N06-3-BUSMT-HP1-ENG-TZ0-XX

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Keycap Digit One

Paper 1

Question 1 - MaximumMarks - 8

This question focuses on identifying and explaining the roles and potential conflicts between different stakeholders within SunGen Ltd. Stakeholders are individuals or groups that have an interest in the success and operations of a business. Understanding these stakeholders and their potential conflicts is crucial for effective business management.

Question 1 - A

This part of the question asks you to identify three stakeholders in SunGen Ltd. Stakeholders are groups or individuals who have an interest in the business and can be affected by its operations. They can include internal stakeholders such as employees and managers, as well as external stakeholders such as suppliers, customers, and the local community.

Question 1 - A - Answer

Three stakeholders in SunGen Ltd are:<ul><li>Employees: These are the individuals who work for SunGen Ltd and are directly involved in its day-to-day operations. They have a vested interest in the company's success as it affects their job security and wages.</li><li>Customers: These are the individuals or businesses that purchase SunGen Ltd's products or services. They are interested in the quality and price of the products or services offered.</li><li>Suppliers: These are the companies or individuals that provide raw materials or services to SunGen Ltd. They are interested in maintaining a stable and profitable relationship with the company.</li></ul>

Question 1 - A - Answer - EC

The candidate has correctly identified three relevant stakeholders in SunGen Ltd. The choice of employees, customers, and suppliers is appropriate and reflects a good understanding of the different groups that have an interest in the company's operations. The answer is concise and to the point, which is suitable for this type of question. However, it could be improved by briefly explaining the specific interests of each stakeholder group in the context of SunGen Ltd.

Question 1 - B

This part of the question asks you to explain possible areas of conflict that may arise between two of the stakeholder groups identified in part (a). Stakeholder conflicts occur when the interests of different stakeholder groups are not aligned, leading to disagreements and potential issues for the business.

Question 1 - B - Answer

One possible area of conflict is between employees and shareholders. Employees typically seek higher wages and better working conditions, which can increase the company&#39;s operating costs. On the other hand, shareholders are interested in maximizing profits and may push for cost-cutting measures, including limiting wage increases. This conflict can lead to dissatisfaction among employees and potential labor disputes.

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Another area of conflict could be between suppliers and the firm. SunGen Ltd may try to delay payments to suppliers to manage its cash flow more effectively, especially if it is facing a shortage of working capital. However, suppliers rely on timely payments to maintain their own cash flow and operations. This delay in payments can strain the relationship between SunGen Ltd and its suppliers, potentially leading to supply chain disruptions.

Question 1 - B - Answer - EC

The candidate has provided a balanced and detailed explanation of possible areas of conflict between two stakeholder groups: employees and shareholders, and suppliers and the firm. The explanation is related to part (a) and uses appropriate business theory and terminology. The candidate has effectively highlighted the conflicting interests and potential issues that may arise, demonstrating a good understanding of stakeholder dynamics. The answer is well-structured and covers the key points required for a high-scoring response.

Question 2 - MaximumMarks - 16

SunGen Ltd has decided to expand its market by targeting individual households. This decision involves examining various internal and external forces that drive and restrain this expansion. Additionally, the company needs to evaluate strategies to manage the process of change effectively.

Question 2 - A

This question asks you to examine the internal and external forces driving and restraining SunGen Ltd's expansion into the individual household market.

Question 2 - A - Answer

To understand the forces driving and restraining SunGen Ltd&#39;s expansion, we need to consider both internal and external factors.

