ocr msdl f292 prerelease toolkit june 2013.pdf

OCR AS Business Studies (Unit F292)

Moffett Steel and Designworks Ltd (MSDL)

Summer 2013

Pre-release Case Study: Support Toolkit

OCR AS Business Studies – Unit F292 June 2013

© Tutor2u 2013 www.tutor2u.net

Contents

MSDL - Putting the Business in Context .................................................................................................................................................................................. 3

Introduction ............................................................................................................................................................................................................................ 3

Key topics ................................................................................................................................................................................................................................ 5

Exam Overview ....................................................................................................................................................................................................................... 6

Specification map .................................................................................................................................................................................................................... 7

Marketing ................................................................................................................................................................................................................................ 7

Accounting and Finance ........................................................................................................................................................................................................ 11

People in Organisations ........................................................................................................................................................................................................ 13

Production ............................................................................................................................................................................................................................. 16

Application Analysis & Evaluation ........................................................................................................................................................................................ 21

Key case study issues: potential exam style questions – application, analysis and evaluation .......................................................................................... 22

Exam Technique Advice ........................................................................................................................................................................................................ 26

Case Study Terms .................................................................................................................................................................................................................. 31



MSDL - Putting the Business in Context Introduction

Here are some key features and perspectives on MSDL which you should bear in mind as you revise for Unit F292 and prepare notes on the case study, and work through this revision toolkit. OCR F292 is concerned with the key functional areas of a business - and the way in which they interact. Let's look at the key business issues, as they relate to the four main functional areas (marketing, accounting and finance, people and operations):

MSDL is an engineering business which specialises in laser cutting intricate shapes from sheets of steel (lines 4-5). But this family-owned business clearly faces a number of problems for your consideration. From a marketing perspective this is best appreciated by its plunging sales. “In 2012, MSDL’s turnover was over £1.2m but this was a fall of over 10% on 2011 and forecasts for 2013 are for an even larger fall” (lines 7-8). MSDL have been unable to defend their prices, with customers successfully adopting “aggressive purchasing” (line 10) which is driving down the revenue the firm generates. MSDL have traditionally sold to a “close knit group of customers, mostly within a 50 mile radius of the firm’s location. However, business is gradually being lost to overseas competitors” (lines 14-15). “Faced with a declining order book, Lewis and Tony have decided to devise new products and target an entirely new market” (lines 21-22). The idea is to move in to the production of “high quality garden accessories” (line 25). The trouble with this plan is that it is agreed to be a “quantum leap into the unknown. The planned venture is … backed with only limited market research” (lines 30-31). The market research is of a questionable quality and “even setting prices has involved a lot of guesswork, based on the limited evidence” (line 33). In the words of the longest-serving supervisor, “these are brand new products that appear to have been plucked out of the air” (line 49). This rather haphazard approach extends to promotional planning which is in the hands of the firm’s administrative assistant, Bex, who is alarmed by the fact that “I know nothing about marketing” (lines 117-118). At the moment, “most of MSDL’s business over the years has been gained by word-of-mouth and a network of contacts (and) most promotional work consists of printing a few leaflets and popping them in the post to potential or past business customers” (lines 92-94). It’s something of an understatement when Bex says: “of course, you will need to do things differently when promoting the planters and sculptures … for a start, your customers are going to be completely different. The firms that buy steel consoles … are not going to be buying garden planters!” (lines 99-101). Tony, (‘the boss’), is reluctant to invest in marketing. He wants some “novel promotional ideas. We need to do this on the cheap … I want to keep costs down and a low risk strategy, bearing in mind our financial position” (lines 113-115). That financial position is described on the next page.



The information about finance and accounting supports the marketing analysis in the previous paragraph. “Net profit margins are being squeezed; down to less than 7% compared to over 10% two years ago” (lines 8-9). This squeeze on profits isn’t just about falling prices for the firm’s products, but “huge increases in raw materials costs” (lines 10-11). The June 2013 case study is very short of financial detail on MSDL. We know next to nothing about the firm’s balance sheet (which records a business’ assets and sources of funds) and its ability to remain solvent, beyond the statement that “we’re not exactly flush with cash” (line 109). This is a minor headache in your exam preparations – you should be ready to respond to some extra financial data on the day of the exam, perhaps by doing a break-even calculation using the price data in Table 1 for example. This is just in the nature of the F292 examination. 20% of your marks will be for the question assortment that appears in the Section A of the exam, which means that you have to revise the whole specification anyway.

People are important in all organisations, yet it seems very unlikely that Tony and his brother Lewis are getting the best from their staff, given their approach to leadership and management. Having come up with their dramatic new marketing proposals “with no consultation” (line 49), Lewis wonders “how to sell our proposed changes to the staff. You know a lot of them are rather set in their ways” (lines 39-40). The brothers think their dad was “far too friendly with the workers” (line 44). They plan to autocratically push through their changes having “presented it (to the staff) as a fait accompli” (line 52), meaning a done deal. There’s no doubt that Tony sees himself as ‘the boss’ (line 24) who angrily tells his team of supervisors “Lewis and I are in charge, this is not a democracy and if you or any of your people don’t like it, then you know where the door is” (lines 56-57). Tony seems to regard his staff with contempt, and assumes they only “turn up, do the job and take their pay cheque at the end of the month. In my opinion, the sort of staff we have don’t want anything else” (lines 60-62). The reaction from the firm’s supervisors is almost predictable, and they “will be recommending (to the shop floor staff) that they don’t accept (the proposed changes) without suitable compensation and support. We will consider all options open to us, including industrial action” (lines 68-69). Even after this troubling confrontation, Tony doesn’t seem bothered. After all, he thinks his staff “just want more money” (line 73), so they can be bought off later. He regards their concerns as “just having a moan” (line 76). Lewis is a bit more reflective and says, “actually Tony, it’s you who needs to think about your leadership style” (line 77). You will want to consider it too, as part of your exam preparations.

The MSDL case study raises operations issues that are almost certainly connected to the inadequate management of people in the business, and the cost pressures that the firm is under. Table 2 reveals serious quality problems that are resulting in high and rising reject rates and waste levels. MSDL are not operating as a ‘lean’ business, and are paying a heavy price as a result. Furthermore, “Lewis is concerned about the risks involved in going ahead with the new products without the support of staff” (lines 83-84). It’s even more troubling that he wouldn’t like to admit these concerns to Tony.



