Question
Refer to the Radeki de Dovnic Manufacturing case study
If RDM builds a new production facility in Europe, an immediate consequence will be an increase in capacity. At current levels of output this would lead to a reduction in capacity utilization. The current output of RDM’s factory is 20 000 units a year, with a productive capacity of 21 000 units a year before the new facility is built. If the new production facility is built, the greater capacity for the whole business will, at current levels of output, result in the capacity utilization falling to 50 % until production at the new facility starts.
Xi, the marketing manager, suggests that this increased capacity provides the opportunity for market development to be achieved by entering the United States (US) market.
The US market has similarities with Europe, with an aging population and low birth rate. Demand for customized healthcare devices is high. However, the healthcare system in the US is very different, with a much greater role for private sector healthcare compared to Europe, where much of the healthcare is state funded. In the US, 18 % of gross domestic product (GDP) is spent on healthcare compared with an average of 11 % in Europe. Advertising spend in the US is very high for the typical healthcare equipment business, which uses TV and the internet to reach individuals, whereas in Europe healthcare equipment businesses typically negotiate with government organizations. Average incomes in the US are higher than in Europe. Competition in the US is very high, although some major healthcare equipment businesses dominate the market. Industrial/ employee relations in the US are generally more decentralized than in Europe, with a lower level of unionization.
To assess the best way to enter the US market, some senior managers may have to move to the US and Xi may need to recruit some new staff in the US with specialized knowledge of US laws and regulations, as well as some additional marketing employees. Xi is aware that industrial/ employee relations are different in the US. Existing staff will have to get used to new ways of working and are concerned about having to work with new staff in the US.
a. Describe one industrial/employee relations method used by employers.[2]
b.i. Using the resource, calculate the current capacity utilization rate at $R D M$ ‘s factory.[1]
b.ii.Calculate the increase in capacity at RDM if the company builds a new production facility (show all your working).[3]
c. Explain two possible reasons for $R D M$ employees’ resistance to change if $R D M$ enters the US market.$[4]$
d. Using information from the case study and the resource, discuss the opportunities and threats for RDM of entering the US market. $[10]$
▶️Answer/Explanation
Ans:
a. Types of industrial/employee method used by employers in industrial/employee relations include:
Collective bargaining/ negotiations: management negotiate with worker representatives /trades unions.
Threats of redundancies: Such threats can break the will of workers and their representatives, as they consider the effects of permanent loss of position.
Changes of contract: flexible working, productivity agreements.
Closure and lockouts: The owners shut down the place of employment so that the workers cannot enter to perform their job. This method is rather extreme.
Recognising /encouraging unions can help both employees and employers
Arbitration
Do not allow methods used by employees e.g. creating a union as this is done by employees not employers, strike action. Nor methods used by employers that do not involve direct engagement of workers such as delegation, leadership style, team building etc.
Award [1] for identification of a method and [1] for a description. Candidates do not have to word exactly as above. No application is required but might be helpful. Maximum award: [2].
b.i. Capacity utilization rate is $\frac{20000}{21000} \times 100=95 \%(95.2 \%$ but allow rounding)
Award [1] for correct answer.
b.ii.Capacity utilization is now $50 \%$ so $50 \%=\frac{20000}{\text { new capacity }} \times 100$
so new capacity $=20000 \times \frac{100}{50}=40000$ units
Increase in capacity is 19000 units
Award [3] for correct answer with working. ‘Units’ not necessary. Working wrong only award [2].
Award [2] for correct answer without workings or wrong working or good attempt (e.g 40,000, or 40,000 units)
Award [1] for an attempt with workings. 95.2 – $50 \%=45.2 \%$ (allowing for rounding) can be awarded [1]
Do not reward formula only.
c.
Reasons for resistance to change could include:
new ways of working
Having to work with new staff in the US
(these first two points are simply lifted from the additional material so would have to be developed for the second mark(s))
Some employees may have to move to US (disruption, culture clashes etc).
There could be disruption. (no supporting context)
There would be newly recruited employees in US, maybe on higher salaries which might cause resentment.
Newly recruited employees may not fit into the culture which may be difficult for existing employees
Low level of unionization in US which European employees may not like
Financial reasons – costs of moving etc
Accept any other relevant reason.
Mark as a 2 + 2.
Award [1] for an appropriate reason [1] for application/context. Award a maximum of [2] for each reason. Maximum award overall: [4].
d.
Refer to Paper 1 markbands for May 2016 forward, available under the “Your tests” tab > supplemental materials.
Opportunities:
Massive market.
US spending on healthcare much higher.
Strong demand.
High incomes in US.
Threats:
Advertising spend in the US is very high
Availablity of suitable people to recruit
Competition very high in US
Domination of market by big US companies
US industrial/employee relations and cultures may cause disruption.
OPPORTUNITIES AND THREATS SHOULD BE EXTERNAL TO RDM
If candidate considers all four elements of SWOT only reward for that part of the answer relevant to opportunities and threats.
Accept any other relevant opportunity or threat.
Marks should be allocated according to the paper 1 markbands for May 2016 forward section B.
For an answer with no effective use of context (Theoretical answer) award maximum [3].
For an answer that only looks at strengths and weaknesses (internal factors) award a maximum [3]
Award [4] if opportunities and threats are presented as an undeveloped list.
For an answer that only looks at opportunities or only looks at threats, award up to a maximum of [5]. At top end context has to be good.
Both opportunities and threats considered but descriptively max {6}
Both opportunities and threats considered, good use of evidence, particularly from section B, but no effective conclusion/evaluation award a maximum of [8].
