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IB

DIPLOMA IN BUSINESS & MANAGEMENT


2016 CASE STUDY TOOLKIT
TODOS OS MERCADOS


CASE STUDY TOOLKIT


Support Notes and Practice Exam-Style Questions and Answers for Students Preparing
to sit the IB Diploma Business Management Paper 1 in May 2016

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

TABLE OF CONTENTS

CASE STUDY INTRODUCTION & OVERVIEW ............................................................................................................................................................... 3
INTRODUCTION ...................................................................................................................................................................................................... 3
KEY THEMES ........................................................................................................................................................................................................... 3
CASE STUDY KEY TERMS ............................................................................................................................................................................................. 7
EXAM-STYLE QUESTIONS AND ANSWERS ................................................................................................................................................................ 19
UNIT 1: BUSINESS ORGANIZATION AND ENVIRONMENT ..................................................................................................................................... 20
UNIT 2: HUMAN RESOURCE MANAGEMENT ........................................................................................................................................................ 36
UNIT 3: FINANCE AND ACCOUNTS ....................................................................................................................................................................... 47
UNIT 4: MARKETING ............................................................................................................................................................................................. 52
UNIT 5: OPERATIONS MANAGEMENT .................................................................................................................................................................. 62
PRACTICE EXAM PAPER SL ........................................................................................................................................................................................ 66
PRACTICE EXAM PAPER HL ....................................................................................................................................................................................... 69

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IB DIPLOMA IN BUSINESS & MANAGEMENT


2016 CASE STUDY TOOLKIT
TODOS OS MERCADOS

CASE STUDY INTRODUCTION & OVERVIEW


INTRODUCTION
The case study business for 2016 is Todos os Mercados (TM).
TM is a multinational supermarket retailer operating in across the world, including South America (where it based) and France (where the main
character in the case study Henri lives and works).
The context of the case study business is crucial to your answers. The key things to bear in mind are:

Multinational TM already used to operating across continents


Market leader size and scale is important to TM
Substantial resources: TM is a quoted company and will have access to substantial financial, operational, marketing and HRM resources

KEY THEMES
The key themes arising from the case study, mapped to the IB Business Management syllabus can be summarized as follows.
Unit 1: Business Organization and the Environment

TM is a public company and its strategy is to a large extent influenced by its profit-driven objectives
The most important point to remember about TM is that competes by trying to offer the lowest prices in the market. All aspects of its
business management is organised to support this aim. TM is organised to achieve maximum efficiency and lowest cost. Some aspects

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

of this are positive (customers enjoy the benefit of very low prices and wide product choice). Other aspects may be viewed negatively
(key stakeholders such as employees and suppliers seem to be poorly treated)
TM operates in an intensively competitive market supermarket retailing. The competitive environment is likely to get even tougher as
the effect of wider use of e-commerce is felt. The suggestion from the case study is that TM has not been as quick as other global
competitors to embrace e-commerce. Is it too late?
TM is big and it seems to use its power and size to get what it wants! Just ask TMs suppliers who seem to be under pressure to give
TM the best possible terms. Just ask TMs employees who are paid the minimum allowed and no more. Perhaps it is no surprise that
TM is increasingly under scrutiny from pressure groups who are pointing to its poor record on business ethics and social responsibility.
Can a MNC continue to succeed globally if it does not act ethically or meet is broader social responsibilities?
Like any MNC, TM is not immune from changes in the economic environment. The recent downturn in economic conditions in France is
featured in the case study, although this seems to have had a broadly positive effect on TMs business there. In a recession, consumers
increasingly look for value for money, since disposable household incomes are under pressure. Will TMs lowest-price positioning
continue to be successful as economic conditions improve?

Unit 2: Human Resource Management

Who would want to be an employee or manager working for TM? Financial rewards are very low, the workplace rules and procedures
are strict, and the discipline is tough.
So why would you work at TM? Because it is a major employer and it is a successful business that provides secure employment,
provided you follow the rules. In many locations, the TM hypermarket will be one of the largest employers.
The most important feature of human resource management is the organisational culture at TM. It is the culture that influences all
aspects of how people are managed in the business and how decisions are taken.
The culture at TM is all about command and control from the centre. Centralisation is key all aspects of the business are determined
by the senior management team at TM in South America. Whilst there are some advantages to centralization for an MNC the overall
effect at the TM hypermarket in St. Laurent appears to be negative.
Employee morale at St. Laurent looks very poor. If Daniel Pink were to visit the TM hypermarket there he would find little evidence of
his three intrinsic motivators - autonomy, purpose and mastery. However, if he were still alive, motivational theorist Taylor would
certainly approve of the autocratic, scientific approach to motivation being taken by TM.
The one thing you can say about working at TM is that employees and managers know what is expected of them and where they stand
in the organisational hierarchy. However, there is clear evidence that this hard approach to human resource management is building

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significant resentment. A key question to consider, therefore, is whether TMs HRM strategy is increasingly becoming a significant
weakness in the business.
Unit 3: Finance and accounts

We are provided with very little financial information about TM. Prepare for that to be provided as additional information in the Paper
1 exam.
It is likely that you could be asked to look at some summary financial information for TM. Remember that lines [86-87] state that the
[MBA] case study contains financial information for TM, which Henri uses to calculate financial ratios. He is shocked.
Why might Henri be shocked? There are some possible clues in the case.
Suppliers are said to have been persuaded to have given TM even more favourable purchasing terms. Might that be reflected in a very
high creditor days figure, which, it can be argued, is evidence of TM not acting ethically with suppliers.
Might Henris shock be related to TMs liquidity ratios. Remember that large supermarkets often have a very low current ratio, since
they have very few trade debtors (customers pay in cash); relatively low stocks, and very large amounts owed to suppliers (trade
creditors). TMs current ratio might be extremely low, but is Henri right to be shocked?
Another possible cause of Henris shock may lie in the profitability ratios for TM. Perhaps the gross profit margin is much higher than he
expected? Perhaps TM is earning extremely high overall profits, which might seem somewhat unfair to staff and management at St.
Laurent who are paid so little.

Unit 4: Marketing

It is often said that marketing success in retailing is all about three factors: location, location and location. However, for TM there is a
different recipe for success price
Price is the dominant part of the marketing mix for TM and is the foundation for its growth so far. It has one, simple aim: to have the
lowest prices in the market and every aspect of the business (particularly operations and HRM) is organised to support that aim
TM is a classic low-cost operator or discount retailer. Customers associate TM with value. So, in order to keep its competitive
advantage, it is essential that TM operates as efficiently and cost-effectively as possible.
In recent years however, another element of the marketing mix has started to become more important: product. Extending the product
range first to a wide variety of non-grocery goods (e.g. automotive parts, office supplies) and then to a range of in-store services (e.g.
pharmacy, banking) has enabled TM to make full use of its large hypermarkets. TM has aligned low prices with wide product range. No
wonder that when a TM hypermarket opens in a new location, other local retail businesses suffer. They struggle to survive, let alone
compete.

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This powerful combination of low price and one-stop shopping might seem to be unbeatable. However, TM faces a threat from ecommerce which it seems TM has been slow to embrace.
Where will future growth come from given that TM has already expanded its geographical reach outside South America (market
development) and significantly expanded the product range (product development). The next phase of growth looks like it will come
from a possible expansion into Asia. Depending on how TM decides to expand into Asia, this could be a high-risk strategy. Many MNC
retailers have come badly unstuck in Asia believing that their marketing mix would work in markets that turn out to be much more
competitive and harder to enter than they first thought. In the exam, make sure you are prepared, if asked, to analyse the different
options open to TM.

Unit 5: Operations Management

To understand TMs approach to operations management you need to link it to its aim (lowest prices) and organisational culture (low
cost).
TMs operations are managed in order to support operating at the lowest possible cost. Non-core activities have been outsourced (and
no doubt those suppliers have been squeezed too). Lean production is the strategy, looking to cut out waste and minimise the amount
of stock in the business.
However, it is the scale of TM that is perhaps the most important factor in the business operating efficiently. There are clear economies
of scale benefits to TM from being a market leader, not the least being the ability of the business to negotiate the best purchasing
terms from suppliers.
Henris MBC class study of TM suggests that customized production is a significant threat to TM. Really? To a hypermarket retailing
business? No. Much more significant is the growing influence of e-commerce and the implications of that for TMs operations. That is
where the real threat (or opportunity) lies.