Lewis is “aware of the longer term benefits of increasing the size of the business” (lines 88-89), suggesting that he sees economies of scale arising out of growth. But these long term gains are somewhat overshadowed by the short term risks, and “Lewis is also worried about having to make such a financial commitment on raw materials and tools for products which have yet to be announced to any potential buyers” (lines 85-87). More fundamentally, MSDL need to raise their game, so that productivity rises to the point where the firm is better placed to be more competitive when compared to their rivals.

All told, MSDL face a wide range of problems that need to be successfully addressed if Lewis and Tony Moffat are going to enjoy celebrating future business success. This toolkit is designed to help you understand and appreciate these problems in more detail, and even propose steps the brothers could take to turn their fortunes around.

Key topics

We have summarised below what we believe to be the main Unit F292 topics addressed in the MSDL case study. These are:

• How can MSDL improve their marketing, so that “faced with a declining order book” they can successfully respond by “devising new products and target an entirely new market” (lines 21-22)?

• What changes will be necessary to defend profit margins - and even contribute towards a new goal on of a “20% profit margin” (line 34)? • What steps should be taken to improve leadership and management, which looks to be so important in averting conflict and raising performance? • How can the company boost productivity, reduce wastage, and successfully deliver new products?



Exam Overview Unit F292 - Business Functions

MSDL Pre-Release Case Study Toolkit

Exam Structure:

You will be issued with a clean copy of the case study in the exam. The paper is broken up into two sections, A and B:

Section A This will consist of a number of short-answer questions (totalling 18 marks) on any topics from the F292 specification. These questions will not relate to the pre-released case study on MSDL.

Section B This will consist of one ‘calculation/numbers’ question likely to be worth 4 marks and then four essay questions (likely to be worth 16-20 marks each). These four questions will test the four ‘functional areas’ of business set out in the F292 specification and will be specific to the case study and MSDL

Operations Management

Marketing

Accounting and Finance

People in Organisations

Module Length Raw Marks UMS

F292 2 hours 90 120



Specification map The MSDL case study can be broadly mapped with the Unit F292 specification as follows:

Specification Topic Case Study Topic

Marketing

Marketing Objectives

This topic covers a priority area for your consideration.

MSDL have got radical plans for the near future, but their marketing objectives are worryingly vague. The owners, Tony and Lewis have a fairly straightforward long term aim – the survival of their business and an ambitious “20% profit margin” (line 34). But in order to get there, it would be very helpful to have a series of smaller, intermediate targets to structure and measure their progress against.

Marketing objectives – indeed any objectives – are likely to be more helpful if they follow SMART principles. That means that they should be specific and measurable (rather than vague). In addition, it helps if they are achievable and realistic (rather than just hopes or aspirations). Effective objectives are also likely to be time specific and be matched against dates and deadlines. There is very little evidence presented in the case study to suggest that MSDL have marketing objectives that are clear and well developed along these lines.

“Faced with a declining order book, Lewis and Tony have decided to devise new products and target an entirely new market” (lines 21-22). The idea is to move in to the production of “high quality garden accessories” (line 25). The trouble with this plan is that it is agreed to be a “quantum leap into the unknown. The planned venture is … backed with only limited market research” (lines 30-31). The market research is of a questionable quality and “even setting prices has involved a lot of guesswork, based on the limited evidence” (line 33).

These significant weaknesses are very clearly spelled out in the case study over several paragraphs. It seems very likely that candidates will be asked to consider the huge risks MSDL are taking by radically diversifying, without clear marketing objectives to guide them and/or their staff. At the moment, almost the only stated marketing objective are ideas for a range of garden accessories and “if these are successful, more designs of … products can be produced and Tony also has plans for other products” (lines 28-29).




Market Analysis including segmentation, share and growth

MSDL currently focus on a small market segment, selling to a “close knit group of customers, mostly within a 50 mile radius of the firm’s location” (line 14). Some of these customers might be individual households, but the case study suggests that their main customers are “companies which produce components for major manufacturers in the building and construction industry” (lines 5-6). That makes MSDL a supplier to suppliers, towards the bottom end of a supply chain providing finished goods to end users.

A focus on this market segment brings both advantages and disadvantages. It has helped MSDL minimise promotion expenses (see below), but without generating much marketing advantage beyond that. Instead, their segment is clearly under attack. “In 2012, MSDL’s turnover was over £1.2m but this was a fall of over 10% on 2011 and forecasts for 2013 are for an even larger fall” (lines 7-8). The company’s market share is being squeezed and “business is gradually being lost to overseas competitors” (line 15). Clearly, being a local business is of little commercial advantage and customers feel little loyalty towards the firm.

It’s in this context that Tony and Lewis have decided to make their “quantum leap” into an unknown segment. And it really is unknown. Not only do we know nothing about the potential size, growth and characteristics of their proposed new market and new customers – neither does MSDL! The planned venture is … backed with only limited market research” (lines 30-31). As Bex points out, “your customers are going to be completely different. The firms that buy steel consoles … are not going to be buying garden planters!” (lines 100-101).

This lack of certainty and the absence of clear marketing objectives casts a long shadow over the future of MSDL as a successful business that effectively identifies and meets the needs of a defined group of customers.

Product, including product life cycle and Boston Matrix)

MSDL are switching from one range of products to an entirely new one. It’s not that the market for components for major manufacturers in the building and construction industry is going into decline (though it’s probably not growing fast). The company’s problem is that they are losing share in this market. Perhaps 30 years ago the firm had a reasonable share of a stable industry, so in terms of the Boston Matrix you might argue that their business was blessed with a ‘cash cow’ product range. By 2013 the picture has started to look quite different. MSDL are in a slow growth market, with a declining share of that market. The business is left with a ‘dog’, and it’s the recognition of that fact that has prompted Tony and Lewis to plan their radical proposals.

MSDL’s planned garden accessories are presented in Table 1. The market for garden accessories might be described as mature, and probably has some limited growth potential. But MSDL will start with only a tiny share of this market, so it’s not really clear the extent to which the brothers have hit upon an exciting new growth opportunity, unless they can really capture a decent share.




Worryingly, we know that “the planned venture is also backed with only limited market research; most of it has been on looking at similar products which are available on the internet and in gardening magazines” (lines 31-33). That perhaps suggests that at least to begin with, MSDL will be launching ‘copycat’ products that might struggle to stand out in the marketplace. It doesn’t sound a very promising way to build market share; presenting new products with no USP beyond the fact that they hope to construct them to “high levels of workmanship” (line 35).

Price

(including price and income elasticity)

MSDL have been unable to defend their prices, with customers successfully adopting “aggressive purchasing” (line 10) which is driving down the revenue the firm generates. This factor has been one of the major motivations in persuading Tony and Lewis to move into new products and new markets.

