internal growth methods, joint ventures, acquisitions or other forms of external partnership.Negotiation of any joint venture or acquisitions, including due diligenceSetting up the required retailing infrastructure in order to start trading; e.g. for an internal growth approach, this would involve identifying and acquiring locations, contracting with suppliers, building and stocking the stores, recruiting and training the staff.Explain how Force Field Analysis could help TM determine whether it needs to change its approach to human resource management [4 marks, AO2, HL] Lewin’s Force Field Analysis (FFA) model is a useful conceptual model for analysing the key factors that are driving change in a business (driving forces) and the forces that are resisting change (restraining forces). It can help management determine whether change is possible.For TM possible driving and restraining forces in relation to its HRM strategy include:Driving forces for change in HRM strategy:Pressure groups calling for TM to behave more ethicallyIncreasing discontent amongst staff about how staff are treatedA broader societal change (particularly in developed economies) which expects firms to treat employees as assets, not just resourcesRestraining forces:The leadership and organisational culture at TM – with a centralized, autocratic approach being dominant. Poor communication at TM – staff and store management afraid to speak out about possible change, makes it harder to promote.UNIT 2: HUMAN RESOURCE MANAGEMENT2.1 Functions and evolution of human resource managementDescribe two factors that would affect TM’s workforce planning for the hypermarket in St. Laurent [4 marks, AO1, SL/HL]Extension of the product range to offer a much broader range of goods and services. In theory this will require each TM hypermarket to employ more staff with specialist product expertise (although Henri’s experience suggests that TM don’t see this as too important).Whether TM implement e-commerce. The launch of e-commerce may change the way that staff organised in store, and also how many of them are needed. For example, it may be that TM would use existing stores as the “picking points” for online orders, but these might be done during quieter times (perhaps overnight), which would change the staff scheduling. With reference to TM, explain two factors that will affect the rate of labour turnover at the hypermarket in St. Laurent [4 marks, AO2, SL/HL]Labour turnover at TM is proportion of its workforce that leaves during the course of a year. In retailing, labour turnover tends to be quite high, partly because of the seasonal nature of demand and also because most jobs in retailing are relatively low-paid. Labour turnover can also be affected by specific factors in the local employment market.For TM, relevant factors affecting the rate of labour turnover include:Economic conditions generally, and the strength of the local economy. During an economic downturn, unemployment usually rises and there are fewer alternative jobs – so people with jobs tend to stay where they are (even if they don’t like the work!). Conversely, as economic conditions improve, labour turnover may increase as staff identify more employment opportunities elsewhere.Working conditions in the businessUltimately, few people wish to stay in a workplace they find unpleasant, unrewarding or where there are few opportunities for promotion. TM in St. Laurent sounds like such a place!Financial rewardsPerhaps the most important factor, particularly in sectors like retailing where wages tend to be low. We know that TM keeps wages to a minimum [line 20] and there is no mention of any significant non-financial benefits of working there. Does that contribute to TM having a relatively high level of labour turnover?Suggest two reasons why Delphine Jacques is one of the few employees to have been promoted internally at TM’s hypermarket in St. Laurent [4 marks, AO2, SL/HL]TM’s organisational culture is based around an autocratic management style which is likely to treat employees as disposable resources. This in turn is likely to result in a relatively high labour turnover which will reduce the available pool of existing employees who are suitable for internal promotion.Why might TM employees want to seek internal promotion when there appears to be little benefit in taking on store managerial roles? Both Henri and Delphine appear to be in fear of how their views and actions might be viewed by senior management at TM. Describe two benefits to TM from using outsourcing to cut cost of sales [4 marks, AO1, SL/HL]Outsourcing involves the delegation of one or more business processes to an external provider, who then owns, manages and administers the selected processes to an agreed standard.Some potential benefits to TM include:Services are provided by outside suppliers rather than employing people to provide them. This frees TM from having to employ so many staff, with resulting employment costs and legal responsibilities. Suppliers providing outsourced services are simply engaged based on a supplier contract.Certain costs become variable in nature rather than fixed. For example, TM may pay a commission to providers of mobile phone or pharmacy services – which will be variable based on the sales achieved. The alternative is to employ people to provide those services, making the cost more fixed in nature. The effect of significant outsourcing is, therefore, to reduce the breakeven sales level for stores since fixed costs will have fallen.2.2 Organizational structureWith reference to TM, outline two key features of taking a centralized approach to human resource management [4 marks, AO1, SL/HL]In a centralized structure, decision-making is kept firmly at the top of the organisational hierarchy. The role of senior management is emphasised whereas the role of junior management is relegated to low importance. Key features of this centralized approach by TM would include:Detailed procedures issued to all levels of the organisational hierarchy from the topStrict controls over all aspects of employee performance and disciplineRestrictions on the ability of anyone other than central management to take commercial decisionsEmphasis on formal communication processes (e.g. store reporting)With reference to TM, analyse two possible reasons why employees are not empowered and have to follow detailed work instructions and procedures [4 marks, AO2, SL/HL]Two likely reasons are:The organisational culture at TMThe culture at TM is built around command and control from the centre. A highly centralized approach leaves little scope for allowing local store management or employees to take decisions.The need to operate highly efficiently in order to sustain a lowest-price competitive strategyTM seems to be very process-driven. Workplace procedures are detailed and ensuring they are followed will given TM management assurance that the most efficient ways of operating are being followed.Explain two disadvantages for TM of operating a “regimented, autocratic and centralized” approach to human resource management [4 marks, AO2, SL/HL]This approach to HRM has several likely disadvantages:A regimented, autocratic and centralized approach is highly inflexible. Whilst decision-making is simpler, this can mean that the wrong decisions are taken when a more flexible approach might be better for customer service or to respond to local changes in the market. A consequence is that employees further down the organisational hierarchy are now empowered to do what they believe is the best thing for the business – they can only do what they are told from above.Another key disadvantage is that this approach is more likely to be demotivating for employees. Staff soon realise that they are treated simply as resources of the business, not assets. Their views are not taken into account; they feel as though