Question
The Warriors
The Warriors are a soccer* club who perform well but have not won any trophies. Recently, The Warriors have had above average turnover of managers, increasing time spent on recruitment. Player turnover has also been higher than that of other clubs.
Dave Atkinson, owner and former player, is an autocratic leader who denies blame for the high manager and player turnover. He publicly criticizes players. However, fans adore Dave. He was a successful player, supports the fans and is committed to corporate social responsibility (CSR). He has:
reduced ticket prices to the lowest in the league
provided free, healthy snacks for junior supporters
donated 20 % of The Warriors’ profits to local schools to encourage young people to play sport.
After a recent poor performance, Dave demanded that all players donate 50 % of their pay for that match to good causes. Two new players used social media to complain. In response, Dave threatened to cancel their contracts. The other players refused to turn up for training to show solidarity. Dave then locked the players out of the stadium.
This controversy comes at a critical time for The Warriors. With a dynamic new manager, they have their first chance to win an important final and with it significant financial gain, which is needed to support corporate social responsibility (CSR) and upgrade spectator facilities. On social media, the fans have asked Dave not to enforce the lock-out.
Dave wants to resolve the conflict and privately regrets the lock-out. He is angry with the team but wants to increase The Warriors’ corporate social responsibility (CSR). Without wishing to appear as a weak leader, he asked another popular former player for advice.
* soccer: football
a.Outline two features of autocratic leadership.[2]
b.Explain one cost and one benefit of a high labour turnover of managers for The Warriors.[4]
c.Explain one cost and one benefit to The Warriors of committing to corporate social responsibility (CSR).[4]
d. Discuss two methods to resolve conflict for The Warriors other than a lock-out.[10]
▶️Answer/Explanation
Ans:
a.Decision making is carried out by an individual or select few individuals.
Communication tends to be one way only- top down.
Organization is characterized by a role culture.
Any other suitable feature outlined
Award [1] for each feature identified.
b.
Costs of a high turnover of managers include increased recruitment costs and a management system that may be confusing for the subordinates to follow if managers keep changing. This may have further motivational issues, as the work force may be unsettled and impact on the players’ performance.
From the stimulus, there is evidence that The Warriors recruitment costs are higher than desirable given the time spent looking for new managers. More costs will result in less funds being available to support The Warriors corporate social responsibility practices and risk Dave’s achievement- see bullet points in stimulus.
Player turnover has also been high, which may impact on teamwork on and off the pitch and reduces The Warriors chances for commercial success. There is also evidence in the stimulus that two new players who presumably have not gelled yet with the team, or The Warriors culture, are unhappy and complained on social media. This is bad publicity for The Warriors.
The benefits are that poorly performing managers are not allowed to make things worse for the club. Underperforming managers can be moved on and fresh thinking and ideas can be introduced. Dave who is actually very popular with the fans, will probably enjoy even further support from the fans if he removes underperforming managers or players quickly. The Warriors have not yet won a trophy and the appointment of a dynamic new manager has put them on the verge of winning a final for the first time.
Accept any other relevant benefit/cost.
While managers are technically employees, It is expected that the candidates apply the advantages/ disadvantages to the roles/ behaviour of the managers and/or possible impact on the players due to the changes in management.
Mark as 2 + 2.
For an identification or a description of one benefit/cost with or without application [1].
For explanation of one benefit/cost with no application [1].
For explanation of one benefit/cost and application [2].
Application must refer to the high turnover of managers for The Warriors.
c.
The costs to The Warriors of committing to CSR involve the opportunity costs. Reduced ticket prices and healthy snacks, etc, divert funds when the funds could be used to purchase improved players, hire more experienced managers or improve spectator facilities. CSR improves the image of the team off the pitch in the eyes of the stakeholders, but perhaps greater consideration should be given to what is happening on it.
The benefits of the commitment to CSR include brand development and loyalty through the eyes of its junior supporter group – an important group of longer-term stakeholders – that are willing to come and watch the games despite lack of success which ensures some financial sustainability of the club at a time when they are still waiting to win their first trophy.
The benefits/costs should refer/ apply to The Warriors and not to different stakeholders.
The impact on different stakeholders may be used as long as the final costs/ benefits refer to The Warriors.
Accept any other relevant cost and benefit.
Mark as 2 + 2.
For an identification or a description of one benefit/cost with or without application [1].
For explanation of one benefit/cost with no application [1].
For explanation of one benefit/cost and application [2].
Application must refer to The Warriors committing to CSR.
d.