This paints a picture of customers who are increasingly sensitive to prices, which is a concept described as price elasticity of demand. Customers usually become more price sensitive (‘demand is more price elastic’) when they are feeling squeezed and are carefully counting their money – this is a key discovery for almost all UK businesses in the current climate of recession. Demand is also more elastic when customers are presented with a wide range of competitors’ products, enabling them to switch to cheaper substitute options. MSDL have been caught in this pincer with their established product range, forcing them to offer discounts.

Will the move into garden accessories rescue MSDL from pressure to lower their prices? “Lewis and Tony are working on about a 20% profit margin, with prices set at a premium level” (lines 34-35). If those premium prices and profit margins are going to work, MSDL have to hope that in a recession, their customers will happily stretch to £805 for a 50cm by 1m box planter, and that there are few rival products that are a close enough substitute to threaten their planned prices. That seems optimistic.

“Even setting prices has involved a lot of guesswork, based on the limited evidence from the market research” (lines 33-34). Perhaps these will prove to be lucky guesses, and sufficient demand exists at the chosen prices outlined in Table 1. The economy may recover quite soon, with rising incomes and stronger growth in the housing and construction sector. If that were to happen, rising incomes might sharply boost demand (this is income elasticity of demand) and give MSDL the lift they need to “regain some of the business lost over the last few years and maybe secure the future of the company” (lines 37-38).

Place In common with almost every component of MSDL’s marketing plan, very little thought seems to have gone into planning effective channels of distribution for the new product range – unsurprisingly, given that the firm seems unclear who its customers will be.




Some sales will be made online: “hopefully, the new website my wife has designed will attract some business” (lines 102-103). However, it is currently “only set up for payment in sterling and UK delivery” (line 104), so can only handle UK orders. Beyond that, distribution plans are vague and unambitious. Tony wants Bex to just “start approaching local garden centres, office complexes and shopping centres to see if they would be interested in our new products. Or what about building companies or property managers who want to spruce up their show houses?” (lines 109-112).

This approach to getting products to customers seems very unlikely to capture a large market share and help turn the business around. Perhaps Bex is right to suggest that MSDL should employ a sales expert (see below).

Promotion At the moment, “most of MSDL’s business over the years has been gained by word-of-mouth and a network of contacts (and) most promotional work consists of printing a few leaflets and popping them in the post to potential or past business customers” (lines 92-94). Unfortunately, it seems unlikely that this network of contacts will be very helpful when it comes to launching new products into new markets. As an unknown company, MSDL would have no brand awareness to help them stand out in these new markets. They really need a coherent promotional strategy to get the launch they need.

No such strategy seems to be in place. We know that “Lewis is also worried about having to make such a financial commitment … for products which have yet to be announced to any potential buyers” (lines 85-87). Up until now, “customers have generally approached MSDL as a result of a recommendation or business contact” (lines 96-97). That is going to change. Bex has warned Tony that “how are people going to know about us so that they look at the website? I don’t think it will attract that much business unless we get known for producing consumer products. We aren’t exactly well known by the public” (lines 104-107).

Bex complains to Tony that she wants him to come up with “some brilliant new promotional ideas but without spending much money. And you want me to do this even though I know nothing about marketing and as well as my other work” (lines 166-118). Tony’s only weak contribution is to suggest “a reasonable discount for bulk orders” (line 112) even though it’s very unclear where these bulk orders will come from and besides, the firm is trying to move away from offering discounts towards charging premium prices.

Tony is “reluctant to employ a sales expert; that’s an overhead I would rather not carry at present” (line 108). Perhaps he needs to be persuaded otherwise…




Accounting and Finance

Budgeting A budget is a planned spending total for a department, action or process. Budgets are set in advance so that a firm can plan out its spending priorities as financial resources are always limited. For most companies it’s important to budget carefully as the company advances through its objectives. More significant objectives may be given a higher budget priority and allocated more generous resources. Later on, the firm can then carefully investigate and consider reasons for budget variance so that at the end of a budget cycle, ‘actual’ spending can be compared to the ‘budget’ figure and enquiries can begin into the reasons for over- or under- spend.

The issue of budgeting isn’t directly addressed in the case study, but it’s still worth your consideration. Effective budgeting could really help MSDL, if only because that would force Tony and Lewis to think more carefully about their objectives, especially in marketing (see previous section). Setting budgets for their personnel function - and operations too – could have that same effect. Reading the case study gives a clear impression of MSDL – a failing business, with unfocussed marketing initiatives, badly lead staff, rising production problems and falling profit margins. Clear and coherent budgeting might be a practical first step to unravelling these problems and putting a financial plan in place that establishes clear priorities and a platform for improvement.

Cash Flow Cash is constantly flowing in and out of organisations, yet the timings of these movements can be awkward. Even a profitable business may find that there are pressure points during the year when cash outflows stay high, but inflows dry up. A rapidly expanding business might be doing really well, but furiously burning through cash as it acquires assets. A forecast of these cash movements guides firms as they raise finance or plan capital expenditure.

Cash flow will be a crucial consideration as MSDL moves forwards, and although we don’t have detailed data to work on there are some worrying indications. Sales revenue is falling, costs are rising and profit margins are being squeezed. The company is still making profit, but at such a low rate there may be months when the cash flow situation turns nasty. MSDL may well be (just about) solvent, but according to Tony “we’re not exactly flush with cash” (line 109). This would be less of a worry if the business were not about to embark on risky new ventures requiring significant up-front cash investment in marketing, people, machinery and supplies. At the same time as cash outflows look to rise steeply - at least in the short run – cash inflows look highly uncertain, unpredictable and most worryingly: low. All these indicators point to looming cash flow problems.




Costing and Break-Even Analysis

Once MSDL have deducted the variable cost from the revenue they make from a sale they achieve a contribution towards their fixed costs. Falling levels of contribution (from rising variable costs and falling sales revenue) are driving the company’s falling profit margins and making break-even harder to achieve. The firm just about managed this in February 2013.

There is no cost data provided in the case study to support break-even calculations, but you will still want to be familiar with the necessary calculation (above) in case the topics are examined in Section A. The topic could appear in the Section B portion of the exam if you are presented with new data, such as cost data to accompany Table 1. With new figures it would be a relatively easy step to deduct the variable cost of producing an item from its intended selling price to derive a contribution figure. Those contributions must go towards the company’s fixed costs.

Investment Appraisal

To appraise something means to determine its value. No investment projects are outlined in the case study that we can appraise at this stage, but you will still want to be familiar with way to calculate and interpret methods of investment appraisal such as pay-back period and accounting rate of return in case the topics are examined in Section A.