they have little freedom to use their initiative. All of this is bound to have some impact on the quality of customer service, particularly in a service-sector business like supermarket retailing, where customer service is key.Evaluate the effectiveness of TM’s approach to human resource management in the context of the company’s mission and objectives [6 marks, AO3, SL/HL]TM’s stated aim is to have the lowest prices in the market. This requires the business to operate at maximum efficiency and productivity. The key corporate objective is to maximise market share and to be a market leader, which in turn is intended to enable TM to profit-maximise.In some ways, TM’s approach to HRM is consistent with achieving its mission and objectives. For example:A centralized approach can result in quicker decision-making due to consistent policies coming from the top. This will be important for TM which operates in a fast-changing retail sector.A centralized approach can also mean lower management costs as there is less need for having more specialist or departmental managers. Henri’s position at TM is an example of this. Henri is an experienced hardware store manager. However, he feels that his position at TM is not much more than a salesperson. TM do not appear to value (or require) management specialists.Alternatively, in other ways TM’s approach to HRM is not consistent with achieving its mission and objectives. For example:In the longer-term, this approach to HRM can damage the reputation of the business, which in turn can threaten achievement of its mission and objectives. For example, there is evidence that the way TM treats its employees is seen as a competitive weakness in the public domain (MBA case study). If customers begin to see this as a reason not to shop at TM, it will result in lower sales and market share.A de-motivated workforce with low morale may also result in higher costs. For example, if labour turnover is significantly higher than the industry average this will result in higher recruitment costs and potentially lower labour productivity.Overall: many firms that pursue a successful low-cost operating strategy do not adopt a highly centralized and autocratic approach to HRM. Treating employees well, empowering them and rewarding them well can still be consistent with operational efficiency, high market share and strong profitability. With reference to TM, explain two ways in which an inflexible organizational structure could damage the performance of the business [4 marks, AO2, SL/HL]See question above. Key points are:Demotivated workforce with poor morale = adverse impact on customer service and labour productivityCentralization is an inflexible way of managing a business like TM; multi-location businesses like retail need local management to be empowered to take decisions based on local market conditions. 2.3 Leadership and managementWith reference to Henri Trouvé, explain what is meant by a “paternalistic leader” [4 marks, AO2, SL/HL]Paternalistic leaders (or managers) give more attention to the social needs and views of their workers. Managers are interested in how happy workers feel and in many ways they act as a father figure (pater means father in Latin). They consult employees over issues and listen to their feedback or opinions. The paternalistic manager will however still make the actual decisions (in the best interests of the workers) as they believe the staff still need direction and in this way it is still somewhat of an autocratic approach. The style is closely linked with Mayo's Human Relation view of motivation and also the social needs of Maslow.Does Henri demonstrate his paternalistic style when dealing with the employees writing graffiti in the stockroom [line 64]? His instincts are paternalistic (tell them to remove the graffiti); however, he takes no action, with is more consistent with a laissez-faire leadership style.With reference to TM, describe two benefits of adopting an autocratic approach to leadership and management [4 marks, AO1, SL/HL]Potential benefits of an autocratic approach to leadership and management at TM include:Systems of command and control are formal – employees and their line managers know exactly where they stand and what they are required to do. At TM, it is clear that “company policy” is well understood.An autocratic approach can work effectively when most of the workforce is unskilled or lacks experience. In retail this will often be the case, although the quality of customer service can soon suffer of customers find store employees unhelpful or lacking basic product knowledge.Analyse the effectiveness of the management style at TM [6 marks, AO2, SL/HL] What is the evidence of how effective the management style is at TM?Evidence of the style being effective:TM is a market leader and is successfully positioned as having the lowest prices in the market [lines 22-23]TM has expanded successfully across international borders using the same retail formatTM store management are highly aware of company policy and follow the rulesEvidence of the style being ineffective:Few staff are TM are promoted internally – perhaps because they do not stay with the business long enough to take advantage of promotion opportunities; this links with evidence that TM experiences a high level of staff turnover“Management” positions in stores have little or no real management responsibilityTM staff are discouraged from communicating with each other; hardly a suitable environment for TM to benefit from the benefits of effective teamwork2.4 MotivationExamine how the motivational strategies used by TM differ from those suggested by motivational theorist Daniel Pink [6 marks, AO3, SL/HL]Motivational strategies represent the mix of financial and non-financial approaches taken by a business to motivate its employees and managers. We are told that TM uses motivational strategies that are “completely different” from those advocated by management writer Daniel Pink. Pink argues that money is a motivator at work, but once people perceive that they are paid fairly, then they become much more motivated by intrinsic elements. Once people are paid fairly, they look for more from their work, with the three intrinsic motivators being: autonomy, purpose and mastery.Looking at how TM manages HRM, some key comparisons can be made:Pink’s ApproachEvidence from TMEmployees need to be paid fairly, before intrinsic motivators become more importantTM keeps wages to a minimum; there is no evidence of performance-related financial rewards; little internal promotion. Suggests that Pink’s basic test of fair pay is not met.Autonomy (time, technique, team and task)Little evidence of this at TM. Teamwork is not encouraged. Working practices at TM are very inflexible. Staff do not have any freedom over decision-making.Mastery (opportunities for self-improvement and professional development)Again, very little evidence of this at TM. Section managers are “little more than sales people”. Very low levels of internal promotion.Purpose (employees know and appreciate what the business is trying to achieve)Quite a lot of evidence of this at TM. The mission and aims of the business are clearly articulated and communicated (lowest prices) and the organisational culture of the business is built around this purpose.With reference to TM, compare and contrast the motivational theories of Taylor and Pink [6 marks, AO3, SL/HL]TaylorPinkArgued for “scientific management”Argued for “intrinsic motivators” once pay is fairMotivation (management) should be made on measurement, monitoring and controlMotivation should be based on autonomy, mastery and purposeEmployees work for money alone; they should be motivated to become more efficient and productiveEmployee motivation is complex. Money matters, but once pay is perceived to be fair, other more intrinsic motivators come into playConsistent