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IB DIPLOMA IN BUSINESS & MANAGEMENT


2016 CASE STUDY TOOLKIT
TODOS OS MERCADOS

CASE STUDY KEY TERMS


In this part of the IB Toolkit we identify and define the key business terms featuring in the case study. We have also outlined, where relevant,
the key context in which the term is used.

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

Term

Line

Definition & Case Study Context

Sole trader

A business that is owned by one person and which is not incorporated. The owner (sole trader)
therefore does not benefit from the protection of limited liability the sole trader is wholly liable for
the liabilities of the business. Henri Trouves family hardware store, like many single-store retailers,
was operated as a sole trader until it went into liquidation.

Unique selling point


(USP)

A unique feature of a product or service that makes it stand out compared with the competition. A
USP helps differentiate a business or brand, which can be a source of competitive advantage, but only
if the USP actually matters to customers! The Trouv family hardware store made excellent customer
service its USP although that wasnt enough to enable it to compete in the long-term against the
strength of the TM hypermarket, whose USP has focused on offering the very lowest prices.

Multinational company
(MNC)

10

A MNC is a business that is based or registered in one country but has outlets/ affiliates or does
business in other countries. Globalisation is one of the major reasons for the growth in MNCs. A
number of businesses in order to grow and develop have had to take on a global or international
perspective. TM is a good example, operating extensively in South America, Europe, and looking at
expansion into Asia.

Hypermarket

11

A superstore combining a supermarket and a department store. The result is an expansive retail
facility carrying a wide range of products under one roof, including full groceries lines and general
merchandise. TMs hypermarket format has been extended to include a wide variety of services in
addition to a comprehensive range of food and non-food products.

Public limited company

11

An incorporated company whose shares may be bought and sold by the public. Most public limited
companies have their shares listed (quoted) on public stock exchanges in major financial centres like
New York, London, Paris, Hong Kong and Shanghai. A key consequence of operating as a PLC is that the
firm is subject to greater public scrutiny.

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

Term

Line

Definition & Case Study Context

Liquidation

14

When a business is legally closed and the assets and liabilities of the business are sold and paid.
Liquidation normally happens when a business fails, as was the case with the Trouv hardware store
which failed when it was not able to secure additional sources of finance.

External sources of
finance

14

Sources of finance such as bank loans, bank overdrafts and credit from suppliers which are received
from outside the business. Henris family hardware store was forced to close because it was not able to
secure enough finance from such external sources. This also suggests that the hardware store was not
profitable, and so did not have a strong flow of internal finance such as retained profits, to keep it
going.

Salesperson

17

An employee who job is to close the sale by communicating with customers. In a hypermarket, a
salesperson is likely to have a wider variety of tasks, including providing customers with product
information, guiding them around the store etc.

Management
responsibility

17

Where an employee has some control over decision-making, even if this is relatively limited. Henri is
manager of the Hypermarket hardware section, but feels his management responsibility is very limited
which suggests that TM does not allow the store management hierarchy much (if any) autonomy over
decision-making. You might argue that they are managers in name only!

Aim

18

An aim is a statement of where a business wants to go in the future, its goals. It is a statement of
purpose. For TM there appears to be just one aim to have the lowest prices in the market and the
whole of how the business is organised and operated is designed to support this aim.

Mission statement

18

A mission statement sets out the business vision and values that enables employees, managers and
external stakeholders (such as customers and suppliers) to understand the underlying basis for the
actions of the business. TMs mission is entirely aligned with its stated main aim to have the lowest
prices in the market. That sounds like a mission that is predominantly focused on TM being price
competitive and attracting price and budget-conscious customers.

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

Term

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Definition & Case Study Context

Promotional material

18

The range of promotional materials and activities that combined to form the promotional mix. For TM
this will include all in-store promotional materials (e.g. posters, point-of-sale displays) as well as
advertising media (e.g. newspaper adverts, online advertising).

Lean production
methods

19

Lean production is an approach to business management that focuses on cutting out waste, whilst
ensuring quality. This approach can be applied to all aspects of a business from design, through
production to distribution. Lean production aims to cut costs by making the business more efficient
and responsive to market needs. For TM, a strategy of lean production is consistent with its stated aim
of having the lowest prices in the market. It uses a variety of lean production approaches to do this,
including JIT and outsourcing.

Just-in-time (JIT)

20

JIT is a system used in lean production which means that inventories (stocks) only arrive just as they
are needed. The main aim of JIT is to reduce the costs of holding stocks. For TM, JIT will involve
complex systems that interact with key suppliers to its hypermarkets. Suppliers will be required to
deliver stocks to the hypermarkets as they are needed. This is a difficult task, since there will be
products for which demand varies unpredictably and which might, therefore, run out of stock before
the supplier can resupply the stores.

Outsourcing

20

Outsourcing involves the delegation of one or more business processes to an external provider, who
then owns, manages and administers the selected processes to an agreed standard. There are usually
two main aims of outsourcing: (1) to reduce costs and (2) to buy-in specialist services rather than try do
things that the business does not have the skills or experience to do. For TM the main motivation for
outsourcing seems to be about reducing costs.

Cost of sales

20

Cost of sales measures the cost of the goods and services bought into from suppliers. After adjusting
for changes in stocks held, cost of sales can then be used to calculate the gross profit margin for
individual products, services, departments and stores. For TM, cost of sales will be a crucial part of
achieving its aim of having the lowest prices in the market. Many retailers use a cost-plus approach to

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

Term

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Definition & Case Study Context


setting selling prices. So, in order to have the lowest selling prices, you need to have the lowest cost
prices from suppliers!

Marketing mix

22

The overall mix of marketing activities and strategies that combine to achieve the market marketing
objectives. The traditional marketing mix comprises the 4Ps Product, Price, Promotion and Place
(distribution). For TM it is clear that Price is seen as the most important element of the marketing mix.
However, increasingly Product is becoming important too as TM has significantly expanded its range of
goods and services offered in the hypermarkets.

Low-price strategy

23

A strategy in which a business attempts to compete (and have competitive advantage) by having
lower prices than its competitors. In retailing, price has always been viewed as a key competitive
weapon witness how often grocery retailers engage in price-wars or offer core products very low
prices loss-leaders in order to encourage shoppers into store. However, a low-price strategy can only
be sustained in the long-term if the business also has similarly low-cost supplies!

Purchasing terms

23

The terms on which a business buys goods and services from its suppliers. These terms are not just
about price (although that is important). Purchasing terms will also include agreement on (1) when a
supplier invoice will be paid (2) quality requirements and how a retailer may return unsold goods (3)
arrangements for delivery to stores etc. For TM the suggestion is that it has squeezed its suppliers as
part of its low-price strategy. Perhaps it has extended the time it takes to pay them? Look out for
evidence of this if the exam paper asks you to calculate trade creditor days as part of some ratio
analysis.

Suppliers

24

The businesses who provide goods and services to another business. As a global MNC, TM will have a
complex and widespread range of suppliers. For example, it will buy from other global MNCs who
manufacturer consumer goods (e.g. Unilever, Nestle). In each of the countries in which it operates, TM
will buy from national suppliers as as well as smaller suppliers of locally-sourced produce. Dont forget
that TM has also expanded its range of services provided in store, which will have extended the type of
suppliers to include financial services, optician and pharmacy providers.

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

Term

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Definition & Case Study Context

Market share

24

The proportion of a market held by a business or brand. Market share is usually measured in terms of
market sales or volume. For retailers like TM, market share is a crucial measure of success since it helps
identify which businesses in the market are most competitive. Small changes in market share can have a
significant effect on TMs profitability. Dont forget that market share can be measured at different
levels. For example, TM may have a market share in the French grocery retailing market of, say, 10%.
However, in the area around St. Laurent, its market share will be much higher and, as a result, it has a
very strong competitive position in the local market.

Market leadership

25

The business or brand with the highest market share, measured either by sales volume or value. The
case study states that both high market share and market leadership are important for TM, though
we are not told whether TM is, indeed, the market leader. A key benefit of market leadership is that a
business may be able to benefit from economies of scale (such as purchasing economies), so it is easy
to see why TM wants to be the market leader since this is consistent with its aim of having the lowest
prices in the market.