For [10] marks a fully supported conclusion/evaluation with good use of evidence, particularly from Section B.
Question
Refer to the Ducal Aspirateurs case study (DA)
There are several important items to be discussed at DA’s board meeting, three of which are outlined below.
Item 1: Budgets. DA produces its budgets based on the functional areas of the business. For example, the Marketing, Production, Innovation and Corporate Social Responsibility (CSR) Departments are all separate cost centres. Pierre is proposing that budgets should be more detailed so that, for example, each of DA’s products has its own cost centre and each separate innovation project is also a cost centre.
Item 2: Recommendations from the management consultants. The management consultants propose bringing DA more up to date with employment practices by replacing the many benefits that employees get with a low basic pay and a profit-related bonus, and charging market rents for the housing in Ville d’Ablet. There will also be penalties on employees for failing to meet targets. The CSR department are opposed to this idea because they believe it will change the culture of the business, which has built up over many years.
Item 3: The manufacture of rechargeable batteries used in cordless products. DA currently makes its own rechargeable batteries. In 2019, it made 10000 batteries. The variable cost is € 15 per battery and the fixed costs are € 30000 . X L, a public limited company, is a major manufacturer of batteries. $D A$ has contacted $X L$ to manufacture the rechargeable batteries, which they will buy from $X L$ at € 17 each.
a. Define the term public limited company.
b. Explain one advantage and one disadvantage for DA of changing from function-based cost centres to the cost centres proposed by Pierre.
c.i. Calculate the difference between the cost for $D A$ to make the rechargeable batteries and the cost to buy them from $X L$.
c.ii.Suggest one other factor that $D A$ should consider before deciding whether to make the rechargeable batteries or buy them from $X L$.
d. Discuss the likely impact on DA’s organizational culture of the changes recommended by the management consultants.
▶️Answer/Explanation
Ans:
a
A limited company (incorporated), often a large business, with the legal right to sell shares to the general public (publicly traded). Its share price is quoted on the national stock exchange. It has limited liability (not necessary in answer but helpful)
References to ‘owned by the government’ or ‘local authorities can be rewarded as state involvement in plcs is common in some countries
Award [1] for a partial definition and [2] for a full, clear definition. This answer does not need to be in context and the definition does not have to use the words above. A full, clear definition needs more than just a reference to limited liability.
b.
A cost centre is a section of a business to which both costs and revenues can be allocated.
Currently cost centres are based on functional areas such as Marketing, HRM. Proposal is to base them on product (washing machines, vacuum cleaners, toasters etc,) and, where appropriate, project (eg click and fix).
Advantages of change include:
Easier to monitor and control production of products
Easier to see which products to drop, or modify
Easier to set targets – difficult for large functional areas
This is because functions are not directly related to products.
Disadvantages of change include:
Costs of implementing change
Disruption
Lack of continuity
Possible unwanted competition between products or projects.
Please note context may be a challenge. Candidates need to mention functional areas, products, projects that appear in the case.
References to budgets need to be linked to cost centres.
Award [1] for each relevant advantage identified and [1] for a description of how that advantage relates to AFA. Award [1] for each relevant disadvantage identified and [1] for a description of how that disadvantage relates to DA.
Where a candidate ONLY refers to existing cost centres max award [1], for understanding cost centres.
Where a candidate does not refer to new cost centres but does mention impacts of changing: max award [2].
c.i Cost to make = 10 000 × €15 + €30 000 = €180 000
Cost to buy = 10 000 × €17 = €170 000
Difference/Saving = €10 000 in favour of buying
Reward alternative methods of getting to the same answer e.g. by starting with unit costs and cost differences. Although working is preferable the question does not require it.
The answer € 10 000 also achieves [3]
Award [3] for a correct answer which must include €.
Award [2] for a correct answer with wrong units or reasonable attempt with units. E.g. not making a final subtraction.
Award [1] for an attempt.
If the answer does not appear in (i) but does appear in (ii) then (i) can be rewarded retrospectively – you will have to go back to mark entry for (i).
c.ii Factors could include:
Quality control issues (in-house easier to control)
Reliability of suppliers
Suitable workforce at DA
DA’s experience with manufacturing
Policy on core activities
Impact on employees
Impact on DA
Award [1] for any relevant factor – does not have to be in context. Do not reward relative costs.
d. Refer to Paper 1 markbands for May 2016 forward, available under the “Your tests” tab > supplemental materials.
Changes include:
Changing from an annual salary to low basic wage with bonuses
Reducing social benefits
Penalties for failing to meet targets
Some elements of changing to task culture from person culture (candidates do not need to name these culture types)
Culture currently based on:
Family business
Strong social values
Benefits to employees and their families such as housing, hospitals etc
Looked after employees in hard times
Recently included employee focused HRM strategies and management including consultation, redeployment
CSR
Focus is changed to managing costs. The switch is from ‘soft’ to ‘hard’ HRM, part of the culture.
The current ‘soft’ approach is more consistent with a family business than ‘hard’ HRM.
‘Balance’ could be achieved by comparing old and new methods; positive and negative impacts on stakeholders and/or DA.
Marks should be allocated according to the paper 1 markbands for May 2016 forward section B.
Theoretical answer or context limited to naming the business or simplistic development max [4].
Discussion of only either the existing situation or the new situation or only focuses on motivation, or on impacts other than on culture [5].
Discussion of culture with no clear balance [6].
Cultural change considered, good use of evidence, particularly from section B, but no effective conclusion award a maximum of [8].
For [10] the answer needs to be clearly relevant to DA, with good use of context, a clear sense of how culture will change and a clear conclusion.