with an autocratic leadership styleConsistent with a paternalistic or democratic leadership styleEvidence from TM:Entirely consistent with the way that TM manage HRM with its emphasis on efficiency and centralisation. TM’s strict command and control approach to manage would have been given Taylor’s approval!Evidence from TM:Very little evidence that TM’s approach to motivation and management would be approved by Pink. Little evidence of the appreciation of intrinsic motivators, nor that employees feel they are paid fairly.Analyse two possible causes of the two young employees protesting about TM’s wages and management style [4 marks, AO2, SL/HL]Two likely causes are:They are young, inexperienced. They feel aggrieved generally about TM paying the at the minimum required wage, and don’t understand why this is consistent with TM’s mission and objectivesThey are used to being in a more open, modern environment where communication is encouraged, as is teamwork (perhaps at their school!). They now find themselves in quite an alien working environment where communication is discouraged.Discuss whether TM would benefit from empowering its employees [6 marks, AO3, SL/HL]Empowerment is a non-financial reward that involves giving employees the power to do their job. The concept of empowerment is closely linked to motivation and customer service. Employees need to feel that their actions count – and empowerment is about making this happen. Empowerment is a catch-all term that covers: (1) giving authority to make decisions to front-line staff; (2) encouraging employee feedback, and (3) showing trust in employees to do the right thing for the business. There is very little evidence that TM believes in empowerment as a strategy in HRM! However, potential benefits for TM might be:Store managers at each TM location are better able to respond quickly to local market needs; for example, responding to competitor actions; implementing CSE initiatives to benefit the local communityEmpowerment would help the level of employee motivation and morale by introducing one of Pink’s intrinsic motivators – autonomy. For example, TM store managers and section managers would be able to make independent decisions without always reverting back to central management in South America. This would give them some autonomy – a sense of ownership in their job role and responsibility for the outcome of their commercial decisions and work.Some element of empowerment will demonstrate to TM store managers and employees that central management in South America respect and trust them, thereby improving their level of motivation and job satisfaction.2.5 Organizational (corporate) culture (HL only)Describe two features of the organisational culture at the TM hypermarket in St. Laurent [4 marks, AO1, HL]Key features of the organisational culture at the TM hypermarket in St. Laurent include:A low-cost culture: all aspects of the way the business is organised and managed is based around the objective of being able to offer the lowest-prices in the market. The result is an obsession with cost minimisation and efficiency – above all other considerations.A power culture (Handy): typical of organisations with centralized decision-making where authority is concentrated in the hands of a few senior managers. For TM the power resides in the management based in South America.Elements of role culture (Handy): work in the TM organisation is based on clearly-defined rules and regulations; employees at TM operate within very tightly controlled work instructions and procedures. This is consistent with a culture based around a tall, hierarchical organisational structure.Examine the key features of the organisational culture at TM [6 marks, AO3, HL]Organisational culture represents the complex mix of values, attitudes, beliefs and behaviours that combine to determine “how things are done” in an organisation.The key features of the organisational culture are listed above: low-cost; power / role.The over-riding feature is a Power Culture:With reference to TM, to what extent does the organisational culture reflect the aim, mission and objectives of an organisation? [6 marks, AO3, HL]TM’s power culture to a large extent reflects the strategic positioning, aims and objectives of the business.The centre of TM’s power culture is the headquarters (HQ) in South America. This is where the culture is determined, influenced to a large extent by the nature of leadership there.The way TM is organised, and its functional strategies are entirely consistent with its power culture. For example:Clear structures of command and controlClear hierarchy, reinforced by segregation of management and employees (e.g. at meal times)Strict working procedures and rulesRelentless focus on cost minimisation (outsourcing, trading relationships with suppliers)Overall, the culture at TM is extremely strong, although you might describe it as negative in terms of impact on key stakeholder groups. Examine whether there is a culture clash between the employees of TM and the senior leadership in South America [6 marks, AO3, HL]Culture clash – where the beliefs and values of employees differ from those of senior leadersEvidence of culture clash at TM:Employees protesting about working conditions and management styleHenri – suspecting that his “paternalistic” management style is not consistent with the style required by his seniorsFew employees promoted internally – suggests many employees don’t share core values and want to pursue a career with TMRumours that employment practices and contracts likely to change as TM continues to cut costs further – likely cause of clashes with employees who are already paid the minimum2.6 Industrial / employee relations (HL only)Describe two sources of conflict in the workplace at the TM hypermarket in St. Laurent [4 marks, AO1, HL]Potential sources of conflict are:TM employees are paid at the lowest minimum wage – a source of conflict with senior managementRelatively few employees are promoted internally – likely to generate discontent about promotion prospectsRumours that employment contracts are to be changed soon and wages reduced furtherEvaluate the strength of employee relations at the TM hypermarket in St. Laurent [6 marks, AO3, HL]Key points to explore:Case study itself provides only limited evidence about the strength of employee relationsNo evidence of industrial disputes, but this does not mean that relationships between employees and senior management are not strainedNo evidence that employees at TM are allowed to be unionised; given the culture at TM, it is perhaps unlikely that this is permitted. We are told that “TM does not want them [managers and employees] expressing collective opinions. [line 58]Some evidence of a climate / culture of “fear” at the hypermarket in St Laurent; Henri reluctant to report the two misbehaving stockroom employees for fear they would be immediately dismissed.The MBA case study SWOT analysis suggests that the major weakness at TM is a workforce that is treated badly. If this judgement is correct, then it is hard to imagine anything other than poor employee / employer relations in the business. And these relations are likely to get worse (if that is possible) if TM goes ahead with new employment practices and contracts [line 100].UNIT 3: FINANCE AND ACCOUNTS3.1 Sources of financeWith reference to TM, explain the difference between internal and external sources of finance [4 marks, AO2, SL/HL]Internal sources of finance: finance that is generated from within the business. For most businesses, particularly a quoted MNC like TM, the most important source of internal finance will be retained profits. These are the profits that are kept in the company rather than distributed as dividends to shareholders.External sources of finance: sources of finance such as bank loans, bank overdrafts and credit from