Investment appraisal could appear in the Section B portion of the exam if you are presented with new data, such as the investment costs associated with the “financial commitment” Lewis has made in “raw materials and tools” (line 86).

Profit and Loss Accounts


The figures presented in this table are estimates where they appear in italics.

The June 2013 case study is very short of financial detail on MSDL, but we know one thing for certain – the company is very worried about its ‘bottom line’, or profitability. “Net profit margins are being squeezed; down to less than 7% compared to over 10% two years ago” (lines 8-9). This squeeze on profits isn’t just about falling prices for the firm’s products, but “huge increases in raw materials costs” (lines 10-11).

2010/2011 (estimated) 2012

“The February net profit margin was down to less than 5%, mainly caused by rising unit costs (and) as turnover had fallen” (lines 81-82).

If Tony and Lewis are going to achieve their ambitious “20% profit margin” (line 34) their route has to be through achieving either higher sales revenues and/or lower costs. This is the key central issue facing

MSDL if it is to survive as a viable business in the future.

Turnover £1,333,333 £1,200,000 Total costs £1,186,666 £1,116,000

Profit margin 11% 7%

Profit £146,667 £84,000




Balance Sheets We know next to nothing about the firm’s balance sheet (which records a business’ assets and sources of funds) and its ability to remain solvent (see cash flow above). As previously mentioned, the June 2013 pre-release case study is short of financial details, but you will still want to be familiar with this part of the specification because these topics may be examined in Section A.

Despite the lack of evidence contained in the case study, you may still wish to discuss MSDL’s balance sheet. In particular, you may want to consider the amount of debt the company is carrying on its books. Short term borrowing may well arise as the firm orders new supplies in preparation for its new business venture – Lewis’ “financial commitment” in “raw materials and tools” (line 86). Of course, more long term borrowing may also be necessary to secure the larger sums that could be needed to sustain the business in the early phase of its new venture.

How much debt do MSDL have at the moment? Is more borrowing a possibility for a firm in its situation? We return to these issues in the questions presented towards the end of this toolkit.

It might also be a good idea to ask questions about the reliability and accuracy of the data in the company’s accounts. Are other problems lurking elsewhere in the company’s financial accounts?

People in Organisations

Labour Turnover Labour turnover (and a general trend, carried over a number of years) can give a revealing insight into the ‘people’ side of MSDL. The value is expressed as the proportion of staff that leaves a business during a year, usually quoted as a percentage. At the moment, labour turnover may be relatively low as the firm has a “long serving workforce” (line 17), but it might be easy to make a fairly safe prediction – labour turnover may soar as Tony pushes through his proposals. This is likely to be costly for MSDL.

The problems Tony’s leadership style present will dominate your thinking as you work through this section of the toolkit.



Motivation and leadership.


For most firms, the motivation, leadership and management of the workforce are considered crucial to its performance. The June 2013 case study is packed with evidence to suggest that MSDL’s performance is severely handicapped by the approach Lewis - and especially Tony - take in this area. Most modern theories of motivation identify several common features of a well-motivated workforce:

The most basic insight of the principle of scientific management (and studies by Taylor) is that workers are motivated by reward. And that insight seems to be the entire extent of Tony’s understanding of what might make his workers tick. He assumes that they only “turn up, do the job and take their pay cheque at the end of the month” (lines 60-61). After his confrontational outburst with his supervisors (line 65) Tony seems untroubled, assuming that the solution is simply to pay the staff off, since they “just want more money. We can probably sweeten them up with a promise of a bonus … if everything works out” (lines 73-75).

The insights of Mayo and Maslow point to the importance of a ‘human relations’ dimension to motivation. They might steer MSDL towards providing greater opportunities for more team working, but that idea seems alien to Tony.

Maslow is also associated with a belief that workers gain motivation from factors beyond basic pay. He thought that motivation also came from a sense of security, something which Tony seems happy to undermine by inviting anyone who disagrees with him to leave: “you know where the door is” (line 57). There’s very little evidence of opportunities to advance further through the hierarchy of needs to achieve higher levels of esteem or self-actualisation at MSDL. The company seems a very long way from being able to consider more enlightened employment policies, such as opening the way up for more opportunities for job enlargement and rotation.

Herzberg’s theories point out the differences between factors that truly motivate workers against those that merely prevent dissatisfaction. Tony might be right that if he continues to pay his staff and offer them some form of compensation for changing their job roles he might be able to stave off some dissatisfaction. But there are plenty of other factors causing dissatisfaction and chronic demotivation, especially in areas like workplace relationships, mastery of skills, enjoying the work at hand and achieving status and recognition.

Drucker’s and Peters’ ideas put the focus back on to the way staff are managed, and their overall role in the organisation. Their recommendations might be to look at the way in which the company itself is organised, or potentially reorganised. Here, the emphasis would be based on delegation and greater autonomy for workers. The potential for de-layering, recognition, job enrichment, with staff working towards their own clear objectives are all ideas that MSDL seem a million miles from considering (see ‘Organisational Structure’).



This all adds up to a rather depressing picture. It doesn’t come as a shock to find that MSDL is a firm with serious problems in the light of these management failings. The insights of Douglas McGregor are very relevant in this situation. He might have asked if it was any surprise whatsoever that workers would be “rather set in their ways and resistant to change (and) they won’t be happy … trying to introduce new ideas” (lines 40-41). And what about the fact that the workers are so dispirited that they only turn up to get paid, so according to Tony “the sort of staff we have don’t want anything else” (lines 61-62). McGregor might have argued that this type of classic ‘Theory X’ behaviour is a direct consequence of poor management. A ‘Theory Y manager’ has high aspirations for his staff, and believes that they are self-motivated and will seek opportunities for responsibility and advancement. No-one would describe Tony as a ‘Theory Y’ manager.

Even Lewis has recognised the scale and extent of this serious problem and says, “actually Tony, it’s you who needs to think about your leadership style” (line 77). Tony is a classic autocratic ‘boss’. He comes up with new ideas “with no consultation” (line 49). His father may have been more kindly to his staff, acting as a paternalistic manager whose workforce was like an extended family. But Tony will not even tolerate any discussion of his plans, and is angered by any of his employees trying to have a voice in the way in which the company is run. He thinks his father was “far too friendly with the workers” (line 44). In an attempt to avoid that ‘mistake’ Tony simply plans to autocratically push through his changes having “presented it (to the staff) as a fait accompli” (line 52), meaning a done deal. In case you were in any doubt, during his outburst Tony says “Lewis and I are in charge, this is not a democracy” (lines 56-57). To Tony, discussion and consultation are for weaklings. He has no interest whatsoever in the views of his staff, no matter how valuable they might be. Instead, he writes off these concerns as “just having a moan” (line 76).