Internal growth

26

Methods by which a business grows that come from within the business. This is sometimes also
known as organic growth and is generally seen as a less risky option compared with external
growth. For TM there are numerous sources of internal growth. For example, opening more stores in a
country in which it already operates is a classic internal growth strategy for a retailer. Similarly,
increasing the amount of selling space in stores is a source of internal growth. TM has done this by
expanding the range of goods sold, including many more consumer services.

External growth

26

Methods of growing a business from the outside. External growth typically involves acquiring another
business or merging with one. TM is said to have tried to grow externally through franchising (see
below) which was a failure. No mention is made of TM having attempted takeovers of other retailers, or
entering into joint ventures which is a method that has traditionally been used by retailers to enter
new international markets in Asia. Look out for potential case study information on TM evaluating
external growth as a way of entering Asia.

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

Term

Line

Definition & Case Study Context

Franchising

26

Franchising involves a business (the franchisor) providing another business (the franchisee) with a
licence to operate a specified business using the franchisors brand name and business format.
Franchising is a popular method of operation in retail industries, including grocery retailing with global
franchises such as Spar. However, we are told that TMs attempts at franchising were not successful.

Services market

28

Markets involving the provision of services to consumers, such as financial services and health
services. TM has expanded its product range to include a much wider range of in-store services.

New markets

32

Markets in which a business does not currently operate. This is a dimension on the important Ansoff
Matrix. Whilst TM already operates as a MNC in South America and Europe, we are told it is considering
expansion into Asia which will be a new market for TM. Expect (and prepare) to see this feature as a
key decision to evaluate in your exam paper!

Autocratic

34

An autocratic management style is one where the manager makes decisions unilaterally, and without
much regard for subordinates. For TM, this management style arises from the centre of the
organisation i.e. from the the senior management at the top of the organisational hierarchy. The result
is that managers and employees further down the hierarchy (e.g. at a hypermarket) have no role in
decision-making. They simply have to do as they are told!

Centralized

34

Centralized decision-making is an approach where all important decisions are taken be a small group
of senior management. Decision-making is about authority. A key question is whether authority should
rest with senior management at the centre of a business (centralised), or whether it should be
delegated further down the hierarchy, away from the centre (decentralised). TM has a highly
centralised approach to decision-making.

Human resource
management

34

Human resource management (usually shortened to "HRM") is concerned with the design,
implementation and maintenance of strategies to manage people for optimum business
performance. In other words, HRM is about how people are managed by a business in order to meet
the strategic objectives of the business. TMs approach to HRM can be described as being hard in

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Definition & Case Study Context


nature. There is lots of evidence in the case study that TM treats employees simply as a resource in the
business, not a key asset of the business.

Empowered

35

Empowerment involves giving employees the power to do their job. The concept of empowerment is
closely linked to motivation and customer service. Employees need to feel that their actions count
and empowerment is about making this happen. Empowerment is a catch-all term that covers: (1)
giving authority to make decisions to front-line staff; (2) encouraging employee feedback, and 93)
showing trust in employees to do the right thing for the business. There is very little evidence that TM
believes in empowerment as a strategy in HRM!

Organizational
structure

38

The organisational structure of a business determines to a large extent how the business is managed.
The organisational structure of a business is important because it determines (1) authority and
responsibility who is responsible for whom and who is in charge (2) individual job roles and titles (3)
the people to whom others are accountable and (4) the formal routes through which communication
flows in the business. Whilst we are not given a formal organisational structure chart for TM we can
safely assume that the structure has a tall structure (i.e. many levels in the chain of command) and is
bureaucratic in nature. This would be consistent with an approach to HRM based on centralisation and
a lack of empowerment. Command and control at TM comes from the centre!

Labour turnover

39

Labour turnover is defined as the proportion of a firm's workforce that leaves during the course of a
year. Labour turnover is a key measure of labour retention the ability of a business to keep its
employees. In retailing, labour turnover tends to be quite high, partly because of the seasonal nature of
demand and also because most jobs in retailing are relatively low-paid. We are told that in 2013 labour
turnover at the hypermarket in St. Laurent was much lower than expected due to the lack of
alternative jobs in the area. So more staff at the hypermarket decided to stay there despite it being a
relatively unpleasant working environment!

Recession

40

A period where the value of economic activity falls for more than two quarters (i.e. at least six
months). Recessions are common when an economy enters a downturn resulting in lower consumer

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

Term

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Definition & Case Study Context


demand and higher unemployment. However, for TM a recession might prove to be a growth
opportunity. Remember that its aim is to offer the lowest prices in the market. Such a strategy is likely
to appeal to an increasing proportion of consumers during a time when household incomes are under
pressure.

Corporate social
responsibility (CSR)

46

Corporate social responsibility (usually shortened to CSR) covers the voluntary activities undertaken
by a business to operate in an economic, social and environmentally sustainable way. We are told
that TM has a poor record of CSR. What might this mean? Perhaps it has been criticised for unfair
treatment of suppliers? Perhaps it is seen as acting unethically when it puts other smaller retailers out
of business by opening in a new location?

Pressure groups

46

A pressure group is an organisation with shared aims which seeks to influence policy through political
means, without seeking political office itself. We are told that many pressure groups are urging TM to
adopt ethical behaviour which suggests that TM has a poor track record of operating ethically. Perhaps
it has been buying goods from unsustainable sources; perhaps its treatment of employees is being
criticised, or its relationships with suppliers?

Ethical behaviour

47

Ethics are moral guidelines which govern good behaviour. So behaving ethically is doing what is
morally right. Behaving ethically in business is widely regarded as good business practice. As noted
above (in pressure groups) TM is being urged to adopt ethical behaviour, which suggests it hasnt been
acting morally correctly. Dont forget, though, that views on what is morally correct involves value
judgements.

Line manager

48

Line managers have responsibility for directly managing individual employees or teams. In turn, they
report to a higher level of management on the performance and well-being of the employees or
teams they manage. Delphine Jacques is Henris line manager.

Chain of command

49

The Chain of command determines the order in which authority and power in a business is organised
and delegated from top management to every employee at every level of the business. Commands

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

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Definition & Case Study Context


flow downward along the chain of command and accountability flows upward. For example, at TM,
Delphine Jacques will be given instructions by her superiors up the chain of command and she must
pass them down to Henri.

Company policy

50

The formal rules and regulations with which employees are required to comply. Compliance with
company policy is usually part of an employment contract, and breaches of company policy are
disciplinary matters.

Promoted internally

54

This refers to the internal recruitment of staff rather than the employment of someone from outside
the business. For example, an existing employee might apply for the job of his or her line manager if it
becomes available. If selected, this would qualify as internal recruitment. We are told that Delphine
Jacques is one of the few employees to have been promoted internally which might be a
consequence of TM having a relatively high level of labour turnover. The lack of many internal
promotion opportunities might be a reason why staff choose to leave?

Workers rights

59

These refer to the legal protections and rights provided to employees through employment and other
laws. For example, depending on the location of the business, an employee is likely to have legal
rights relating to employment contracts, minimum pay, holiday entitlements and protection against
discrimination. Remember that TM is operating in France, which is part of the European Union, and
therefore must comply with substantial and complex employment legislation.

Motivational strategies

62

The financial and non-financial approaches taken by a business to motivate its employees and
managers. We are told that TM uses motivational strategies that are completely different from those
advocated by management writer Daniel Pink (which were based around Autonomy, Purpose and
Mastery). In your exam, be prepared to compare and contrast the approaches advocated by Pink and
those adopted by TM!

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

Term

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Definition & Case Study Context

Management style

64

A management style is an overall method of, and approach to leadership used by a manager. We are
told that Henri has a paternalistic style (see below) which might be somewhat inconsistent with the
style required or expected by his superiors at TM!

Paternalistic leader

65

Paternalistic leaders (or managers) give more attention to the social needs and views of their
workers. Managers are interested in how happy workers feel and in many ways they act as a father
figure (pater means father in Latin). They consult employees over issues and listen to their feedback or
opinions. The manager will however make the actual decisions (in the best interests of the workers) as
they believe the staff still need direction and in this way it is still somewhat of an autocratic approach.
The style is closely linked with Mayo's Human Relation view of motivation and also the social needs of
Maslow.

Worker solidarity

68

Where employees act together in order to increase their bargaining power or to provide protection
against employers. We might assume from the case study that, currently, TMs workforce is not
unionised might this be what Henri has in mind?