suppliers which are received from outside the businessTM is likely to have a complex range of external sources of finance, including:Trade credit provided by its suppliers (as part of the favourable terms negotiated by TM). Look out for a higher creditor days ratio as evidence of the importance of trade credit as a source of finance to TMShare capital: as a quoted company, TM will be able to raise significant external finance through the issue of new shares.Loan capital: it is very likely that TM has some loan or debt capital in its financial structure. Long-term loan capital is a very efficient way of sourcing finance, providing that the business has the ability to be able to meet the interest and loan repayments.3.2 Costs and revenuesWith reference to TM, distinguish between the variable and fixed costs of operating a hypermarket [4 marks, AO2, SL/HL]Variable costs: costs that vary directly in relation to output or volume soldExamples of variable costs for a TM hypermarket include:Purchases of stocks from manufacturers of branded consumer productsCommissions payable to providers of services delivered in storeFixed costs: fixed costs that do not change in relation to output or volume sold:Examples of fixed costs for a TM hypermarket include:Store rent and business taxes based on the size of each storeAdvertising and other promotional campaignsStore management salaries3.3 Break-even analysisExplain two benefits of using breakeven analysis to assess the financial performance of TM hypermarkets [4 marks, AO2, SL/HL]Breakeven analysis is a very useful tool to help assess what level of revenues or output is required for a business (or business unit) to cover its costs. It also helps focus management attention on two key indicators that drive the overall profitability of a business, namely:Contribution per unitFixed costsEffective use of breakeven analysis at a TM hypermarket would encourage management to:Maximise the contribution per unit for key productsAllocating store selling space to products with the highest contribution per unitFocus on cost control to minimise fixed costs3.4 Financial accountsIn the context of TM, explain two ways in which the financial accounts of the company would be of interest to TM’s external stakeholders [4 marks, AO2, SL/HL]GovernmentThe published financial accounts of MNCs like TM have come under increasing scrutiny by governments in many countries, including France.For example, the French Government will want to ensure that TM is not engaging in inappropriate tax avoidance and is paying a satisfactory level of taxation on the profits generated by TM in France. The profit and loss account will be a key source of information for Governments.SuppliersTM is likely to require suppliers to provide trade credit as part of the purchasing terms it negotiates with them. So suppliers will want to ensure that TM has a satisfactory liquidity position to ensure TM is able to repay amounts owed. The balance sheet would be the best source of financial information for this purpose.3.5 Profitability and liquidity ratio analysisWith reference to TM explain why a large retailer like TM might safely conduct its business with a very low current ratio [4 marks, AO2, SL/HL]The current ratio is the most commonly used liquidity ratio. It compares the relationship between current assets and current liabilities, by dividing one over the other.Normally a business will want to operate with a current ratio of well above 1, since that would imply that the business has enough current assets (including cash) to be able to settle amounts owing in the next 12 months.However, supermarket retailers often operate safely with a much lower current ratio than 1 without experiencing any significant liquidity problems. This is because of the way in which a supermarket operates, in that:It has high stock turnoverCustomers all pay in cash or via payment card which is received by the supermarket a few days after each transactionSuppliers are used to offering extended credit periodsA consequence of this is that, when you look at the balance sheet of a larger supermarket retailer:Trade debtors are very lowStocks are lowTrade creditors are highWhich has the effect of making the current ratio very low too! Of itself, therefore, a very low current ratio should not be a concern when assessing the liquidity position of TM. However, it is also important to look the change in the current ratio. For example, when used alongside the Creditor Days’ ratio, it may indicate evidence that TM is taking too long to pay suppliers.3.6 Efficiency ratio analysis (HL only)With reference to TM comment on how TM’s approach to operations management will benefit its stock turnover ratio [4 marks, AO2, HL]TM’s approach to operations management is based around lean production, where the aim is to minimise waste, outsource activities to reduce cost of sales, and minimise the amount and value of stocks held through the use of JIT.The stock turnover ratio is used to calculate how many times a business’ stocks need to be replaced in a given time period (typically a year).Effective use of JIT by TM should mean that it is able to carry a significantly lower average level of stock compared with other supermarket retailers since it will be minimising the need for buffer stocks.A consequence of this is that TM’s stock turnover ratio should be higher than comparable businesses.Suggest two consequences for TM of having a very high creditor days ratio [4 marks, AO2, HL]The creditor days ratio calculates the period of time taken, on average, for a business to pay its suppliers. Most suppliers will offer customers a period of trade credit as part of the agreed purchasing terms and this period will vary enormously from industry to industry.A very high creditor days ratio (compared with other competitors in the same industry) is likely to indicate two things:A business has been granted a very long payment period as part of the agreed purchasing terms with a supplier, and/orThe time taken to pay suppliers is being extended beyond what is agreed, in order to maximise cash flow and minimise working capitalTwo consequences for TM of this, if it is happening would be:Major suppliers may refuse to supply TM, or may negotiate for higher purchase prices to compensate for the delayed payment (this would have the effect of increasing TM’s unit costs);Industry regulators may look at TM’s behaviour towards its suppliers and conclude that it is abusing its dominant market position. This may have significant cost implications, depending on the how the industry is regulated in each country.UNIT 4: MARKETING4.1 The role of marketingWith reference to TM, outline two differences in the way that services and goods are marketed [4 marks, AO1, SL/HL]Services are different from goods in several ways: for exampleServices are intangible (e.g. quality of advice by a TM in-store pharmacist) compared with goods which are physical (e.g. the hardware items in Henri’s section)Services are inseparable from the people (staff) who deliver them to customers – accordingly the marketing of services needs to emphasise the quality of customer serviceServices are perishable in they are consumed in person (e.g. a visit to a TM optician) whereas goods are stored in store and warehousing (e.g. TM’s range of automotive parts and office supplies)Explain two benefits of having a high market share in the markets in which TM operates [4 marks, AO2, SL/HL]Key potential benefits of a high market share include:Maximising revenues per store resulting in the fixed costs of store operations being spread over a higher volume of sales. This results in lower unit costs, which should enable TM to be competitive as it implements its lowest-price strategy. This is an example of how market leadership can enable TM to benefit from economies of scale.TM is better placed to use its bargaining