Can it be any wonder that the workforce and management are in direct confrontation – and at a crucial time, with the business about to embark on major changes? The supervisors “will be recommending (to the shop floor staff) that they don’t accept (the proposed changes) without suitable compensation and support. (They) will consider all options ... including industrial action” (lines 68-69). A crisis is brewing. In the meantime, there is plenty of other evidence of current poor performance that could well be a consequence of Tony’s ineffective leadership style. More of this evidence will be discussed in the Production section of this toolkit.



Organisational Structure

The structure of MSDL is easy to describe. It is a simple hierarchical set-up, with Tony and Lewis at the top. Under them are four shopfloor supervisors (they don’t even get the job title of ‘managers’). At the bottom of the hierarchy are 28 full-time shopfloor employees. Power and authority in the organisation are firmly centralised at the top. Three administrative staff work separately – although one of them is tasked with significant new marketing responsibilities.

This approach has some advantages. The absence of mechanisms for consultation and dialogue at least mean that decisions can be made quickly (whatever the quality of those decisions). The four supervisors perhaps don’t earn a management salary and must have sizeable spans of control. 28 staff supervised by 4 people would give each supervisor and average span of control of 7. These factors add up to a business that is cheap to run.

Might a more decentralised organisational structure help MSDL? That would involve delegating more power to managers and teams across the business. Could the administrative staff be integrated into new teams, and take on the pay and rewards associated with broader job roles? Might Tony be persuaded that this should be the way forwards?

Production

Operational Efficiency, Capacity Utilisation

MSDL need to raise their game, so that productivity rises to the point where the firm is better placed to be more competitive when compared to their rivals. “Business is gradually being lost to overseas competitors … much of this is due to higher productivity levels or lower labour costs abroad” (lines 15-16). In this final section of the toolkit there is a discussion of the production problems MSDL faces, with observations about ways is which they might address their poor productivity.

Lewis is “aware of the longer term benefits of increasing the size of the business” (lines 88-89), suggesting that he sees economies of scale arising out of growth. If the company were to grow, it may be able to bulk buy materials and enjoy purchasing economies of scale, for instance. In a manufacturing setting, it’s also common for larger enterprises to be able to make investments in machinery that go on to yield technical economies of scale in the form of lower unit production costs.

But what evidence is there that MSDL is set to grow rapidly in the future? Instead, the case study paints a picture of a firm that is set to struggle - at least in the short term - as it brings its new products to new markets. Perhaps Lewis would be wiser to start thinking about an alternative scenario, in which MSDL face too little demand, and so need to cope with the problems of operating far below full capacity. The most obvious solution to this threat is not to completely exit from their current market place. Better to be using their resources at low profit margins, rather than see them sitting idle if orders fail to materialise.



Production Methods

There’s no reference to a continuous, flow production system being in place at MSDL. Instead, it seems likely that at the moment, the company is producing a number of smaller ‘one off’ orders (job production) combined with short production runs (batch production). This gives flexibility and the capability to respond swiftly to demand changes, but it tends to be associated with relatively high unit costs and high labour inputs. That’s a problem for a firm with poor productivity and/or high labour costs.

The proposed new product range (Table 1) possibly offers one key advantage – there’s no obvious need to make substantial new investment in alternative production methods. Instead the production of planters and sculptures would presumably follow the same pattern of job and batch production methods already in place. Tony plans to capitalise on “MSDL’s expertise in designing steel-based products” (lines 24-25). Furthermore, their small scale production ambitions might support the idea of new products “with prices set at a premium level to recognise the high levels of workmanship and materials involved” (lines 35-36).

On the basis of evidence presented in the case study, MSDL doesn’t have the scale, demand or resources to contemplate investment in flow production. Their immediate future is probably based around batch production.

Quality

Quality is all about meeting the needs and expectations of customers effectively. There’s nothing in the case study to suggest that customers are dissatisfied with the quality of the products they buy from MSDL (although they show little loyalty and shop on price). However, as the firm make plans to move into new products and new markets there is the risk that these new products cannot be manufactured to a high enough standard to meet the expectations of an entirely new group of customers. For that reason alone, it’s likely that MSDL will need to maintain a clear focus on quality into the future.

Quality initiatives might include benchmarking (comparing MSDL’s service to the best rivals) or working towards a quality standard ‘kite mark’ or industry/consumer award.

The data contained in Table 2 (see next page) gives the clearest picture of how quality is delivered at MSDL. Quality control checks are evidently part of the production process. And those checks paint an alarming picture: reject rates are high, and climbing. MSDL are producing poor quality goods, a high proportion of which need to be scrapped or re-worked. This adds up to a very high (and rising) wastage rate. We return to this topic in a later discussion on lean production.

What is the solution to this significant problem at MSDL? Higher levels of quality (and lower reject/wastage rates) could be delivered through the skilled craftsmanship of the workforce, with a quality assurance approach ‘built into’ MSDL products. But all the evidence suggests that this is certainly not likely under the current management style.



Quality assurance processes, such as adopting a Total Quality Management (TQM) stress employee participation, with a philosophy that ‘quality belongs to everyone’. This approach would be built on employee consultation and feedback, with a determination by management to keenly seek out ways to make work more rewarding, by engaging staff with new responsibilities and the potential for more varied and challenging tasks. Workers in turn would take greater responsibility for quality, avoiding the need for expensive quality control checks (that ultimately add no value). Workers would be empowered to make the necessary production changes.

It’s hard to see this happening, so once again, Tony’s leadership style serves as a significant obstacle preventing MSDL from implementing the changes it so clearly needs to make.

Stock Control

Effective stock control is an important route to greater business efficiency. The basic underlying principle is to only hold just enough stock (since holding stock is costly) without running into the risk of running out of stock, so that production is interrupted.

The problem for MSDL - as they move into new products and new markets - is judging the correct levels of stock that will be necessary. Lewis understands this, and he “is also worried about having to make such a financial commitment on raw materials and tools for products which have yet to be announced to any potential buyers” (lines 85-87).

The problem is complicated by the fact that there is a “three-month lead time when ordering the steel, which is imported from Eastern Europe” (lines 84-85). Lewis has to plan (or gamble) that he can make the right judgement on the correct levels of stock that he needs. Ordering too much stock is a huge financial risk and commitment. If, on the other hand, the new product range is a surprise success, MSDL could find themselves in a situation where production is halted because supplies are insufficient and the business waits three months until fresh supplies arrive.