External factors

79

Factors that are outside of the control of the business, but which impact on the business activities
and performance. The PESTLE framework is a good way of analysing these.

Economic conditions

81

The overall strength of the economy, as measured by key indicators such as the rate of economic
growth (GDP), levels of employment & unemployment, household disposable incomes, consumer
spending and confidence, business investment & confidence etc. Economic conditions in France, like
much of the Euro Zone, have been weak recently, although that might not necessarily be bad news for
TM and its low-price strategy!

Demographic trends

82

Demographic trends reveal developments and changes in human population. More specifically,
demographic trends relate to changes in a population's age, gender, geographical location, marital

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Definition & Case Study Context


status, educational attainment, employment status, household income, race, religion, and health.
Which of these might be hindering economic recovery in France?

Economic recovery

82

An improvement in the rate of economic growth, for example as an economy moves out of recession
into a period of economic growth even if that growth is quite weak initially.

E-commerce

84

Digital transactions initiated on a commercial basis between consumers and businesses. E-commerce
includes a wide variety of transactions including those initiated using mobile devices. E-commerce has
become a significant feature of retail markets, although in grocery retailing it is not as widely used as in
other segments such as fashion.

Customized production

84

This is linked to e-commerce. Customized production involves the personalisation of products based
on specific customer requirements. This is much easier to achieve now due to the integration of ecommerce into manufacturing processes.

Financial ratios

86

The key performance ratios that indicate how well a business is performing from a financial
perspective. For TM these will include profitability ratios (gross margin, operating margin), ROCE and
liquidity ratios. Expect to be given sufficient information in the exam to be asked to calculate and
interpret key ratios for TM, perhaps compared with their competitors.

Profit-driven objectives

94

Corporate (business) objectives that are focused on the achievement of target levels of profit and
profitability. It is safe to assume that TM has an overall objective of profit maximisation, which it
believes will be most likely to be achieved by maximising its market share and being market leader.

Employment contracts

100

Legal agreements between a company and its employees that set out the terms and conditions of
employment. A breach of contract can result in dismissal.

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IB DIPLOMA IN BUSINESS & MANAGEMENT


2016 CASE STUDY TOOLKIT
TODOS OS MERCADOS

EXAM-STYLE QUESTIONS AND ANSWERS


In this section, we have provided a series of exam-style questions together with outline responses.
The command word level is indicated in the question.
Please note that these responses are not intended to represent the only possible answers to the question.
A good revision exercise will be to think about the question and annotate your copy of these questions and answers with your own thoughts.
This section does not represent ALL the possible questions that might be set in the exam!
Make sure in the real exam that you only answer the precise question asked not one have prepared!


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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

UNIT 1: BUSINESS ORGANIZATION AND ENVIRONMENT


1.1 Introduction to business management
Explain two benefits to TM
of entering the services
market [4 marks, AO2,
SL/HL]

Possible benefits include:


By entering the services market, TM expands its product range and so is able to take a greater market share of
consumer spending in its stores locations. Consequence: higher revenues per store which should also improve
store profitability.
TM benefits from greater perceived level of customer service. Customers more likely to visit a TM hypermarket if
many more of their product and service needs can be met from one visit. Consequence: higher level of customer
loyalty, which should translate into greater repeat visits and higher market share.
Services have the potential to achieve a higher gross profit margin than food and non-food products (which are
bought-in from suppliers). Consequence: TMs gross profit margin may rise if services generate an increasing
proportion of TMs revenues.

Outline two possible


reasons why the Trouv
business struggled to
compete with TM when it
opened just outside St.
Laurent [4 marks, AO2,
SL/HL]

TMs store opening would have benefited from TMs market reputation for offering a vast product range user the
hypermarket format something the Trouv hardware store could not match. Local customers would almost
certainly already know the TM brand and would be likely to try it initially.
TMs market positioning of offering the lowest prices in the market would have meant that the Trouv store would
have struggled to compete on price. The differences in prices for comparable products between the Trouv store
and the hardware section at TM are likely to have been significant given TMs strong bargaining power with
suppliers and aggressive pricing strategy. Consequence: customers who placed emphasis on value for money would
have been very likely to switch their custom aware from the Trouv store.

1.2 Types of organisations


With reference to TM,
outline two key features of
operating as a public
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Shares in a public company may be bought and sold by the public provided that the shares are listed on a
recognised stock exchange. Key benefit for a business like TM: their shares have greater liquidity (more easily
bought and sold).

IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

UNIT 1: BUSINESS ORGANIZATION AND ENVIRONMENT


limited company [4 marks,
AO1, SL/HL]

Quoted businesses like TM are better able to raise significant external finance through the issue of new share
capital, for example through a rights issue. The shares in quoted firms like TM can also be used as part of the price
for potential external growth options such as takeovers.
The activities and financial affairs of quoted companies like TM are subject to greater public scrutiny, including
by professional investors, governments and regulators and by pressure groups. This is because public companies
are required to disclosed much more detailed information about themselves.

Explain two advantages of


TM operating as a public
limited company [4 marks,
AO2, SL/HL]

There are many potential commercial benefits from operating as a PLC, including:
-

Better able to raise significant new external finance through share issues
Greater public profile
Stronger reputation with key stakeholders, including major suppliers

1.3 Organisational objectives


Explain the importance of
mission statements in
managing a multinational
business [4 marks, AO2,
SL/HL]

Operating MNCs is complex, involving separate management teams and employees in more than country; across
different time zones and trading in countries with widely different cultures. It is important for every employee and
manager of an MNC to have a clear idea of the overall purpose and direction of the business, wherever they work.
A mission statement is a key part of achieving this.

In the context of TM,


distinguish between a
stated main aim and a
mission statement [4
marks, AO2, SL/HL]

Aim: a stated long-term goal of a business as determined by the top management of the business. A business like
TM will usually have just a few aims which help shape the strategic direction of the business and influence the
more detailed corporate and functional objectives.

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Mission statement describes how a business intends to execute its vision. This provides a clear sense of direction
and purpose regardless of how the MNC decides to localise its strategy in the individual countries in which it
operates.

IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

UNIT 1: BUSINESS ORGANIZATION AND ENVIRONMENT


A mission statement declares what the overall purpose of the business is. The mission statement sets the scene
for stakeholders in the business by setting out factors such as: why the business exists; its ambition; its philosophy
etc.
In the context of TM,
explain what is is meant by
the phrase profit-driven
objectives (line 95) [4
marks, AO2, SL/HL]

Profit-driven objectives are set at the corporate level (i.e. top level) and state what the overall business wants to
achieve in terms of absolute profit (e.g. total net profit) and profitability (e.g. net profit margin).
For TM it is likely that profit-driven objectives will be based around a strategy of profit maximisation i.e. trying to
achieve the highest possible level of profit. This is closely linked to the concept of shareholder value whereby
TM will attempt to maximise the value of the company (represented by the TM share price) by maximising the
profits it earns.
The term profit-driven objectives also implies that other potential corporate objectives are not prominent at TM.
For example, it might be argued that pursuing profit-driven objectives can be inconsistent with objectives such as
operating ethically or in a socially-responsible way.

Outline two implications for


the functional management
arising from TMs objective
to have the lowest prices in
the market [4 marks, AO1,
SL/HL]

Operations: it is vital that TM operations focus on efficiency and productivity in order for TM to miminise operating
costs. TM operates a variety of lean production methods, which is consistent with a strategy of operating at the
lowest cost.
Human resource management: similar to operations, it is important that labour productivity is high in order for the
unit costs of TMs stores to be low. Staff costs will be a significant element of fixed costs and overheads in the
business. There are various ways that TM can try to achieve high labour productivity; TMs approach to HRM
seems to be based on strict control of staff costs (e.g. low wages, autocratic and centralized management).
Finance: TMs use of lean production and in particular just-in-time arrangements with suppliers is partly
designed to minimise the amount of working capital in the business. By minimising store inventories, TM can
reduce the costs of obsolete and slow-moving products and also free-up finance.

With reference to TM,


TM is a major employer in the locations in which it operates. Two key stakeholders affected by TMs importance to
describe two ways in which each local economy are, therefore, employees and the local community. We have seen with the case of TM
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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

UNIT 1: BUSINESS ORGANIZATION AND ENVIRONMENT


corporate social
responsibility could be
important [4 marks, AO2,
SL/HL]

opening a hypermarket near St. Laurent that TMs entry into a local market can boost local employment, but also
negatively affect smaller shops. A positive programme of CSR by TM in each local market might help address
concerns by the local community about the impact on smaller shops.