power as a market leader to obtain the most favourable purchasing terms form suppliers who are likely to want TM to buy from them in order to maximise their own sales. A consequence of using the bargaining power of a market leader is that TM’s unit costs are likely to be lower than its competitors for similar goods and services which will also support its market positioning of offering the lowest prices in the market.Discuss why high market share and market leadership are important if TM is to achieve its stated main aim of having the lowest prices in the market [6 marks, AO3, SL/HL]The two key benefits described above are two reasons why market leadership is important.Economies of scale: TM able to achieve lowest unit costs in the market, which is a source of competitive advantage since it wants to compete on priceBargaining power with suppliers: another way of reducing unit costs, maximising the gross profit margin on each item sold. Other potential benefits of high market share and high leadership:Brand loyalty: a market-leading brand is well-placed to develop strong customer loyalty. In supermarket retailing, this might be because the TM brand is so well-known and trusted (to deliver low prices). If customers see a TM store, they know what they are going to get.Corporate reputation: market leaders often enjoy a good corporate reputation; after all, there must be a reason why a business has become the market leader! However, does this help TM deliver on its promise of lowest prices? Don’t forget too that corporate reputation is easily damaged which can lead to a loss of market share – there may be a danger that this could happen to TM if customers perceive the lowest-price aim is being achieved partly through unethical or socially-irresponsible behaviour.Discuss whether TM is acting ethically through its marketing practices and strategies [6 marks, AO3, SL/HL]Marketing ethics represent the moral aspects of a firm’s marketing strategies, tactics and marketing mix. In most industries and markets there are widely accepted ethical practices, in addition to legislation and regulations that set out what is expected of firms. The consequences can be quite damaging if a firm is found to be acting unethically.What is the evidence for TM?The only explicit evidence is that “pressure groups are urging TM to adopt ethical behaviour” [lines 46-47]. This is perhaps linked to the evidence that “when TM opens a hypermarket in a town, many small shops in that town go out of business”. [lines 44-45]The implication of this evidence is that TM’s decision to open new stores may be perceived as being anti-competitive. Is this criticism justified? On the one hand, TM surely has the right to open stores in what ever location (place) it feels is justified from a commercial point of view. If the competition authorities in each international market believed that the store opening programme was anti-competitive, they would take action.On the other hand, is there more that TM could do to alleviate the damage to local retail businesses when it opens a new store? We are told TM has a “poor record of corporate social responsibility’ [line 46], suggesting that TM senior management are relatively unconcerned about any stakeholder group other than shareholders.Consider another possible issue: is it ethical to have a market positioning offering the lowest prices in the market?On the one hand, there is nothing to stop TM from offering everyday low prices that are lower than competitors, particularly if its scale and efficiency enables it to do so.However, it TM is not permitted to undertake “predatory pricing” – to deliberately offer pries so low as to be designed to discourage new entrants into a market (which is both unethical and illegal).4.2 Marketing planning (including introduction to the four PsWith reference to TM, analyse which element of the marketing mix (4 Ps) is most important in enabling it to achieve its stated main aim [4 marks, AO2, SL/HL]The relative importance of the elements of the traditional marketing mix for TM might be summarised as follows:Mix ElementImportance for TM & Justification (in relation to stated aim)ProductHigh Importance: the extended TM hypermarket format has increased the importance of product range, and the emphasis on negotiating favourable supplier terms and operating “lean” with JIT shows how important product is to TM.PriceVery High Importance: Achievement of TM’s aim can be clearly measured and monitored by comparing TM’s prices for comparable products with key competitors (including those online). The price positioning goes right to the heart of how the business is managed and the organisational culture of TM.PromotionMedium Importance: Promotion for TM is relatively straightforward. The promotional mix simply needs to emphasise the lowest-price message. There is nothing complicated about this – the message just needs to be delivered clearly and consistently.PlaceHigh Importance (and growing): It is often said that retail is all about location, location and location, so Place will always be important. However, you might argue that this is likely to increase in importance due to the significant changes happening in supermarket retailing due to e-pare and contrast the unique selling point (USP) of Henri Trouve’s family hardware business and that of the TM hypermarket in St. Laurent. [4 marks, AO3, SL/HL]A USP is a point of differentiation that, if sustained, can provide a source of competitive advantage.Henri Trouve’s family hardware business:USP was customer serviceKey features: Deep product knowledgeTime taken to understand customer requirementsService ethos rather than a “selling ethos”Price: likely to be higher than available elsewhere, but customers appreciated the expert advice, customer care and attention.TM Hypermarket:USP is lowest prices in the market because TM is the biggest in the marketKey features:Widest product range (one-stop shop)Unbeatable pricesLittle expert service; employees there to achieve sales4.3 Sales forecasting [HL only]Describe two difficulties that TM may experience when it tries to forecast sales for its stores around the world [6 marks, A3, HL]Potential difficulties include:Changing state of the Economy in different markets: sales forecasting for a supermarket retailer generally takes into account (to some extent) the economic conditions in market and potentially within different regions of each country. TM is a global MNC and this information may not necessarily be reliable in each country.Variable impact of e-commerceA factor that will potentially significantly affect the reliability and accuracy of sales forecasts for TM is the extent to which e-commerce is being offered (and adopted by customers) in each geographical market. This method of retailing is developing rapidly in most developed and developing economies, with a particular feature being the disruption caused by new market entrants. For example, France, how might TM’s sales forecasting be affected if Amazon repeats what it has done in the UK and entered the grocery food market?TM’s Centralized Approach to ManagementTM has a highly centralized approach to decision-making, Yet, for sales forecasting in an MNC to be reliable, it requires detailed input and insights from local managers. Given that TM appears to discourage communication between the layers of the organisational structure, there has to be a risk that difficulties will arise if local management do not feel able to input into, and challenge, sales forecasts for their stores and/or areas.4.4 Market researchExplain the importance of market research for TM as it actively investigates development of new markets in Asia [4 marks, AO2, SL/HL]Market research is usually an essential part of the analysis and evaluation of key commercial decisions (e.g. new product launches, promotional strategies, location