Question
Creative Software Systems (CSS)
Creative Software Systems (CSS), a private limited company, designs custom software packages for public sector organizations. Ebru Aga is the sole shareholder, though she is considering an employee share ownership scheme.
For years, CSS managed its employees closely, setting individual targets for performance and requiring regular progress reports. Following Adams’s equity theory, CSS tied financial rewards to frequently measured performance outcomes. Though managers clearly explained to individual employees how additional financial rewards were linked to specific contributions they made, many employees still felt the system was unfair.
After reading Daniel Pink’s theory of motivation, Ebru reconsidered her management style and CSS’s system of financial rewards. She liked when Pink reported that a major American company allowed employees to work 20 % of their time on projects of their choice. Ebru implemented the following three changes:
• Change 1: Adopting a project-based organizational structure for CSS projects.
• Change 2: Eliminating performance-related pay (PRP).
• Change 3: Allowing employees to spend 20 % of their time on any project they wish, either one of CSS’s or their own “dream project”.
Employees’ reactions were mixed. Some employees were thrilled. They had many ideas of their own that they wanted to explore. Other employees, however, did not like the change. In the 20 % of their time given to any project they wished, they chose to work on projects given to them by CSS. They felt it was unfair. Although they were advancing important projects of the company, they would no longer get performance-related pay (PRP), while others spent their time on projects that might not contribute to CSS’s profitability.
a.Define the term public sector.[2]
b.Explain one advantage and one disadvantage for CSS of introducing an employee share ownership scheme.[4]
c.Explain one advantage and one disadvantage for CSS of implementing a projectbased organizational structure (Change 1).[4]
d. With reference to Adams’s equity theory and Daniel Pink’s motivation theory, discuss Ebru’s decision to eliminate performance-related pay (PRP) (Change 2) and to allow employees to spend 20 % of their time on any project they wish (Change 3).[10]
▶️Answer/Explanation
Ans:
a. The public sector involves those areas of the economy that are provided by the government and typically include what is deemed government itself (local, regional, state, national) and the various services provided by government, including education, health care, public transportation, police, fire brigades and other functions.
Award [1] for a basic definition that conveys partial knowledge and understanding or if the candidate merely writes the formula for calculating contribution.
Award [2] for a full, clear definition that conveys knowledge and understanding.
b.
Advantages of introducing an employee share ownership scheme include:
• employees have a greater economic stake in the business and, thus, may be more motivated
• CSS has a means to offer additional compensation to employees that does not increase salary/bonus expenses
• employee share ownership plans usually decrease labour turnover and make it easier to recruit people.
Disadvantages of introducing an employee share ownership scheme include:
• management of CSS, Ebru, will have to answer to shareholders other than herself
• once the plan is in place, it will have administrative and legal costs
• if the business is not publicly traded, valuation of shares may prove difficult.
Accept any other relevant advantage or disadvantage.
Mark as a 2 + 2.
Award [1] for identification of an appropriate advantage/disadvantage and an additional [1] for an explanation and application to the stimulus. Application may not be merely nominal.
Maximum award per advantage/disadvantage: [2]
c.
PLEASE NOTE: Project based organizational structure is not included in the syllabus for 2024 exams onward, but question could be adapted for use with Matrix organization (2.2.1 Different types of organizational structure).
Advantages for CSS of implementing a project-based organizational structure include:
• improved communication between people with different areas of expertise
• sense of teamwork, which can increase motivation.
Disadvantages for CSS of implementing a project-based organizational structure include:
• blurred lines of authority, which may create confusing circumstances for employees
• often, project-based structures are more expensive than traditional structures, as there may be dual levels of management, one on the team and one over groups of teams
• potential for internal conflict within a team.
Accept any other relevant advantage or disadvantage.
Mark as 2 + 2.
Award [1] for identification of an appropriate advantage/disadvantage and an additional [1] for an explanation and application to the stimulus. Application may not be merely nominal.
Maximum award per advantage/disadvantage: [2]
d.
PLEASE NOTE: For 2024 exams onward, 2.4.2. Adams equity theory appears as Equity and Expectancy Theory and is HL only. Daniel Pink’s motivation theory is not included in 2024 exams onward. Related parts of this multi-part question may be used.