Examine the implications


for TM from having a poor
record of corporate social
responsibility (CSR) [6
marks, AO3, SL/HL]

Lines 45-46 state that TM has a poor record of corporate social responsibility:

A key part of CSR is meeting the obligations of a business to society by acting ethically. If evidence emerges that a
MNC like TM has behaved unethically towards key stakeholders, the impact on the business value could be
significant.

From the case study, there are two likely causes of that poor record of CSR:
Unethical treatment of suppliers: lines 23-24 indicate that as TM has grown in scale, it has been able to impose
more favourable purchasing terms from suppliers. This is likely to involve requiring lower purchase prices, but also
supplier support for TM promotional campaigns, and also extended payment terms to enable TM to delay
payments to suppliers. Has this damaged the business of smaller suppliers who might be reliant on TMs orders?
Possible implications of unethical treatment of suppliers: TMs reputation with key manufacturers of branded
products will be damaged. Industry regulators may investigate TMs supplier treatment in certain countries with
the possibility of substantial fines.
A workforce that is treated badly: line 85 states that the MBA class has a case study on TM suggesting that the one
significant weakness in the business is a workforce that is treated badly. This suggests that TMs approach to
human resource management is public knowledge (perhaps linked to the pressure groups mentioned).
Possible implications of treating the workforce badly: taking a hard approach to HRM and treating employees as
a resource rather than an asset is unlikely to help TM achieve its profit-driven objective in the long-term. Wellmanaged, modern business treat employees as key stakeholders and as assets. In the longer-term, TM might
expect to suffer from higher labour turnover than their competitors, lower labour productivity and higher
absenteeism. You might also argue that the quality of customer service in TM stores is likely to suffer as a result of
a badly managed workforce, which may adversely affect customer loyalty.

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

UNIT 1: BUSINESS ORGANIZATION AND ENVIRONMENT


Suggest two reasons why
pressure groups are urging
TM to adopt ethical
behaviour [4 marks, AO2,
SL/HL]

Effective pressure group action, fuelled by greater media exposure (particularly via social media) is having a more
significant effect on businesses. The case study suggests two likely causes of unethical behaviour by TM:
(1) Treatment of suppliers
(2) Treatment of employees
The actions of pressure groups will be intended to:
(a) Directly persuade TM to change its practices towards suppliers and employees
(b) Persuade other key stakeholders (including larger shareholders) such as government, regulators and the
general public to exert pressure on TM. This has an indirect impact on TM, but potentially just as powerful,
particularly if a perception that TM is an unethical business starts to negatively affect the TM share price.

Outline two benefits to TM


from adopting ethical
behaviour [4 marks, AO1,
SL/HL]

Possible ways for TM to behave more ethically:


Treat suppliers more fairly
Potential benefits:
(more favourable purchasing More suppliers will be prepared to work with TM
terms)
Lean production more likely to be successful JIT requires strong partnerships &
collaboration with key suppliers
Treat the workforce better
(e.g. empowerment,
decentralized approach to
local management

Potential benefits:
Improved employee morale leading to greater productivity and efficiency
Higher quality of customer service
Improved ability to recruit staff, particularly when economic conditions improve

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

Using a SWOT analysis


framework, outline two
strengths of, and two
opportunities for, TM [4
marks, AO1, SL/HL]

Strengths:
Highly efficient: an organisational culture based on strict cost control that supports the strategy of price
competitiveness
Significant scale: as a market leader, TM is able to access significant economies of scale (particularly purchasing
economies) which drive unit costs down and support the low-price strategy
Global reach: TM is already a substantial multinational retailer with operations in South America and Europe. This
makes TM a key partner for manufacturers of global consumer brands they need access to TMs store to
maximise sales.
Opportunities:
Expansion into Asia: the rapid growth of the middle class in countries like China, Thailand and Vietnam presents a
substantial growth opportunity for multinational retailers.
Expansion of service sector product range: TM has only recently extended the product range at its hypermarkets
to include services such as pharmacies, financial services and telecommunications. Each of these services has
substantial revenue and profit potential, particularly if TM can replicate its successful low-price market positioning.
Market penetration in existing markets: As market leader, TM clearly has opportunities to extend its leadership
further through internal growth (e.g. opening new hypermarkets in locations it is currently not in). Another internal
growth opportunity would be to enter the convenience store segment one of the fastest-growing segments of
the overall grocery retailing sector in Europe. An external growth opportunity that would enable TM to build
market leadership further would be through acquisitions (takeovers), perhaps of a smaller, regional supermarket
chain in locations where it has a low market share. However, this option would be likely to result in a review by
competition regulators.

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

Using a SWOT analysis


framework, outline two
weaknesses of, and two
threats to, TM [4 marks,
AO1, SL/HL]

Weaknesses:
Human resource management: the evidence suggests that, from the perspective of employee stakeholders and
possibly the local community, TM has a weakness in the way it manages its people. Is the weakness really about
organisational culture? TM is based in South America is there a fundamental difference in the way that HRM is
conducted there compared with, say, France? What is the evidence of HMR being a weakness at TM? Labour
turnover? Possibly. Low employee morale? Yes there is increasing evidence of this, perhaps highlighted by the
pressure groups.
Low-price strategy: might this also be considered a potential weakness? Whilst it may have helped TM expand
internationally, can it be sustained? What happens when consumers increasingly look for better quality, or higher
standards of customer service? Will TMs low-price strategy become a potential competitive weakness?
Threats:
E-commerce: [mentioned in line 84]. E-commerce has disrupted almost all consumer and business markets, and
supermarket retailing is no exception. For most multinational supermarket retailers, the key threat is Amazon,
which is investing heavily to build its share of grocery retailing in many developed economies. In China, the rapid
adoption of mobile-commerce has also created substantial demand for digital transactions. E-commerce platforms
such as Tmall (operated by Alibaba) now have a significant share of retailing sales.
Customised production: [mentioned in line 84] This links to e-commerce. Digital platforms are increasingly
enabling consumers to personalize their retail choices (e.g. size, colours) and to buy personalized products directly
from manufacturers, thereby missing out the retail distribution channel.

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

Construct a fully labelled


Ansoff matrix to show how
TM has grown to-date [4
marks, AO4, SL/HL]

Existing Products & Existing Markets

New Products into Existing Markets

[Market Penetration]

[Product Development]

Opening new TM stores in existing national markets


Extending the core supermarket grocery product
range

Extending the product range to include a much


wider range of consumer goods (electronics,
furniture, automotive, office supplies)

Existing Products into New Markets

New Products into New Markets

[Market Development]

[Diversification]

Opening existing format TM hypermarkets in new


countries

Entering the services market banking facilities,


insurance, pharmacies, opticians, mobile phone
services

Failed attempt at franchising


1.4 Stakeholders
With reference to TM,
examine possible areas of
conflict between the
stakeholders of the
company [6 marks, AO3,
SL/HL]

Two potential areas of conflict between TM stakeholders include:


(1) Shareholders (internal stakeholders) v Suppliers (external stakeholders)
Source of conflict: TM using its market (bargaining) power against suppliers to negotiate favourable purchasing
terms.
Likely to be supported by shareholders if this approach to managing suppliers enables TM to achieve higher profit
margins and profits. Whilst suppliers will want to sell to TM (their business is likely to be important) they will not
want these sales to be unprofitable.
(2) Senior management at TM (internal stakeholders) v Employees (internal stakeholders)

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

Source of conflict: there is clear evidence of poor relations between the senior management of TM based in
South America and local store management and employees.
The tension between management at the centre and local employees is essentially caused by TMs approach to
HRM. TM treat employees as a resource to be managed as cost effectively and efficiently as possible. TM
employees resent the highly restrictive working environment and poor financial rewards.
Explain the interests of two
of TMs external
stakeholders [4 marks, AO2,
SL/HL]

Two key examples of external stakeholders for TM include:


Suppliers: TM will have a wide supplier base, ranging from major multinational companies making branded
consumer goods (e.g. Proctor & Gamble, Unilever, Nestle, Danone) through to suppliers of locally-sourced goods
(e.g. fresh produce, local specialities) and also the suppliers of outsourced services.
Local community: the operation of a TM hypermarket has a significant impact on those living locally. It brings
substantial employment, but also threatens the livelihood of existing retailers. It generates additional economic
activity (e.g. suppliers of outsourced services), but also additional noise and congestion. A key interest for the local
community is whether, overall, a TM hypermarket provides net benefits for them.