decisions).Research is particularly important for TM’s market development strategy in Asia because:Asia is a vast continent containing hugely diverse economies, markets and culturesCustomers needs and wants are known to be significantly different from South America and Europe; an effective marketing mix by TM in Asia is likely to be significantly “localised” to reflect different customs, tasters, preferences etc.TM is highly likely to face intense competition in its chosen Asian markets, not just from MNCs with the same global ambition (e.g. Walmart, Tesco, Carrefour) but also leading domestic retail chains who will enjoy significant advantages such as brand awareness and loyalty, the best existing locations and a network of logistics (suppliers, warehousing etc.) 4.5 The four Ps (product, price, promotion, place)To what extent do you think that product has become more important than price in TM’s marketing mix? [6 marks, AO3, SL/HL]Possible reasons why product may have become more important than price:Once the market has got used to the lowest-price positioning, there is little extra benefit to TM sales and profits other than maintaining a price advantage over competition retailers.Further price cuts are unlikely to enable TM to significantly increase revenues and profits. As market leader, TM will already have a large percentage of the potential customer based.TM will face increasingly intense price competition (particularly from online retailers) which may erode its price advantage. Having a better and wider product range may, then, become a more effective source of differentiation from the competition.Possible reasons why price is still more important than product:Economic downturn in many of TM’s core markets means that customers are increasingly looking for value for money. For example, the rise of the discount retailers such as Aldi, Netto and Lidl across Europe suggests that price is increasingly important factor in how competitive a supermarket is.Price remains at the core of what TM is all about. The entire business is organised around operating efficiently so that low prices can be offered.With reference to TM, describe two ways in which the operation of the business enables it to compete effectively with a low-price strategy. [4 marks, AO1, SL/HL]Ways in which operations support the TM pricing strategy include:Lean production methods = lower stockholding costsOutsourcing to external suppliers = lower cost of salesWages kept to a minimum & no mention of any performance-related incentives = lower fixed costsSqueezing suppliers for the most favourable terms based on TM’s market scale = higher gross profit marginsExplain two advantages for TM of expanding its product range into the services market [4 marks, AO2, SL/HL]Potential advantages for TM include:Consistent with delivering a one-stop shopping experience for hypermarket customers: a logical extension of broadening the product range to include non-food items such as automotive parts and office suppliesHypermarkets are very large locations with significant 4.7 International marketing [HL only]Outline two reasons why TM’s attempts at external growth through franchising may have failed [4 marks, AO1, HL]Possible reasons include:TM’s organisational culture and structure:A highly centralized and autocratic is somewhat inconsistent with running a successful franchise-based business. Whilst a franchisee will accept that it needs to follow the business format it is licensed to operate, successful franchisors like McDonalds, Subway and Costa encourage their franchisees to be entrepreneurial. For example – supporting initiatives by stakeholders such as the local community, running local promotions. That requires a degree of decentralisation so that franchisees can have some freedom (empowered) to run their TM stores. TM’s market leadershipIt is possible that the TM’s market share is so strong in many locations that new stores operated by franchisees struggled to gain market share because of competition from local TM hypermarkets. So the franchised stores may have suffered the same fate as Henri’s father’s hardware store!Store Format of the FranchisesWe are not told what kind of stores TM attempted to open as part of its franchise-based external growth strategy, nor when the strategy was implemented. However, it is quit unusual for franchised retail stores to be of a size anywhere near that of a hypermarket. Much more likely is that the franchised stores were small in size (perhaps similar to the traditional convenience store format such as Spar). With reference to TM, outline one opportunity and one threat of entering new markets in Asia [4 marks, AO1, HL]Key opportunities:China – rapidly growing middle class, increasing their consumer spendingNew markets in Asia are enjoying relatively faster economic growth than EuropeSubstantial populations in AsiaExploits TM global brand name in potentially attractive marketsKey threats:Existing competition – hypermarket formats already established by domestic competitors and existing MNC competitorsE-commerce: use of online shopping for traditional grocery products already well-established in many Asian marketsLegislation / Regulation: significantly different regulatory environmentDiscuss two ways in which TM could pursue a strategy of entering new markets in Asia [4 marks, AO3, HL]Possible approaches:Sell direct to customers using e-commerce only: an internal growth approach: this is a low-risk approach for TM and is quite easy to do using existing e-commerce platforms (particularly in China using Tmall). Enter into a Joint Venture with existing hypermarket operators in target markets: this also reduces the risk for TM and would enable it to learn more about what it takes to be successful in the new markets. Joint Ventures need careful negotiation and planning, particularly when it comes to choosing the right JV partner. Tesco used this approach when it entered the supermarket sector in Thailand and South Korea.Acquire an existing retailer in the target market: a much higher risk approach (assuming it is permitted by the competition authorities in the target market). However, an appropriate takeover would enable TM to enter the market quite quickly and take-on potentially quite a large market share overnight + gain control of the required logistical infrastructureOpen new stores in the target market: another internal approach. This would still be high risk and it is unlikely to result in a high market share in the short term. 4.8 E-commerceExplain two ways in which TM might benefit from using e-commerce [4 marks, AO2, SL/HL]Reaching new customers: e-commerce may enable TM to extend its customer base beyond the core customers who prefer shopping in the hypermarkets. This would support a strategy of market development. For example, many small businesses are likely to buy their office supplies online rather than at hypermarkets. If TM were able to offer the lowest prices in the online office supplies market (taking on global competitors such as Amazon and Staples) then it might enjoy significant revenue growth.Further expand TM’s product range: E-commerce could enable TM to expand its product range even further, beyond the goods and services it provides in the “one-stop” store environment. This would support a strategy of product development. For example, it might be able to launch an online clothing and footwear range, or expand further into financial services (e.g. personal savings products). Make more efficient use of existing stores: offering e-commerce might enable TM to make more effective use of the store capacity and infrastructure. For example, online orders could be “picked” by TM store staff from existing store inventories, which would improve labour productivity.Describe two threats to TM’s position in the market arising from the increased use of e-commerce [4 