Refer to Paper 2 markbands for 2016 forward, available under the “Your tests” tab > supplemental materials.
The question asks candidates to examine the stimulus and make reasoned judgements to suggest appropriate methods to resolve the conflict for The Warriors.
Candidates are expected to be familiar with:
Conciliation and Arbitration
Employee participation in industrial democracy
No strike agreements
Single union agreement
Given the stimulus, it could be argued that with an important final coming up and The Warriors being on the verge of winning their first trophy and given the lock-out, Dave is highly likely to push for non- strike agreement as any action such as strike action is likely to result in an irreversible negative impact and can easily be used by the players to send a message to Dave : they are serious about Dave’s actions but do not wish to jeopardize being in the final. The players have clearly had enough of Dave’s autocratic style and wish to see a change.
Dave and the fans are likely to be very worried as short term strike action is possible and could send a very serious message to stakeholders that the players’ dissatisfaction is real.
However, the players are unlikely to agree without some form of compromise from Dave and the realization that a strike or not regularly training can reduce the chance of success. Also, loss of earnings, fear of management response etc might facilitiate some conflict resolution.
Other methods could include conciliation and arbitration, where Dave will ask for an independent adjudicator to rule on the lock-out and other issues and bring both sides together. This, however, will take time and is a medium term solution and the final is approaching. Costs of organizing this could impact on The Warriors’ CSR.
Dave’s habit of impulsive behaviour towards his managers and staff indicate that he would not be able to see the value in this solution. Given the stimulus, this may be difficult, especially if the arbitrator rules against Dave’s decision and the decision is binding. The players might support this method but need to ensure that they are able to represent their case or have a representative.
Candidates can use conciliation and arbitration as two different methods provided that there is a clear explanation of the differences.
Industrial democracy
Dave could seek to modify his management style and allow greater employee participation and publicly promise not to be so harsh on players. There is evidence that he is willing to consult with a former player to sort out the lock-out. But we must ask the question of, given Dave’s autocratic style, how likely this modification would be given Dave’s track record. Dave’s management style has to change to be more democratic which might be challenging for him but acceptable for the players.
Dave is clearly a leader with a vision to do the right thing by his community. The conflict is affecting him, as he has admitted in private. He risks undoing some of the CSR that has put him in a favourable position with the supporters and in the absence of any trophy wins, he cannot afford to do this. It would seem that it would be in the best interests of the club and the fans to solve this conflict quickly. Dave will have to change his leadership style and allow greater employee participation. However, this could all change if The Warriors win this for the first time.
Students may also evaluate the single union agreement
A conclusion with judgment is expected.
The candidates should refer to methods of conflict resolution not actions/industrial relation that can be taken.
Please note that in the question, an example of industrial relation was given- a lock out hence some candidates may follow with other examples.
Candidates that refer only to industrial employee relations and not to methods of conflict resolution cannot reach the top mark bands – see below.
A balanced response is one that covers at least one argument for and at least one argument against each option.
Marks should be allocated according to the paper 2 markbands for May 2016 forward with further guidance below.
For one relevant issue that is one-sided, award up to [3]. For more than one relevant issue that is one-sided, award up to a maximum of [4].
For one relevant issue/ method that is balanced with sufficient depth award up to [5]
Accept methods/suggestions that are related to industrial democracy without naming the methods like- change leadership style, consultation/ discussion.
If the candidates provided just examples of industrial relations and not conflict resolution, but the methods are well covered/ evaluated award up to [6]
Award a maximum of [6] if the answer is of a standard that shows balanced analysis and understanding throughout the response with reference to the stimulus material but there is no judgment/conclusion.
Candidates cannot reach the [7–8] markband if they give judgment/conclusions that are not based on analysis/explanation already given in their answer.
Candidates cannot reach the top marks if there is no relevant reference/application to The Warriors.
Question
Cool Meals (CM)
Cool Meals (CM) produces frozen organic ready-made meals that are sold to food retailers throughout the country.
CM buys large quantities of organic ingredients from local farmers for its just-in-case (JIC) stock control management. It uses a cost-plus (mark-up) pricing strategy.
CM is known for its:
good-quality organic frozen meals, which are perceived as good value for money
flexibility with retailers in terms of quantity of meals supplied, credit given and efficient delivery at pre-arranged dates
corporate social responsibility (CSR) based on a long-term commitment made to farmers to purchase large quantities of organic ingredients every four months and pay a fair price promptly
CM has an excellent working relationship with farmers, who always prioritize CM’s requests in terms of quantity and delivery.