Approaches to Production

If MSDL is to improve its profit margins, the most obvious and direct to way to achieve this objective is by cutting costs – and reducing waste would probably be the best start point to achieve this goal. The concept of cutting costs by reducing waste lies at the heart of the philosophy of lean production.

There is a significant cost to high and rising waste levels since there have been “huge increases in raw material costs; iron ore and nickel prices have increased by 75% in the last 12 months … steel accounts for a significant proportion of MSDL’s costs and it buys 65 tonnes of steel a month” (lines 10-14).

Table 2 reveals serious production problems that are resulting in high and rising reject rates and waste levels.

MSDL are not operating as a ‘lean’ business, and are paying a heavy price as a result.

Reducing waste can be achieved in many different ways, but the easiest way to talk about this topic in your exam is to return to the discussion about quality assurance and TQM in the previous section of this toolkit. Preventing these high levels of waste should be a far higher priority than detecting the problem when it’s too late.

Yet again, the kind of initiatives that might best be employed to tackle wastage probably can’t be put in place whilst Tony remains in charge. Lewis understands this point already and “is concerned about the risks involved in going ahead with the new products without the support of staff” (lines 83-84). The production challenges that lie ahead look almost overwhelming.

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Reject rates

waste levels



The new changes have been forced on the staff “with no training” (line 50). Even if Tony doesn’t realise it, the supervisors recognise some of the production problems that the new products pose. They are already furious about how the decision to make new products has been “plucked out of the air with no consultation” (line 49). “What about … all of the extra work that will be necessary initially, and some of the impact of this … there’s going to be more work for us to supervise and problems to deal with” (lines 53-55).

A business that had the co-operation of the workforce might be able to adapt to the challenges. A cell production approach could revolutionise approaches to quality and teamwork, tackling production problems, costs and motivation all at the same time. Teams of workers organised into cells could train and work together, enjoy the challenges of bringing new products to market and take ‘ownership’ over the wastage and reject problems. Kaizen, which is a philosophy of ‘continuous improvement’, would probably be equally unsuited to an organisation lead by Tony. It’s hard to see why staff would have any motivation whatsoever to recommend changes that would improve production, much less have these suggestions actually listened to. The workforce at MSDL are more likely to go on strike that they are to support any production changes.

Other efficiency initiatives at MSDL might include:

• JIT, or’ Just-in-Time’ stock management, used in an attempt to reduce stock holding. Attempts are put in place to take smaller, more frequent deliveries of stock and MSDL would aim to hold far smaller buffer. The problems with such an initiative are covered in the earlier discussion on stock control. (It may however be a longer term consideration for MSDL, if the business survives).

• Kanban is a scheduling system that helps determine what to produce, when to produce it, and how much to produce. This might help reduce waste generated by time wasting and unnecessary stock movement.



You should remember that even if a topic may not come up specifically in the pre-issued case study, it could still be tested in Section A of the exam. There is no substitute for learning and understanding the entire syllabus, details of which are available from the OCR website.

Application Analysis & Evaluation We have developed the key issues raised in the specification map in the pages below. The following analysis is not intended to be an exhaustive list of all the potential issues – everyone reading the case study will identify their own points about issues they believe are important.

The key point to remember: an effective exam answer in part B of F292

(1) addresses the specific question asked (you must answer the question)

(2) is directed to evidence in the case study (application) rather than making general points or lists

(3) develops a small number of well-argued points in sufficient detail (analysis)

(4) expresses an opinion on the question posed, supported by a balanced appraisal of the analysis (evaluation)

http://www.ocr.org.uk/data/publications/key_documents/as_alevel_gce_business_studies_specification.pdf/



Key case study issues: potential exam style questions – application, analysis and evaluation

• How can MSDL improve their marketing, so that “faced with a declining order book” they can successfully respond by “devising new products and target an entirely new market” (lines 21-22)?

Application Analysis Evaluation

MSDL should establish some clear marketing objectives to help plan a fresh approach. MSDL could react to falling sales by moving forwards with new products that they sell into a new market segment. Selling new products into a new market might help MSDL generate more sales and achieve higher prices. The company needs to come up with a new promotion strategy so customers learn about the firm and their products. MSDL will also need to give thought to how to distribute their product to their new customers.

It is going to be essential for MSDL to be much clearer in their planning if the new products are going to be successful. A marketing plan with clear objectives needs to be set, so the business can co-ordinate its efforts effectively. At the moment, there seems to be no planning, and vague aims are based on guesswork. Current market research is almost non-existent. Moving into new markets and products may mean that demand is less price elastic, i.e. customers are less sensitive to prices (so fewer discounts will be needed). All attempts at introducing new products are likely to fail unless MSDL can connect with their new customers with effective promotion and distribution techniques. A sales expert may help with this.

The size and scale of the proposed changes are daunting and although the move provides opportunities for reward, they are a huge risk. The company’s highest priority should be to put some kind of marketing plan into place, so that the other necessary resources (finance, people, production systems can be put into place). There’s very little point in producing products unless the company is clear about the characteristics of their target market. Marketing efforts will be totally ineffective otherwise. There are so many unknowns in the proposal, further research is absolutely essential. The move may provide long term advantage – if the company survives that long.

Potential exam-style questions on this issue:

Discuss the importance of marketing objectives to MSDL.

Discuss the changes that may be needed to MSDL’s marketing mix if the company adopts Tony’s plans.

Evaluate the importance of promotion in MSDL’s marketing mix.



• What steps will be necessary to defend profit margins - and even contribute towards a new goal on of a “20% profit margin” (line 34)?


MSDL’s profit margins are under attack because revenues are falling and costs are rising. Therefore revenues need to rise and/or costs need to fall. MSDL might get a firmer grasp on their costs if they had clear and effective budgets in place. The company is at some risk of slipping into a crisis if cash flow dries up in the near future. It will probably take a while for new revenues to cover costs and achieve a breakeven point. Only then will profit margins improve. MSDL may need to raise fresh finance to tide them over, both in the short term and the medium term.

Effective budgeting could be a very helpful step in establishing firmer financial control over the business. Clearer budgets would help with future forecasts of sales income. That in turn to could be worked into a cash flow forecast so that MSDL can anticipate and effectively plan their financial requirements. At the same time, a clear expenditure budget might help keep costs under control, or at least help to identify areas of the business where there are significant cost overruns. Increasing revenue will depend heavily on marketing success (defending premium prices with new products in new markets). It will also link very closely to production (as this is where cost pressure is building up in the business).