1.5 External environment


Explain how changes in the
economic environment in
France may create
opportunities for TM [4
marks, AO2, SL/HL]

The state of the economic environment in France will be closely linked to that of the European Single Market and
European Union in general. In recent years, France has experienced weak economic conditions after the significant
recession that followed the global financial crisis in 2007-9.
It can be argued that the economic downturn in France as provided a significant opportunity for TM. This is
because, in such circumstances, households and consumers have lower disposable income. Many will change their
shopping habits to look for the best value for money. TM will be an attractive option since it offers the lowest
prices in the market and we are told that families typically save between $2,000 and $5,000 by shopping at TM
[lines 43-44].
Another opportunity for TM is when the employment market in France is weak and unemployment is rising or
high. In this circumstance TM employees are less likely to seek alternative employment elsewhere, and there will
also be less pressure for wage increases.

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

Examine how external


factors are posing a threat
to TMs hypermarkets based
in France [6 marks, AO3,
SL/HL]

Two potential external threats to TMs business in France include:

Complete a PEST analysis


for TM [6 marks, AO4,
SL/HL]

Political

Growing use of e-commerce by competitors: a threat to TMs market share if it does not respond
Pressure for MNCs like TM to act in a more ethical and socially responsible way: the potential impact on
customer loyalty is one threat this poses, as is the potential for greater regulation of TM if it found to have acting
inappropriately

Although TM is based in South America, its operations in each country must take account of the legal and
regulatory environment there.
TM hypermarkets in France subject to French and EU legislation and regulation; particularly strict rules regarding
employment and competition. TM will need to be careful that its treatment of employees does not breach EU &
French laws and that it does not operate in a way that is damaging to fair competiton.
Economic
As a MNC operating in large consumer markets in many countries, TM is exposed to a variety of economic
conditions, which will vary over time and between different markets
French economic has been weak in recent years; likely to have benefited TMs business there, overall
Social
Key issue is whether TM is behaving ethically and acting in a socially-responsible way. Increasing scrutiny from
pressure groups suggests that TM may be threatened by its current approach to CSR.
Demographic trends (ageing population) are hindering economic growth in France. Relevant to TM in France; but
dont forget that TM operates as an MNC.
Technological
The key change is e-commerce which is fundamentally changing the way consumers shop and disrupting business
models in all sectors, including supermarket retailing.

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

1.6 Growth and evolution


With reference to TM,
describe two economies of
scale that arise from being a
market leader [4 marks,
AO1, SL/HL]

Economies of scale are the cost advantages that a business can exploit by expanding their scale of operations. The
effect of economies of scale is to reduce average (unit) costs. Two examples of economies of scale for TM are:
Purchasing economies of scale: As a market leader, TM will be a major customer for many of its suppliers. Indeed,
some suppliers may be reliant on the sales they make to TM. This gives TM potentially significant bargaining power
with suppliers and we are told that it has already enabled TM to gain more favourable purchasing terms from
suppliers.
Marketing economies of scale: many marketing costs are fixed in nature for example the costs of building brand
awareness, or television advertising campaigns. As the TM store portfolio grows in each country and across
international borders, marketing costs that are fixed can be spread over a larger number of stores.

With reference to TM,


distinguish between internal
and external growth [4
marks, AO2, SL/HL]

Internal growth:
Methods by which a business grows that come from within the business. This is sometimes also known as
organic growth and is generally seen as a less risky option compared with external growth. For TM there are
numerous sources of internal growth. For example, opening more stores in a country in which it already operates
is a classic internal growth strategy for a retailer. Similarly, increasing the amount of selling space in stores is a
source of internal growth. TM has done this by expanding the range of goods sold, including many more consumer
services.
External growth:
Methods of growing a business from the outside. External growth typically involves acquiring another business or
merging with one. TM is said to have tried to grow externally through franchising which was a failure. No mention
is made of TM having attempted takeovers of other retailers, or entering into joint ventures which is a method
that has traditionally been used by retailers to enter new international markets in Asia.

With reference to TM,


explain two ways in which
the business has expanded
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TM has historically grown using internal growth approaches, for example:

IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

using internal growth [4


marks, AO2, SL/HL]

Opening more stores in a country in which it already operates (e.g. expanding the TM hypermarket portfolio across
France)
Increasing the amount of selling space in stores by expanding the range of goods sold, including many more
consumer services.

Explain two advantages of


internal growth compared
to external growth for TM [4
marks, AO2, SL/HL]

One advantage is that internal growth is generally considered to be a less risky strategy compared with external
growth, since it usually involves simply doing more of what a business has already proved it is good at! For
example, TM can experiment with launching new product ranges in-store, often by piloting them in a sample of
suitable locations. If the pilot launches prove popular, it is a straightforward process rolling out the product launch
across other TM stores.
Another advantage is that internal growth options enable TM to make more efficient use of existing stores and
operational infrastructure. A major retailer like TM has significant fixed costs for example logistics, store rents
and the costs of store management. By expanding the product and service range (internal growth), TM can spread
these fixed costs over higher output (volume sold), thereby reducing unit costs.

Outline two advantages and


two disadvantages of TM
expanding its range of
goods sold and services
offered to become a onestop shopping destination
[4 marks, AO1, SL/HL]

Advantages:
Customers who trust the TM brand and are attracted to its lowest-price positioning will shift their spending to TM
as it enters new goods and services markets.
TM makes more efficient use of the existing selling space in its hypermarkets. A key factor in determining TMs
store profitability is to maximise the sales per area of selling space. Offering a wider range of goods and services
increases the ability of TM to allocate selling space to the most profitable product ranges/
Disadvantages:
TM loses its focus in terms of market positioning. Customers may perceive that it is better to shop at a specialist
retailer rather than one that is less able to offer detailed advice.
Will TM be able to sustain its lowest-price strategy in a much wider range of goods and services markets where it
may face more intense competition from existing operators?

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

With reference to TM,


outline two key features of
operating as a multinational
company [4 marks, AO1,
SL/HL]

A MNC is a business that is based or registered in one country but has outlets/ affiliates or does business in other
countries. Key features of MNCs include:
Invest significant amounts in technology and logistics to enable them to operate across geographical boundaries
and different time-zones. For example, TM management based in France will be reporting back to senior
management in South America, which will typically be 5-8 hours behind.
Operations in each country may be managed separately, but they are ultimately controlled (and are responsible to)
the parent company management (for TM in South America).
Often operate using a variety of brands and business formats, depending on the nature of each geographical
market. However, some of the most successful MNCs build a truly global brand name and business format, which is
easier to replicate in different countries (e.g. Starbucks, McDonalds). TM appears to operate as a global retail
brand.

Discuss the impact of a


multinational company like
TM on a host country like
France [6 marks, AO3,
SL/HL]

There are various potential advantages and disadvantages to a host country from having MNCs operate there. The
key point though is that MNCs are a common and inevitable feature of developed and emerging economies.
Advantages:
MNCs provide employment - MNCs will usually bring employment benefits for the host country as most employees
will be locally recruited. However, these employment benefits might be offset in part by the loss of employment in
smaller firms who lose market share to the MNCs.
MNCs provide significant tax revenue - profits of MNCs will be subject to local taxes in most cases, which will
provide a valuable source of revenue for the domestic government. For example, TM is likely to be profitable in
France and will pay tax on those profits to the French government.
MNCs facilitate technology transfer MNCs bring with them technology and expertise that may be new to the
host country. A process known as technology transfer occurs if this expertise is transferred to people and
businesses in the host country. TMs global expertise in retailing may be a source of technology transfer in France,
perhaps to suppliers who work with the firm.
Disadvantages:

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

MNCs provide increased competition for domestic firms - the impact the local industries can be severe, because
the presence of MNCs increases the competition in the economy and because MNCs may be able to take
advantage of economies of scale to operate at lower unit costs. This appears to have been the case with TM in
France. The Trouv family hardware store will not have been the only small, local retailer forced to close because it
could not compete with the scale and low prices of TM.
MNCs can avoid taxation by using transfer pricing this is a highly topical and controversial issue in many
countries. MNCs will always aim to reduce the taxes they pay on their profits to a minimum. One way of doing this
is through transfer pricing which reduces the taxes they pay in countries with high tax rates and increases the
taxable profits in countries with low tax rates. There are many ways this can be achieved, for example by levying
management charges or by changing the prices of services that are provided by other parts of the MNC. Whilst
tax avoidance like this is legal, it is widely seen as unethical and governments around the world are increasingly
acting together to make tax avoidance by MNCs much harder to achieve. Is TMs tax bill in France the reason why
Henri is shocked when he calculates some financial ratios as part of his MBA case study> [lines 86-87]
Outline four factors that TM
will need to consider as it
actively investigates
development of new
markets in Asia [4 marks,
AO1, SL/HL]

Assuming that TM is intending to expand its existing hypermarket business model into Asia, key factors for TM to
consider will be:
How attractive is the market? (market size, growth, competitive structure)
How large is it (revenues, profits) and how does this differ between countries? (market size)
How fast is are the hypermarket segments growing in each country (market growth)
What is the PESTLE environment in the target Asian markets? For example, how is supermarket retailing
regulated? Are there restrictions on how MNCs like TM can operate? How widespread is the use of e-commerce in
Asia? What are the short and medium term economic prospects for target economies?
What competitive advantages will TM require in order to succeed in its chosen target markets in Asia?
What is the competitive structure in the target markets: leading existing national retailers & other MNC retailers
that have already entered the market ahead of TM (e.g. Walmart, Tesco, Carrefour)?
How important is branding? What will it take to ensure that the TM brand is recognised and trusted by the target
customer base?

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

What marketing mix will be appropriate for a winning strategy? Will TMs lowest-price strategy work, or are other
factors more important to the target audience?
What investment will be required in order to establish and then grow a position in the target markets?
1.7 Organizational planning tools (HL only)
Explain how the use of a
Gantt chart could help TM
plan its proposed expansion
into Asia [4 marks, AO2, HL]

A Gantt chart is a planning tool that helps with the management (sequencing) of key activities in a project. Gantt
charts are particularly useful for complex projects where key tasks in a project are dependent on the successful
completion of previous tasks.
TMs proposed expansion into Asia is a complex investment project that will involve a series of distinct stages.
These would include:

Explain how Force Field


Analysis could help TM
determine whether it needs
to change its approach to
human resource
management [4 marks,
AO2, HL]

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Research, analysis and evaluation of the target markets in Asia


A detailed analysis of the competitive position in those markets, including the existing market shares and
strategies of competitors there
Analysis of the most appropriate entry strategy into Asia = for example whether to enter using internal
growth methods, joint ventures, acquisitions or other forms of external partnership.
Negotiation of any joint venture or acquisitions, including due diligence
Setting up the required retailing infrastructure in order to start trading; e.g. for an internal growth
approach, this would involve identifying and acquiring locations, contracting with suppliers, building and
stocking the stores, recruiting and training the staff.

Lewins Force Field Analysis (FFA) model is a useful conceptual model for analysing the key factors that are driving
change in a business (driving forces) and the forces that are resisting change (restraining forces). It can help
management determine whether change is possible.
For TM possible driving and restraining forces in relation to its HRM strategy include:
Driving forces for change in HRM strategy:

Pressure groups calling for TM to behave more ethically


Increasing discontent amongst staff about how staff are treated

IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

A broader societal change (particularly in developed economies) which expects firms to treat employees as
assets, not just resources

Restraining forces:

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The leadership and organisational culture at TM with a centralized, autocratic approach being dominant.
Poor communication at TM staff and store management afraid to speak out about possible change,
makes it harder to promote.

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UNIT 2: HUMAN RESOURCE MANAGEMENT


2.1 Functions and evolution of human resource management
Describe two factors that
would affect TMs
workforce planning for the
hypermarket in St. Laurent
[4 marks, AO1, SL/HL]

Extension of the product range to offer a much broader range of goods and services. In theory this will require
each TM hypermarket to employ more staff with specialist product expertise (although Henris experience
suggests that TM dont see this as too important).

With reference to TM,


explain two factors that will
affect the rate of labour
turnover at the
hypermarket in St. Laurent
[4 marks, AO2, SL/HL]

Labour turnover at TM is proportion of its workforce that leaves during the course of a year. In retailing, labour
turnover tends to be quite high, partly because of the seasonal nature of demand and also because most jobs in
retailing are relatively low-paid. Labour turnover can also be affected by specific factors in the local employment
market.

Whether TM implement e-commerce. The launch of e-commerce may change the way that staff organised in
store, and also how many of them are needed. For example, it may be that TM would use existing stores as the
picking points for online orders, but these might be done during quieter times (perhaps overnight), which would
change the staff scheduling.

For TM, relevant factors affecting the rate of labour turnover include:
Economic conditions generally, and the strength of the local economy. During an economic downturn,
unemployment usually rises and there are fewer alternative jobs so people with jobs tend to stay where they are
(even if they dont like the work!). Conversely, as economic conditions improve, labour turnover may increase as
staff identify more employment opportunities elsewhere.
Working conditions in the business
Ultimately, few people wish to stay in a workplace they find unpleasant, unrewarding or where there are few
opportunities for promotion. TM in St. Laurent sounds like such a place!
Financial rewards

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UNIT 2: HUMAN RESOURCE MANAGEMENT


Perhaps the most important factor, particularly in sectors like retailing where wages tend to be low. We know that
TM keeps wages to a minimum [line 20] and there is no mention of any significant non-financial benefits of
working there. Does that contribute to TM having a relatively high level of labour turnover?
Suggest two reasons why
Delphine Jacques is one of
the few employees to have
been promoted internally at
TMs hypermarket in St.
Laurent [4 marks, AO2,
SL/HL]

TMs organisational culture is based around an autocratic management style which is likely to treat employees as
disposable resources. This in turn is likely to result in a relatively high labour turnover which will reduce the
available pool of existing employees who are suitable for internal promotion.
Why might TM employees want to seek internal promotion when there appears to be little benefit in taking on
store managerial roles? Both Henri and Delphine appear to be in fear of how their views and actions might be
viewed by senior management at TM.

Describe two benefits to TM Outsourcing involves the delegation of one or more business processes to an external provider, who then owns,
from using outsourcing to
manages and administers the selected processes to an agreed standard.
cut cost of sales [4 marks,
Some potential benefits to TM include:
AO1, SL/HL]
Services are provided by outside suppliers rather than employing people to provide them. This frees TM from
having to employ so many staff, with resulting employment costs and legal responsibilities. Suppliers providing
outsourced services are simply engaged based on a supplier contract.
Certain costs become variable in nature rather than fixed. For example, TM may pay a commission to providers of
mobile phone or pharmacy services which will be variable based on the sales achieved. The alternative is to
employ people to provide those services, making the cost more fixed in nature. The effect of significant
outsourcing is, therefore, to reduce the breakeven sales level for stores since fixed costs will have fallen.
2.2 Organizational structure
With reference to TM,
outline two key features of
taking a centralized
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In a centralized structure, decision-making is kept firmly at the top of the organisational hierarchy. The role of
senior management is emphasised whereas the role of junior management is relegated to low importance. Key
features of this centralized approach by TM would include:

IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

UNIT 2: HUMAN RESOURCE MANAGEMENT


approach to human
resource management [4
marks, AO1, SL/HL]

Detailed procedures issued to all levels of the organisational hierarchy from the top
Strict controls over all aspects of employee performance and discipline
Restrictions on the ability of anyone other than central management to take commercial decisions
Emphasis on formal communication processes (e.g. store reporting)

With reference to TM,


analyse two possible
reasons why employees are
not empowered and have to
follow detailed work
instructions and procedures
[4 marks, AO2, SL/HL]

Two likely reasons are:

Explain two disadvantages


for TM of operating a
regimented, autocratic and
centralized approach to
human resource
management [4 marks,
AO2, SL/HL]

This approach to HRM has several likely disadvantages:

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The organisational culture at TM


The culture at TM is built around command and control from the centre. A highly centralized approach leaves little
scope for allowing local store management or employees to take decisions.
The need to operate highly efficiently in order to sustain a lowest-price competitive strategy
TM seems to be very process-driven. Workplace procedures are detailed and ensuring they are followed will given
TM management assurance that the most efficient ways of operating are being followed.