Recently, an economic downturn and increased competition, especially from non-organic frozen meal suppliers, has decreased demand for frozen organic meals.
The finance manager of CM, Kayleigh, provided the following financial information.
Table 1: Selected financial information for CM
Kayleigh is worried about the cash flow of CM and suggested the company changes the stock control method from just-in-case (JIC) to just-in-time (JIT). She is also looking at other strategies to improve CM’s financial position.
a. Define the term corporate social responsibility (CSR).[2]
b. Explain one advantage and one disadvantage for $\mathrm{CM}$ of using a cost-plus (mark-up) pricing strategy.[4]
c. Explain one advantage and one disadvantage for CM of changing its stock control method from just-in-case (JIC) to just-in-time (JIT).[4]
d. Using the financial information in Table 1, evaluate two strategies that $C M$ could use to improve its financial position other than changing to a just-in-time (JIT) stock control method.[10]
▶️Answer/Explanation
Ans:
a.CSR is the decision/attempt by a business to take responsibility for their action/activities by considering the interests of and the impact on a wide range of stakeholders in society. The business accepts the moral and legal obligations to society, not just to investors, that result from its operation.
Candidates are not expected to word their definition exactly as above.
Award [1] for a basic definition that conveys partial knowledge and understanding similar to the above answer. The first mark would typically come from awareness that there is some morale guidance.
Award [2] for a full, clear definition that conveys knowledge and understanding similar to the answer above. Individual stakeholders do not need to be named to gain full marks.
Do not credit an example.
b.
One advantage for CM of using a cost-plus pricing strategy is the fact that it will be CM that covers all the costs and ensures a certain percentage of profit to be made. It is evident given the figures above that CM makes a profit. CM’s ability to make a profit ensures long-term survival. CM’s meals are perceived as good value for money, hence the strategy is effective.
Given the increase in competition, CM can be flexible and reduce the margin set above the costs. Flexibility in pricing is an important factor when there is an economic downturn, as well as increased competition.
A possible disadvantage is that CM’s costs are likely to be higher than competitors who supply non-organic meals. Together with the customers’ unwillingness to pay a premium price during an economic downturn, CM might see a further fall in demand as seen in the fall in total revenue in 2018.
Accept any other relevant advantage / disadvantage.
Award [1] for each role identified and an additional [1] for development with application to CM. Award a maximum of [2] per advantage/disadvantage. [2] cannot be awarded per role if the response lacks either explanation and / or application.
For example:
For an identification or a description of an advantage/ disadvantage with or without application [1].
For explanation of relevant advantage/ disadvantage with no application [1].
For explanation of a relevant advantage/ disadvantage and application [2].
c.
A possible advantage for CM of changing the stock method from JIC to JIT:
As CM buys agriculture produce/ stock, these products need to be well stored and possibly refrigerated. Moving to JIT will significantly reduce costs of storage and spoilage. The gross profit margin, which has fallen by 2 %, is likely to increase rather than decrease. The very high current ratio of 2.4 will fall, as CM will not stock financially unproductive assets.
A possible disadvantage for CM of changing production /stock method methods from JIC to JIT:
Given the nature of the industry, the farmers are likely to prefer CM buying large quantities seasonally. Ordering lower quantities when needed might create problems/costs for the farmers, who might not prioritize CM any longer. CM will also lose its reputation for CSR based on long-term commitment to farmers to buy large quantities.
Moreover, given the unpredictable nature of farming, not having buffer stock could result in CM being out of stock with the consequences of losing clients/reputation and therefore revenue and profit. CM is likely to lose its reputation for flexibility with the retailers in terms of quantity and delivery if not enough agriculture produce is available.
Accept any other relevant/applicable advantage / disadvantage.
Award [1] for each advantage / disadvantage identified and an additional [1] for development with application to CM. Award a maximum of [2] per advantage / disadvantage.
[2] cannot be awarded per role if the response lacks either explanation and / or application.
For example:
For an identification or a description of an advantage/ disadvantage with or without application [1].
For explanation of a relevant advantage/ disadvantage with no application [1].
For explanation of a relevant advantage/ disadvantage and application [2].
d.
Refer to Paper 2 markbands for 2016 forward, available under the “Your tests” tab > supplemental materials.
It is expected that candidates make constant reference to/use of the figures and other relevant information in the stimulus combined with theoretical understanding of the advantages and disadvantages of the possible strategies.