Adams’s equity theory asserts that employee motivation emerges out of employees’ perceived sense of fairness, both between the employee and the firm and among the employees. With respect to the firm, employees must believe that an equitable relationship exists between their inputs (hours work, effort, etc) and outputs (compensation, benefits, etc). With respect to other employees, an employee must believe that fairness exists: that there is an equitable relationship between the inputs of other employees and their outputs.
Daniel Pink’s theory of motivation rests on the notion of autonomy, mastery, and purpose. Money is not the chief motivator of professional level employees, but rather their desire for autonomy (or near autonomy) in the workplace, their ability to master their profession or skill set, and their sense of doing something with purpose beyond themselves.
The elimination of PRP could affect some employees’ sense of equity. If, before the elimination, employees had considered that an equitable relationship existed between inputs and outputs, they now might think that the relationship is no longer equitable, especially if they continued to work on CSS-assigned projects during their 20 % dream project time. Though elimination of PRP would save CSS money, it may negatively affect the motivation of some employees.
On the other hand, Daniel Pink’s theory helps to explain why some employees like the changes, especially the introduction of the 20 % dream project time. To these employees, money was not the most important consideration, but having the freedom and flexibility to pursue their own ideas. They would have, at least during the 20 % time, autonomy. The time would allow them to strengthen their skill set in areas where they were weak or to work on issues that played to the skills they had already mastered. And, by working on a dream project, they had a greater sense of purpose. Giving employees 20 % of their time to work on whatever they wanted has the potential to be costly in terms of CSS’s core activities. The question is whether it will sufficiently improve employee motivation to make up for the time lost or if it will lead to some valuable new products and services.
Accept any other relevant evaluation.
Marks should be allocated according to the Paper 2 markbands for May 2016 forward with further guidance below.
For one of the two motivation theories that is one-sided, award up to [3]. For more than one relevant motivation theories that is one-sided, award up to a maximum of [4].
If a candidate evaluates / addresses only one motivation theory, award a maximum of [5].
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.
Question
Healthy Start (HS)
Tom Donat started Healthy Start (HS), a national chain of stores preparing and selling healthy snacks, which are produced in batches. HS’s target market is teenagers and young adults. Tom was concerned about high levels of fast food consumption and youth unemployment. His vision statement for HS is: “To encourage life-long healthy eating habits and to train school leavers (drop outs) in acquiring work skills”.
HS hires many school leavers without qualifications. Because of the valuable social service that HS provides, an independent online media provider will feature HS in a new online reality TV show.
All employees, including managers, start at the lowest level of the organizational hierarchy and train on the job. Job enlargement, job enrichment and intrapreneurship opportunities are available. 20 % of all profits earned are put back into HS to finance these opportunities. Staff turnover is lower than the industry average.
Competition from global fast food restaurants has intensified. Their economies of scale mean that HS struggles to increase its market share. Online reviews indicate that some customers perceive HS’s snacks as healthy but overpriced and with small-sized portions.
Tom is considering two options:
Option 1: Implement flow production. HS will buy new technology and assign each employee to
a specific job on the production line. HS will increase portion sizes and keep prices the same.
Option 2: Implement a new social media marketing campaign linked to the new online TV show.
The campaign will focus on the health benefits of HS’s snacks.
a. Describe one role of a vision statement for $H S$.[2]
b.i. Explain how the following can benefit $H S$ :[2]
job enlargement
b.ii.Explain how the following can benefit $H S$ :[2]
intrapreneurship.
c. Explain two possible economies of scale available to global fast food restaurants but not $H S$.[4]
d. Discuss the two options that Tom is considering for $H S$ in response to the intense competition.$[10]$
▶️Answer/Explanation
Ans:
a. A vision statement for $H S$ is likely to help the organization set its short-term and long-term objectives. It is likely to act as an important driver for recruitment, selection and motivation of its young unskilled workforce made up of school leavers.
Award [1] for describing one role of a vision statement. Award an additional [1] when candidates apply their response to the stimulus.