Tony and Lewis will have to appreciate that their profit margin goal will only be attainable in the long run. Their main concern should be their very worrying short term financial position. There is little purpose planning for the future without first addressing their pressing concerns, such as cash flow shortages in the months ahead that may prevent them from making their proposed changes. Before MSDL can look forward to increasing revenues they should try to get their costs under control, probably by tackling their high wastage/reject rates in the production department. The firm’s overall efficiency is likely to be most improved by establishing an effective budgeting system. That would assist the process of prioritisation, from promotion to production. Exam candidates (and MSDL) need to be conscious of the amount of financial unknowns in this case study.


Discuss the potential benefits to MSDL of setting up an effective system of budgetary control.

To what extent may cash flow considerations impact on MSDL’s plan for the immediate future?

Evaluate the extent to which the concept of break-even analysis is helpful as MSDL plan for their future.



• What steps should be taken to improve leadership and management, which looks to be so important in averting conflict and raising performance?


There are ample signs of workforce dissatisfaction at MSDL which is impacting on the firm’s performance. Tony and Lewis really need the support and co-operation of staff if they are going to successfully introduce their proposed changes. Even more significantly, the firm can’t afford to run the risk that workers take industrial action in their dispute with Tony. Poor levels of motivation are associated with low productivity levels and high wastage/reject rates, and both are key problems for MSDL. Demotivation also tends to generate resistance to change and innovation.

Tony has a very simple model of motivation in his mind: motivation by reward. He doesn’t appreciate that motivation could be generated by non-financial factors. Yet many motivational theorists place a great importance on human relations, an area in which Tony’s performance is dreadful. Tony and Lewis might well be advised to open up channels of communication for consultation and dialogue with their staff. There is ample scope to involve them in far more decision making (so adopting a more decentralised, democratic style). The idea would be to improve the quality of decisions and win the co-operation of the workforce. This might then feed through to improved performance across a range of areas. It’s hard to see how changes can be introduced, and conflict avoided, without following these suggestions.

Addressing this issue is one of the highest priorities facing MSDL. It is perhaps the biggest single factor in determining the future of the company. Engaging and empowering the workforce could have a huge impact on the efficiency and effectiveness of the organisation. From reducing waste (cutting costs) to winning new customers, and from successfully introducing new products to boosting productivity: nothing can be achieved without unlocking the potential of MSDL’s long serving and skilled workforce. At this stage in the company’s life, any form of industrial action could doom the business to failure. Survival in the marketplace depends on being lean and innovative. Tony and Lewis should urgently review their approach, and quickly find ways of defusing conflict and win back the support of the work force.


Explain the importance of effective leadership in MSDL’s current position.

Describe the methods by which MSDL could improve the motivation of their workforce.

Evaluate the threats to the company posed by a demotivated and dissatisfied workforce.



• How can the company boost productivity, reduce wastage, and successfully deliver new products?


MSDL might not have enough demand for their new products to operate at full capacity, so they might need to plan around that, and even reduce capacity. The company has an alarmingly high wastage level that is pushing up costs, so they need to find a way of tackling the problem. Supplies are not only expensive but are dispatched with a long lead time, so stock control is difficult, especially when launching new products. Tony and Lewis should investigate the ideas of lean production and Total Quality Management. It may also be possible to introduce cell production.

Tony and Lewis need to be much clearer on their production (and marketing) plans or face the risk of an empty order book. Idle staff and machinery would have a huge negative impact on productivity. They should ensure that they still take orders from current customer to sustain output nearer full capacity. Might it be possible for MSDL to source supplies from a more flexible source that could offer shorter lead times on delivery? Long lead times add substantially to their financial risks and mean larger stocks need to be held, which represents another cost, and source of inefficiency. Since supplies and supply prices are such a significant expense, the wastage problem must be tackled swiftly and directly. Tony and Lewis need to move away from their quality control model of checks to one that aims for zero defects, getting things ‘right first time’.

The survival of the business (finance) depends on cutting costs, as much as finding new revenue sources (marketing). Equally, it’s hard to see how improvements to production can be made without first addressing the problems presented by Tony’s leadership style (people). The success of production initiatives like lean production and TQM depends on the flexibility of management, and the empowerment of the workforce. Workplace conflict will severely reduce productivity and increase wastage rates. There is little point in Lewis considering the benefit of growth (like capturing economies of scale) until the short term future of the firm is secured. It’s important to have access to low cost supplies, but supplier flexibility might be a more important consideration when choosing a source of materials.


Evaluate the approach to quality taken by MSDL.

Discuss the merits of MSDL working towards the adoption of a lean production approach.

To what extent might cell production help MSDL if they wish to improve their productive efficiency?



Exam Technique Advice The Case Study

Read it, read it and read it again. Then read it again. Learn it as much as you can – better knowledge of the case study will save you time in the exam and allow you to have a better discussion and understanding of the key topics.

Use the Case Study

The examiner spent a long time writing this case study – so it must be used effectively. Do NOT just give the ‘text-book’ answer, everything you write should be applied and put into the context of MSDL.

React to the question set

As an examiner, it is a great pity when we have to write NAQ (not answering question) on a pupil’s work. Make sure you read the question carefully and answer it!

Essay Plans

It is a good idea to make a brief plan – but plans should be brief – allocate a couple of minutes to organise your thoughts.

Timing

Timing is crucially important and this is one of the most common failings of students in the exam hall. Quality not quantity is what counts – it is not a race to fill the answer booklet and any supplementary pages!

Practice

There is no substitute for writing timed answers to practice essay questions and then having them marked your teachers. Knowing what you can realistically achieve for each question in a timed essay is hugely important before you step into the exam hall

Mark schemes:

Well before the exam you should become familiar with the marking schemes of the module. F292 is a well-established and frequently examined module, and therefore has a long back catalogue of ‘past papers’. These past papers (also case study based) are available from the OCR website:

http://www.ocr.org.uk/qualifications/as-a-level-gce-business-studies-h030-h430/

http://www.ocr.org.uk/qualifications/as-a-level-gce-business-studies-h030-h430/



This is a ‘levels of response’ paper – in essays you must evaluate, with reasoned judgment, effectively for the top marks.

Writing

Get a nice pen (splash out!), this will avoid the dreaded writer’s cramp – particularly with long essays as examiners hate illegible work! If possible practice a two-hour mock practice paper, your teachers can help you with this and it will benefit you in the long run.