Some of the possible strategies:
Reduce cash outflow. CM is facing cash flow crisis as seen by its deteriorating acid test ratio of 0.6. Without stock, which contributed to a high current assets ratio, CM cannot meet its long-term liabilities. It is evident that there is a big difference between debtors and creditors days. CM paid the farmers within five days in 2018, which is very quick and got significantly quicker – twice as fast – but received money from the retailers after 70 days in 2018, a significant increase from 50 days. CM is too generous to retailers with the credit term. Despite the fact that the relationship with retailers and the suppliers is CM’s competitive advantage, it is financially dangerous given the decreasing and very low acid test.
Seek alternative suppliers with cheaper agriculture produce might be seen as an extreme solution, as CM’s relationship with the farmers and the quality of the organic ingredients are key to its competitive advantage. It might take a long time to find different suppliers. Perhaps agreeing a longer credit term would be a better solution. Currently, CM pays after five days. One can assume that the farmers are likely to prefer a request for a longer pay period than a more drastic one.
Cut expenses. Gross profit margin is considerably higher than net profit margin for a manufacturing company and is getting worse over time. CM should look at some unnecessary expenses like marketing or administration. However, cutting salaries or staff might impact on the employees’ motivation and cutting marketing might create some difficulties in competing with the new competitors. However, going out of business due to lack of cash can be judged as a more significant threat.
Do not accept better stock control due to JIT.
Tighter credit control. Cash payments only for the retailer will clearly reduce/eliminate debtor days. The acid test ratio is worrying and CM must take immediate actions to solve this short-term liquidity problem. However, the relationship with the retailers might deteriorate and they might start buying non-organic frozen food from the emerging competitors. It appears that CM’s bargaining power with the retailer is weak and this option is unlikely to be successful. One, however, may argue that increasing the creditor days is unlikely to be met with much objection from its suppliers given the very low starting figures and long-established trust. CM might also be able to ask its debtors – the retailers – to pay sooner, even after two months, a demand which is likely to be seen as reasonable.
Changing pricing policy. CM can possibly reduce the price of its products. While CM may be more competitive and this strategy may work well given the economic downturn and the increased competition, CM may suffer losses or a reduction in profit. However, customers may perceive the frozen organic meals as even better value for money and increase demand. Moreover, perhaps CM can withstand a reduction in profit in the short term and we can see that CM is profitable. The liquidity issue ought to be sorted. CM should prioritize its cash flow problem first, then deal with a low acid test to generate cash to survive.
Enhance marketing to generate more sales in cash. CM might be able to reduce its increasing level of stock and reduce stock turnover in days, which has clearly deteriorated considerably from 20 to 40 days. However, any type of promotion may incur more expenses, especially in cash. The data indicates that the net profit margin is considerably lower than the gross profit margin, which indicates that CM does not control its expenses well.
Improved product portfolio. Perhaps CM should also consider non-organic meals or other types of products to enhance its portfolio and create more revenue streams. However, cannibalism can be created – CM may also have to compete more directly with the increasing number of providers of non-organic frozen meals. Market research has to be done so perhaps this option is not the most appropriate one in the short term.
Seeking alternative short term sources of finance. Accept relevant applicable suggestions like the use of overdraft and short-term loans, to deal with CM’s short-term liquidity crisis. However, these options are more of first aid rather than solution to some ongoing problems and are likely to be more theoretical given the lack of information in the stimulus.
It is not expected that the candidates cover all of the above.
Accept any other relevant arguments for and against any relevant suggested strategy.
Accept any other relevant examination.
A conclusion with judgment is expected.
A balanced response covers at least one argument for and one argument against each of two different strategies.
Marks should be allocated according to the paper 2 markbands for May 2016 forward with further guidance below.
For one relevant issue that is one-sided, award up to [3]. For more than one relevant issue that is one-sided, award up to a maximum of [4].
Award a maximum of [6] if the answer is of a standard that shows balanced analysis and understanding throughout the response with reference to the stimulus material but there is no judgment/conclusion.
Candidates cannot reach the [7–8] markband if they give judgment/conclusions that are not based on analysis/explanation already given in their answer.
It is expected that the candidate goes beyond just providing some relevant arguments for or against any suggested strategy and finish off with some conclusions and judgment.
Award a maximum of [4] marks if the answer, regardless of balance and judgment makes no reference to either the figures or headings in Table 1.
Candidates, in order to reach to the top markband, should show clear evidence of substantiation/well supported.
For the top markband, candidates must make use of the financial information given in their discussion.