marks, AO2, SL/HL]Potential threats include:Online competitors may be able to use dynamic pricing to be able to match or beat TM’s lowest-price market positioning. For example, Amazon uses sophisticated dynamic pricing (where prices are changed many times based on market conditions) to ensure that its Amazon Fresh and Amazon Pantry online groceries offer prices that at least match the best prices offered by key competitors.More consumers will switch to online shopping: can TM afford not to introduce e-commerce? In nearly all consumer markets, the proportion of sales generated using e-commerce is rising fast. TM’s major competitors in each geographical market are likely to be making full use of e-commerce. So if TM does not respond, it is likely to suffer from declining market share.UNIT 5: OPERATIONS MANAGEMENT5.1 The role of operations managementAnalyse the importance of efficient operations management for TM [6 marks, AO2, SL/HL]Operations management is concerned with how a business obtains and organises the resources necessary to deliver the product or services. This involves making choices about how to implement and coordinate all aspects of operations so that a business can operate efficiently and in a cost-effective way.For TM the most important role of operations management is to support the main aim of having the lowest prices in the market.That means that operations management has to ensure TM is able to benefit from:High labour productivity – since labour costs are traditionally a high proportion of retail operating costs. Operations management therefore needs to work closely with Human resource management.Optimal locations: retail space is also a significant part of retailing operating costs. So TM needs to ensure that it trades from cost-effective locations.Efficient use of retail space: the key operations measure here is revenue per square foot; this needs to be maximised in order for TM to operate cost-effectively. For example, it may be that more space in each store needs to be allocated to the new services offered if they produce higher returns.5.2 Production methodsWith reference to TM, describe two ways in which the greater use of customized production might be an opportunity or a threat [4 marks, AO1, SL/HL]Customized production involves the personalisation of products based on specific customer requirements. This is much easier to achieve now due to the integration of e-commerce into manufacturing processes.Potential opportunity: offer personalisation options for customers in-store: e.g. TM could launch a clothing product range that enables customers to personalise their requirements during a store visit and then have the custom-produced garments delivered to their homes.Potential threat: global product manufacturers will be able to use customized production to enable customers to buy directly from them rather than buy from retailers.5.3 Lean production & quality management [HL only]With reference to TM, outline one advantage and one disadvantage of using lean production methods [4 marks, AO1, HL]Lean production is an approach to business management that focuses on cutting out waste, whilst ensuring quality. This approach can be applied to all aspects of a business – from design, through production to distribution. Lean production aims to cut costs by making the business more efficient and responsive to market needs.Possible advantages for TM:Lean production a key part of a strategy of cost minimisation. All aspects of operations are scrutinised to minimise costs to enable the business to maintain its positioning of lowest market pricesHelps support and reinforce the organisation culture at TM. It is often said that the most successful low cost operators in any market have a culture where “low cost” is embedded in the values, beliefs and decision-making. Possible disadvantages for TM:One of the chosen methods of lean production used by TM is just-in-time (JIT). This is a complex stock management approach that requires very close coordination with suppliers to help ensure that buffer stocks are at a minimum. A risk for TM is that the JIT systems break down and its stores are not able to offer products that are in high demand, thereby leading to lower revenues and store profits if this is sustained and significant.Examine the importance of lean production for TM [6 marks, AO3, HL]There is no doubt that lean production methods used by TM are entirely consistent with its stated aim of having the lowest prices in the market. Implemented properly, outsourcing and JIT can significantly reduce some store operating costs and reduce the costs of holding buffer stocks.However, lean production is just one part of TM operating at low cost. Other factors are perhaps more important in enabling TM to be the lowest cost operator in its market. In particular:Economies of scale: TM’s market leadership is perhaps the most important factor in supporting its operational objectives of efficiency and lowest cost.Relationships with suppliers: this too is very significant. A hypermarket will normally benefit from quite a high stock turnover, regardless of whether JIT is used to manage stock levels. Of far greater impact on gross profit margins and units costs are the prices that TM agrees to pay its suppliers.5.4 LocationSuggest two possible benefits and drawbacks of TM using outsourcing to cut cost of sales [4 marks, AO2, HL]Outsourcing is one of the methods of lean production used by TM. Outsourcing involves the delegation of one or more business processes to an external provider, who then owns, manages and administers the selected processes to an agreed standard.Benefits:Outsourcing enables TM to focus on the activities where it has competitive advantage. For example, a store may outsource store cleaning services, or store security to specialist suppliers. These services are likely to be sourced by TM at very low rates given its bargaining power and it will be much cheaper than employing people directly.TM may benefit from specialist providers who can deliver better customer service. For example, it may be that TM has outsourced the provision of pharmacy services in TM hypermarkets to specialist providers, which will benefit customers.Drawbacks:As with all supplier arrangements, there is a risk of poor quality, particularly if TM chooses its suppliers purely on the basis of price, not quality!TM may have to deal with staff redundancies due to the use of outsourced providers.5.5 Production planning [HL only]Analyse two benefits to TM of using Just-in-time (JIT) [4 marks, AO2, HL]JIT is a system used in lean production which means that inventories (stocks) only arrive just as they are needed. Two likely benefits:Less slow-moving or obsolete stock: supermarkets will always have to offer further price reductions to clear products that are proving hard to sell, towards their “sell-by’ date or at the end of key seasonal periods. However, JIT should mean that there is less of such stock that needs discounting or throwing awayThe benefit of lower working capital: across its entire store portfolio TM will be holding a substantial value of stocks. Even a relatively small reduction in the total amount held in buffer stocks could help significantly reduce the total cost of stocks held at any one timeExplain two potential problems that may arise for TM as a result of using JIT [4 marks, AO2, HL]Two potential problems are:Complexity for its suppliers: JIT will involve complex systems that interact with key suppliers to its hypermarkets. Suppliers will be required to deliver stocks to the hypermarkets as they are needed. This is a difficult task, since there will be products for which demand varies unpredictably and which might, therefore, run out of stock before the supplier can resupply the stores.Lost revenues as a result of buffer stocks not being available: TM has significantly expanded its product ranges. Whilst it is not clear whether JOT has been implemented for all these products, the much wider range of products is likely to increase the risk of “stock-outs”, particularly where there are sudden increases in customer demand, or a supplier experiences unexpected problems supplying all its TM stores.PRACTICE EXAM PAPER SLBUSINESS MANAGEMENTSTANDARD LEVELPAPER 1PRACTICE PAPER1 hours 15 minutes_________________________________________________________________________INSTRUCTIONS TO CANDIDATESDo not open this examination paper until instructed to do so.A clean copy of the Business Management case study is required for this examination paper.Read the case study carefully.A clean copy of the Business Management formulae sheet is required for this examination paper.Section A: answer two questions.Section B: answer question 4.A calculator is required for this examination paper.The maximum mark for this examination paper is [40 marks].SECTION AAnswer two questions from this section.1.