Levels of Response

Some reminders now about how you are assessed in the F292 exam.

According to OCR, candidates are expected to demonstrate the following in the context of the content described:

AO1 Demonstrate knowledge and understanding

Demonstrate knowledge and understanding of the specified content;

AO2 Apply knowledge and understanding

Apply knowledge and understanding to problems and issues arising from both familiar and unfamiliar situations;

AO3 Analyse Analyse problems, issues and situations;

AO4 Evaluate Evaluate: distinguish between, and assess appropriateness of, fact and opinion, and judge information from a variety of sources.

A typical F292 will allocate the 90 marks on offer as follows:



From this you can see that marks for AO3 (analysis) and AO4 (evaluation) are only available for the four questions in section two of the F292 paper.

Each of the longer questions in section 2 has substantial marks available if you can effectively demonstrate analysis (22 marks) and evaluation (21 marks).

More on AO3 - Analysis

Analysis involves making well-reasoned, step-by-step arguments using appropriate business studies tools & concepts.

To get your marks for analysis, you will need to:

• Make a point

• Explain why the point is important

• Explain the significance of this to ….

Your examiner will see that you are analysing when you are doing any of the following:

• The causes are….the possible consequences are…..



• The advantages for MSDL are….the disadvantages for MSDL are…..

• On the one hand MSDL may……on the other hand, they may…….

• The data for MSDL shows that…..on the other had, it may suggest……

• This is likely to lead to……..but it may lead to………

• In this case…..is an advantage because……

• The likelihood of this happening is……Consequently the business must….

• The trend in this case is…….shown by…… data

Analysis is about how you consider the ‘ifs and buts” as well as the “however and maybe”. You should view your written answers as your conversation with the examiner. Imagine how it would sound if you read a list of bullet points aloud - is this what you want your examiner to hear?

More on AO4 - Evaluation

Evaluation is the hardest skill of all. Very few candidates develop their skills of evaluation which is why it is awarded the highest grade when examiners see it.

Evaluation means giving your final judgements after dismissing all other arguments and saying why the judgement you have made is superior to all others. To do this, you must be knowledgeable about all the other arguments over which you are claiming superiority.

It is not enough to use a trigger phrase and to expect the examiner to award the highest mark – the examiner wants to see a robust, developed argument that weighs up the critical points and then come to a conclusion as to which is likely to be most significant – given the circumstances of the case study.

You can demonstrate the skill of evaluation when, in the context of the case study, you:

• Make a small number of points pointing out the options and/or the issues

• Justify which of several arguments are more persuasive and why

• Comment on the reliability of data or information given

• Support your judgement with evidence and draw conclusions from the evidence

• Consider limiting factors e.g. feasibility, impact and internal and external constraints



• Consider long term and short term issues

• Discuss how objectives, internal and external constraints limit decision making

Examples of trigger phrases demonstrating evaluation include:

• Overall, the greatest effect this will have on MSDL is……because…

• The extent of the impact will depend upon ….

• Whether this happens depends upon ….

• In the short run… but in the long run…

• The most important issue/factor is… because… so…

• In addition, MSDL needs to consider …. and ….

Remember evaluation means weighing up options and making a recommendation.

There is no ‘one best option’. It all depends on the circumstances of the business in the case study.

Analysis and Evaluation Compared

Candidates often ask what the difference is between Analysis (AO3) and Evaluation (AO4):

• Analysis assesses the causes and consequences of an issue and explains the likely impact and reaction of the firm.

• Evaluation builds on analysis and involves candidates weighing up options and coming to a view on what the firm should do.

For example – the question asks you to “discuss a strategy”:

• Weighing up the evidence upon which a strategy would depend – AO3

• Recommending one strategy based on analysis – AO4



Case Study Terms This section highlights and defines the key business terms and phrases used in the case. Remember you can demonstrate your knowledge by making effective use of definitions.

Bespoke A bespoke item is fully customised to a customer’s own requirements. In this case, MSDL can produce cabinets and consoles to individual specifications (line 5), as well as steel components for major manufacturers in the building and construction industry.

Aggressive purchasing policies

The recession has made many customers much more price sensitive. When they order to make a purchase, some are being more aggressive i.e. demanding better deals or they will go elsewhere.

Compensation To be compensated is to get some form of pay back. Wages are the compensation for going to work; more significant workplace changes may prompt people to ask for some form of greater compensation.

Consultation Consultation suggests that a dialogue or discussion takes place between two groups; in this case the shop floor workers (see below), their supervisors, and management.

Democracy Democracy is rule by the people, and a democratic workplace would be one in which all staff have at least some say, or input, into the way in which the firm is run.

Diversification Firms that move into new products and new markets are said to be diversifying.

Fait accompli This term is French and means an accomplished fact; a thing already done.

Fluctuations Fluctuations are simply changes, and in this case study are relevant because of frequent, unpredictable and sometimes large changes in raw material costs.



Industrial Action This term refers to any measure taken by workers that is meant to reduce productivity (see below). Quite often it is used and interpreted as a threatened strike, but the scope is much wider and might include a ‘go slow’ or refusal to work overtime.

Lead time The amount of time it takes between placing an order and receiving the goods.

Mundane Jobs with this description are very unexciting, lack variety and might even be described as … boring.

Net profit An almost- final profit total, where interest charges, as well as variable and fixed costs have been subtracted from revenues. Tax expenses and dividend pay outs have still to be accounted for before the firm keeps (or ‘retains’) any remaining profit.

Productivity This key concept in business measures the effectiveness and efficiency with which a business turns inputs (usually of people, but you might also include inputs of equipment and capital goods) into outputs. A business with high productivity therefore typically produces at a high level of output per worker.

Profit margins The proportion of sales revenue that is profit. If out of every £1 of sale profit is 20p, then the profit margin would be 20%.

Quantum leap You might expect something described as quantum to mean small, but in everyday speech this actually means a huge leap.

Shop floor This is a place that is on the ground level in terms of a firm’s organisational structure. The workers on the shop floor are typically those at the bottom of the organisational hierarchy. In a traditional factory, these are the factory workers.

Sterling This is the formal international name for our currency, the £ or GBP

Strategy It is considered advisable for firms (and managers within those businesses) to be working towards agreed objectives (see above). Even better is for those objectives to be linked together in a plan to achieve long term aims. This process is known as a strategy.

Turnover Another term for sales income, or sales revenue.

ocr msdl f292 prerelease toolkit june 2013.pdf

Documents

declining order book

firms balance sheet

longer term benefits

high wastage reject rates

rising reject rates

close knit group

raw material costs

buying garden planters