N.B. Do not reward responses suggesting that one of the roles of a vision statement is to promote the business.
b.i. Job enlargement will increase the range of skills and tasks able to be performed by the school leavers who may lack direct experience of working in a national chain and/or batch production. As recruits will hopefully become future managers, it will be important for effective future leadership in the stores to have experience in all jobs offered by $H S$.
Award [1] for identification of an appropriate benefit and an additional [1] for an explanation of the benefit and application to the stimulus. Application may not be merely nominal. Be sure that the candidate is explaining the benefit to HS.
b.ii.PLEASE NOTE: Intrapreneurship is not included in the syllabus for 2024 exams onward. Related parts of this multi-part question may be used.
Intrapreneurship allows for risk taking, creativity and innovation within $H S$. Given the intense competition from the global fast food restaurants, the opportunity to develop new healthy snacks will be vital to maintain market share.
Award [1] for identification of an appropriate benefit and an additional [1] for an explanation of the benefit and application to the stimulus. Candidates do not have to define what a vision statement is. Rather, they should describe a role. For [2], candidates must also link that role to goals or aims.
Application may not be merely nominal. Be sure that the candidate is explaining the benefit to $H S$.
c. Possible economies of scale available to the global fast food restaurants include:
Marketing economies of scale: the global fast food companies are likely through their global reach to experience significant economies of scale in marketing/selling across a whole range of markets. HS is a national chain and will not be able to spread advertising costs, for example, across a whole range of markets. Unit costs of marketing will be much lower for the global restaurants.
Bulk-buying economies of scale: to develop and meet global demand and to fill supply chains, global fast food manufacturers are likely to achieve significant economies through the bulk-purchase of raw ingredients (a number of fast food manufacturers have vertically integrated with suppliers to ensure that logistics are in place). Again, unit costs of operations are likely to be lower than $H S$ ‘s.
Financial economies of scale: being present in global markets allows global fast food manufacturers to borrow funds for expansion at much lower rates than a national chain. It is indicated in the stimulus that HS finances its training and professional development through retained profits.
Accept any other relevant economy of scale.
N.B. Economies of scale may be without the exact name. For example, “bulk buying discounts” is rewardable. Candidates do not have to say purchasing economies of scale.
Mark as a 2 + 2.
Award [1] for identification of an appropriate economy of scale and an additional [1] for an explanation and application to the stimulus. Application may not be merely nominal.
Maximum award per economy of scale: [2]
The first option, which is to implement flow production, is likely to lead to an increase in production and productivity because of the new technology and specialized roles. Currently, HS uses batch production. With improved productivity, HS can increase its portion size without raising prices. As a result, HS may be able to compete more effectively with the global fast food manufacturers.
However, the introduction of flow production may result in a reduction in the opportunities for job enrichment and intrapreneurship. If the new production process is going to lead to specific jobs on the production, then apart from job enlargement or rotation, the current employees may become demotivated through a restriction on personal growth and development opportunities. Staff turnover may increase as employees seek more innovative or challenging work. It is likely to be expensive to implement flow production both in terms of the financing and inevitable changes in organizational culture at HS.
The second option may be quicker to organize and much cheaper. The online reality TV show will have established HS firmly in the minds of existing and potential customers. A social media campaign will amplify the brand value of HS and should increase market share.
However, measuring the success of social media on market share will be difficult even though the target market should be familiar with this method of promotion. The biggest factor against this campaign, however, is that as a competitive tool against the global manufacturers there will still be this perceived difference in portion size. A social media campaign will not address this aspect. In fact, there is a danger that negative response to the campaign make reduce market share even further.
Both of the responses have some merit, but it would appear that the first option is the most appropriate to tackle the issue of competition with the global fast food manufacturers. The changes in the production process will take some time to bed in and a few staff may leave to work for other snack food manufacturers who have more dynamic or challenging roles. However, the social media campaign will not close the perceived gap between the products offered by HS and those offered by their competitors and, thus, could backfire.
While the candidates are not expected to recommend an option (the question does not ask them to), they should come to conclusions and judgments (for top marks). Candidates may conclude that either option is better or they may conclude that HS should do both, given that Option 2 would not be very expensive.
Marks should be allocated according to the Paper 2 markbands for May 2016 forward.