(a)With reference to TM, outline two key features of operating as a public limited company.[4 marks](b)Complete a PESTLE analysis for TM highlighting key issues facing the business.[6 marks]2.(a)With reference to TM, outline two differences in the way that services and goods are marketed.[4 marks](b)With reference to TM, compare and contrast the motivational theories of Taylor and Pink.[6 marks]3.(a)Explain two benefits of having a high market share in the markets in which TM operates[4 marks](b)Analyse the importance of efficient operations management for TM.[6 marks]SECTION B4. Henri has now analysed the financial information for TM provided for his MBA class and has calculated some financial ratios based on this information as shown below:Table 1: Extracts from Financial Information on TM provided in MBA Case StudyAll figures are in €m20142015Revenues78.682.5Gross Profit39.144.3Net Profit3.44.2Current assets3.43.1Current liabilities10.514.2Trade creditors8.410.2Average stocks1.51.6Table 2: Financial Ratios Calculated by Henri Trouvé20142015Gross profit margin (%)49.7%53.7%Net profit margin (%)4.3%5.1%Current ratio0.320.22Acid test ratio0.220.11ROCE (%)18.4%20.3%Henri is shocked at his ratio calculations and is concerned about the overall financial position of TM.(a)Define the term gross profit margin[2 marks](b)Describe two benefits to TM from using outsourcing to cut cost of sales[4 marks](c)In the context of TM, explain two ways in which the financial accounts of the company would be of interest to TM’s external stakeholders[4 marks](d)Using the financial information provided in Table 1 and Table 2 above and the case study, examine the financial position of TM and suggest ways in which it might be improved[10 marks]PRACTICE EXAM PAPER HLBUSINESS MANAGEMENTHIGHER LEVELPAPER 1PRACTICE PAPER2 hour 15 minutes_________________________________________________________________________INSTRUCTIONS TO CANDIDATESDo not open this examination paper until instructed to do so.A clean copy of the Business Management case study is required for this examination paper.Read the case study carefully.A clean copy of the Business Management formulae sheet is required for this examination paper.Section A: answer two questions.Section B: answer question 4.Section C: answer question 5.A calculator is required for this examination paper.The maximum mark for this examination paper is [60 marks].2 -SECTION AAnswer two questions from this section.1.(a)With reference to TM, outline two key features of operating as a public limited company.[4 marks](b)Complete a PESTLE analysis for TM highlighting key issues facing the business.[6 marks]2.(a)With reference to TM, outline two differences in the way that services and goods are marketed.[4 marks](b)With reference to TM, compare and contrast the motivational theories of Taylor and Pink.[6 marks]3.(a)Explain two benefits of having a high market share in the markets in which TM operates[4 marks](b)Analyse the importance of efficient operations management for TM.[6 marks]SECTION B4. Henri has now analysed the financial information for TM provided for his MBA class and has calculated some financial ratios based on this information as shown below:Table 1: Extracts from Financial Information on TM provided in MBA Case StudyAll figures are in €m20142015Revenues78.682.5Gross Profit39.144.3Net Profit3.44.2Current assets3.43.1Current liabilities10.514.2Trade creditors8.410.2Average stocks1.51.6Table 2: Financial Ratios Calculated by Henri Trouvé20142015Gross profit margin (%)49.7%53.7%Net profit margin (%)4.3%5.1%Current ratio0.320.22Acid test ratio0.220.11Creditor days86 days102 daysGearing64%78%Henri is shocked at his ratio calculations and is concerned about the overall financial position of TM.(a)Define the term gross profit margin[2 marks](b)Describe two benefits to TM from using outsourcing to cut cost of sales[4 marks](c)In the context of TM, explain two ways in which the financial accounts of the company would be of interest to TM’s external stakeholders[4 marks](d)Using the financial information provided in Table 1 and Table 2 above and the case study, examine the financial position of TM and suggest ways in which it might be improved[10 marks]SECTION C5. The Board of Directors of TM are considering two of the following options for TM’s initial expansion into Asia. They have set an objective of achieving overall market leadership in China by 2030, recognising that will require sustained long-term investment.Option 1: Joint venture with a leading hypermarket retailer in ChinaLikely overall investment for TM: €10.0bnEstimated Average Rate of Return for TM: 16%Payback period for TM: 8 yearsProjected impact on market share in China by 2020: +10%The Board has identified China as the most attractive market in Asia for TM’s strategy of international market development. The Board is wary from the experiences of other MNC supermarket chains such as Walmart and Tesco who have struggled to gain market share in China and achieved very low levels of average rates of return on their substantial investments opening hypermarkets in China.TM has been approached by Wumart Stores (“Wumart”) proposing a joint venture. Wumart has about 430 stores in China, 330 of which are convenience stores and 100 of which are hypermarkets. The stores are located primarily in the Chinese cities of Beijing, Tianjin and the cities of Hebei province. The company's stores sell products that range from food to general merchandise from Chinese and Western brands such as Procter & Gamble, Unilever, and Colgate. As part of the plan, TM would outsource all operations and HRM of TM-branded stores in China to Wumart in return for a 50% share of the profits.Option 2: Launch of an online TM shopping site targeted at consumers in ChinaLikely overall investment for TM: €2.0bnEstimated Average Rate of Return for TM: 35%Payback period for TM: 3 yearsProjected impact on market share in China by 2020: +2%The use of online shopping for grocery and other traditional supermarket products is very popular in China, particularly amongst younger adults who expect to do most of their shopping online. Indeed, many supermarket chains in China are now closing stores and focusing their investment on e-commerce.The option being examined by TM involves setting up a dedicated TM-branded online store hosted on the popular Tmall e-commerce platform. TM would sell a range of its most popular global branded consumer products, aiming to offer the lowest-prices. TM would work with leading Chinese logistics businesses to handle all warehousing and delivery requirements. Using information from the case study and the additional stimulus above, recommend which option 1 or 2 is best for achieving TM’s objective of market leadership in China within 10 years.[20 marks] ................
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