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Internal Forces:

<ol>
	<li>Financial Pressures: Limited availability of finance for expansion may constrain the firm&#39;s ability to expand quickly. This is a restraining force.</li>
	<li>Management and Owners: Given the lack of growth in their current market, the owners, Electrical Solutions, will be putting pressure on SunGen Ltd to achieve significant growth. This is a driving force.</li>
	<li>Employees: While Catherine and others may be pushing for expansion, there may be resistance among some employees, particularly given the high proportion who have been recruited internally from Electrical Solutions. This can be both a driving and restraining force.</li>
</ol>

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External Forces:

<ol>
	<li>Housing Market Changes: There are concerns about the state of the Australian housing market, and given their reliance on this market, SunGen Ltd will be worried about how this may impact their sales. This is a restraining force.</li>
	<li>Economic Growth: Economic growth is set to fall in both 2007 and 2008, which may have a negative impact on sales, particularly given the likelihood that their products are relatively income elastic. This is a restraining force.</li>
	<li>Technological Change: Technological development has made the use of solar power products more cost-effective and therefore brought them more within the reach of consumers. This trend is likely to continue with costs coming down further as economies of scale in production are more widely achieved. This is a driving force.</li>
	<li>Environmental Awareness and Attitudes: The growth in environmental awareness and concerns over oil prices, global warming, and other issues are likely to raise awareness of SunGen Ltd&#39;s products. This is a driving force.</li>
	<li>Competition: There is currently little competition, but success in this market may attract the attention of larger multinational firms to the market.</li>
	<li>Legal and Regulatory Changes: SunGen Ltd is lobbying for changes in housing market and planning regulations, and if these come about, they may have a significant impact on the firm&#39;s operations. This is a driving force.</li>
</ol>

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At present, the main driving forces are internal. Derek and Catherine see this market as offering the opportunity for expansion and diversification. While many employees are behind the change, there will also be a proportion who are concerned and will therefore be a restraining force. Externally, the economy and housing market are likely to be restraining forces, but there are also market opportunities with the lack of competition, changes in environmental attitudes, and possible changes in regulations. These will be driving forces and encourage expansion.

Question 2 - A - Answer - EC

The candidate's response provides a comprehensive examination of both internal and external forces driving and restraining SunGen Ltd's expansion. The answer effectively balances the discussion of driving and restraining forces, making clear references to the case study and using appropriate business terminology. The candidate demonstrates a clear understanding of the various factors at play and how they influence the company's expansion strategy. This response would likely receive full marks for its detailed and balanced analysis.

Question 2 - B

This question asks you to evaluate two strategies that SunGen Ltd could adopt to manage the process of change resulting from their expansion.

Question 2 - B - Answer

To manage the process of change effectively, SunGen Ltd could adopt the following two strategies:

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1. Developing a Culture of Change:

Introducing a &#39;culture of change&#39; into the organization can help build commitment among employees. This involves sharing information, encouraging suggestions, breaking change down into manageable chunks, and being honest about potential problems. It may also help to break down departmental barriers, ensure employee empowerment and involvement, and develop closer relationships between employees and management. However, developing a change culture may be both expensive and time-consuming. Though Greg and Catherine are enthusiastic advocates of this approach, there is some resistance from internally recruited staff and Tony, who believes in a taller hierarchy with clearly delineated lines of communication.

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2. Informing and Consulting Employees:

Another strategy is to inform and consult employees as early as possible. Ensuring that the advantages of change are promptly and clearly identified and communicated to staff can help manage resistance. Offering retraining and other support as part of the process of change, setting clear and manageable targets (perhaps SMART targets), and involving all departments and employees in the planning for change are also crucial steps. Planning strategically for the change can be introduced as a total imposed package, total negotiated package, imposed piecemeal initiatives, or negotiated piecemeal packages.

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Whichever strategy is chosen, it is essential to discuss their appropriateness in the context of SunGen Ltd. This discussion may include an assessment of how well change would fit in with their current plans and objectives, such as changes to the organizational structure, the introduction of an appraisal system, and opportunities for training.

Question 2 - B - Answer - EC

The candidate's response provides a detailed and balanced evaluation of two possible strategies for managing change. The evaluation is closely related to the case material, and the appropriateness of each strategy is considered. The response effectively discusses the potential benefits and challenges of developing a culture of change and informing and consulting employees. The candidate demonstrates a clear understanding of the strategies and their application in the context of SunGen Ltd. This response would likely receive full marks for its thorough and well-reasoned evaluation.

Question 3 - MaximumMarks - 9

This question involves analyzing the advantages and disadvantages of SunGen Ltd running its production at an average capacity of 98%. Additionally, it requires identifying and evaluating three possible sources of finance for expanding their production capacity.

Question 3 - A

This question asks you to analyze the advantages and disadvantages for SunGen Ltd of running their production at an average capacity of 98%. This means considering both the positive and negative aspects of operating at such a high level of capacity utilization.

Question 3 - A - Answer

Running production at an average capacity of 98% has several advantages and disadvantages for SunGen Ltd. Let&#39;s break them down:

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Advantages:

<ol>
	<li>&nbsp;**Lower Unit Costs**: Operating at a high capacity means that fixed costs are spread over a larger output, reducing the cost per unit. This can make the firm more price competitive.</li>
	<li>**Higher Profit Margins**: Given that the price elasticity of the products is likely to be inelastic, SunGen Ltd can maintain higher prices and achieve higher profit margins.</li>
	<li>**Clearer Expansion Needs**: Running at high capacity makes it easier to justify and plan for future expansion, as the need for additional capacity is more apparent.</li>
</ol>

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Disadvantages:

<ol>
	<li>**Employee Pressure**: High capacity utilization can increase pressure on employees, limiting time for training and development. This can lead to burnout and dissatisfaction.</li>
	<li>**Increased Costs**: Operating at high capacity may lead to higher overtime payments, increased costs for raw materials, and higher recruitment and training costs to maintain sufficient skilled staff.</li>
	<li>**Industrial Action**: There may be a risk of industrial action if employees are unhappy with the extra hours and unpredictable work schedules.</li>
	<li>**Less Flexibility**: High capacity utilization leaves less room to accommodate new orders, reducing the firm&#39;s ability to respond to market changes.</li>
	<li>**Maintenance Issues**: High utilization puts more pressure on capital equipment, leaving less time for essential maintenance, which can lead to breakdowns and inefficiencies.</li>
</ol>

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In summary, while running at 98% capacity can lead to lower unit costs and higher profit margins, it also brings challenges such as increased employee pressure, higher costs, and reduced flexibility.

Question 3 - A - Answer - EC

The candidate's response provides a detailed and balanced analysis of the advantages and disadvantages of high capacity utilization. The explanation is closely related to the case and uses appropriate business theory and terminology. The candidate demonstrates a clear understanding of the nature of production and capacity, making the response exemplary. Common mistakes students might make include focusing only on advantages or disadvantages, or providing a descriptive rather than analytical answer. This response avoids those pitfalls and provides a comprehensive analysis.

Question 3 - B

This question asks you to identify three possible sources of finance available to SunGen Ltd for expanding their production capacity and evaluate their suitability. This involves considering both internal and external sources of finance and discussing their advantages and disadvantages.

Question 3 - B - Answer

To finance the expansion of their production capacity, SunGen Ltd can consider the following three sources of finance:

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1. Retained Profit: Although SunGen Ltd does not have retained profit available, they are a wholly owned subsidiary of Electrical Solutions plc, which may have funds available to lend. However, given that profitability has been falling in Electrical Solutions and they have already been funding SunGen Ltd significantly, this source may be limited.

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2. Loan Capital: SunGen Ltd could organize a bank loan or Electrical Solutions could issue debentures. However, the firm already has a high gearing ratio, and additional loan capital will increase interest payments and expose them to external changes.

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3. Share Sales: While this is not appropriate for SunGen Ltd if they wish to remain a wholly owned subsidiary of Electrical Solutions, it may be an option for Electrical Solutions to raise funds and lend the money to SunGen Ltd. However, this is a major and costly process, so the scope for this may be limited.

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In summary, while retained profit and loan capital are potential sources of finance, their suitability is limited due to existing financial constraints. Share sales could be an option for Electrical Solutions, but it is a complex and costly process.

IB BUSINESS MANAGEMENT HL, Paper 1, November, 2006, TZ0, Solved Past Paper