A regimented, autocratic and centralized approach is highly inflexible. Whilst decision-making is simpler, this can
mean that the wrong decisions are taken when a more flexible approach might be better for customer service or to
respond to local changes in the market. A consequence is that employees further down the organisational
hierarchy are now empowered to do what they believe is the best thing for the business they can only do what
they are told from above.
Another key disadvantage is that this approach is more likely to be demotivating for employees. Staff soon realise
that they are treated simply as resources of the business, not assets. Their views are not taken into account; they
feel as though they have little freedom to use their initiative. All of this is bound to have some impact on the
quality of customer service, particularly in a service-sector business like supermarket retailing, where customer
service is key.

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UNIT 2: HUMAN RESOURCE MANAGEMENT


Evaluate the effectiveness
of TMs approach to human
resource management in
the context of the
companys mission and
objectives [6 marks, AO3,
SL/HL]

TMs stated aim is to have the lowest prices in the market. This requires the business to operate at maximum
efficiency and productivity. The key corporate objective is to maximise market share and to be a market leader,
which in turn is intended to enable TM to profit-maximise.
In some ways, TMs approach to HRM is consistent with achieving its mission and objectives. For example:
A centralized approach can result in quicker decision-making due to consistent policies coming from the top. This
will be important for TM which operates in a fast-changing retail sector.
A centralized approach can also mean lower management costs as there is less need for having more specialist or
departmental managers. Henris position at TM is an example of this. Henri is an experienced hardware store
manager. However, he feels that his position at TM is not much more than a salesperson. TM do not appear to
value (or require) management specialists.
Alternatively, in other ways TMs approach to HRM is not consistent with achieving its mission and objectives.
For example:
In the longer-term, this approach to HRM can damage the reputation of the business, which in turn can threaten
achievement of its mission and objectives. For example, there is evidence that the way TM treats its employees is
seen as a competitive weakness in the public domain (MBA case study). If customers begin to see this as a reason
not to shop at TM, it will result in lower sales and market share.
A de-motivated workforce with low morale may also result in higher costs. For example, if labour turnover is
significantly higher than the industry average this will result in higher recruitment costs and potentially lower
labour productivity.
Overall: many firms that pursue a successful low-cost operating strategy do not adopt a highly centralized and
autocratic approach to HRM. Treating employees well, empowering them and rewarding them well can still be
consistent with operational efficiency, high market share and strong profitability.

With reference to TM,


explain two ways in which
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See question above. Key points are:


Demotivated workforce with poor morale = adverse impact on customer service and labour productivity

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UNIT 2: HUMAN RESOURCE MANAGEMENT


an inflexible organizational Centralization is an inflexible way of managing a business like TM; multi-location businesses like retail need local
structure could damage the management to be empowered to take decisions based on local market conditions.
performance of the business
[4 marks, AO2, SL/HL]
2.3 Leadership and management
With reference to Henri
Trouv, explain what is
meant by a paternalistic
leader [4 marks, AO2,
SL/HL]

Paternalistic leaders (or managers) give more attention to the social needs and views of their workers. Managers
are interested in how happy workers feel and in many ways they act as a father figure (pater means father in
Latin). They consult employees over issues and listen to their feedback or opinions.
The paternalistic manager will however still make the actual decisions (in the best interests of the workers) as they
believe the staff still need direction and in this way it is still somewhat of an autocratic approach. The style is
closely linked with Mayo's Human Relation view of motivation and also the social needs of Maslow.
Does Henri demonstrate his paternalistic style when dealing with the employees writing graffiti in the stockroom
[line 64]? His instincts are paternalistic (tell them to remove the graffiti); however, he takes no action, with is more
consistent with a laissez-faire leadership style.

With reference to TM,


describe two benefits of
adopting an autocratic
approach to leadership and
management [4 marks,
AO1, SL/HL]

Potential benefits of an autocratic approach to leadership and management at TM include:


Systems of command and control are formal employees and their line managers know exactly where they stand
and what they are required to do. At TM, it is clear that company policy is well understood.
An autocratic approach can work effectively when most of the workforce is unskilled or lacks experience. In
retail this will often be the case, although the quality of customer service can soon suffer of customers find store
employees unhelpful or lacking basic product knowledge.

Analyse the effectiveness of What is the evidence of how effective the management style is at TM?
the management style at
Evidence of the style being effective:
TM [6 marks, AO2, SL/HL]
TM is a market leader and is successfully positioned as having the lowest prices in the market [lines 22-23]
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TM has expanded successfully across international borders using the same retail format
TM store management are highly aware of company policy and follow the rules

Evidence of the style being ineffective:

Few staff are TM are promoted internally perhaps because they do not stay with the business long enough to
take advantage of promotion opportunities; this links with evidence that TM experiences a high level of staff
turnover
Management positions in stores have little or no real management responsibility
TM staff are discouraged from communicating with each other; hardly a suitable environment for TM to
benefit from the benefits of effective teamwork

2.4 Motivation
Examine how the
motivational strategies used
by TM differ from those
suggested by motivational
theorist Daniel Pink [6
marks, AO3, SL/HL]

Motivational strategies represent the mix of financial and non-financial approaches taken by a business to
motivate its employees and managers.
We are told that TM uses motivational strategies that are completely different from those advocated by
management writer Daniel Pink.
Pink argues that money is a motivator at work, but once people perceive that they are paid fairly, then they
become much more motivated by intrinsic elements. Once people are paid fairly, they look for more from their
work, with the three intrinsic motivators being: autonomy, purpose and mastery.
Looking at how TM manages HRM, some key comparisons can be made:

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Pinks Approach

Evidence from TM

Employees need to be paid fairly,


before intrinsic motivators become
more important

TM keeps wages to a minimum; there is no evidence of performancerelated financial rewards; little internal promotion. Suggests that
Pinks basic test of fair pay is not met.

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UNIT 2: HUMAN RESOURCE MANAGEMENT


Autonomy (time, technique, team and
task)

Little evidence of this at TM. Teamwork is not encouraged. Working


practices at TM are very inflexible. Staff do not have any freedom over
decision-making.

Mastery (opportunities for selfimprovement and professional


development)

Again, very little evidence of this at TM. Section managers are little
more than sales people. Very low levels of internal promotion.

Purpose (employees know and


appreciate what the business is trying
to achieve)

Quite a lot of evidence of this at TM. The mission and aims of the
business are clearly articulated and communicated (lowest prices) and
the organisational culture of the business is built around this purpose.

With reference to TM,


compare and contrast the
motivational theories of
Taylor and Pink [6 marks,
AO3, SL/HL]

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Taylor

Pink

Argued for scientific management

Argued for intrinsic motivators once pay is fair

Motivation (management) should be made on


measurement, monitoring and control

Motivation should be based on autonomy, mastery


and purpose

Employees work for money alone; they should be


motivated to become more efficient and productive

Employee motivation is complex. Money matters, but


once pay is perceived to be fair, other more intrinsic
motivators come into play

Consistent with an autocratic leadership style

Consistent with a paternalistic or democratic


leadership style

Evidence from TM:

Evidence from TM:

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UNIT 2: HUMAN RESOURCE MANAGEMENT


Entirely consistent with the way that TM manage HRM
with its emphasis on efficiency and centralisation. TMs
strict command and control approach to manage
would have been given Taylors approval!

Very little evidence that TMs approach to motivation


and management would be approved by Pink. Little
evidence of the appreciation of intrinsic motivators,
nor that employees feel they are paid fairly.

Analyse two possible causes


of the two young employees
protesting about TMs
wages and management
style [4 marks, AO2, SL/HL]

Two likely causes are:

Discuss whether TM would


benefit from empowering
its employees [6 marks,
AO3, SL/HL]

Empowerment is a non-financial reward that involves giving employees the power to do their job. The concept of
empowerment is closely linked to motivation and customer service. Employees need to feel that their actions
count and empowerment is about making this happen. Empowerment is a catch-all term that covers:

They are young, inexperienced. They feel aggrieved generally about TM paying the at the minimum required wage,
and dont understand why this is consistent with TMs mission and objectives
They are used to being in a more open, modern environment where communication is encouraged, as is teamwork
(perhaps at their school!). They now find themselves in quite an alien working environment where communication
is discouraged.

(1) giving authority to make decisions to front-line staff;


(2) encouraging employee feedback, and
(3) showing trust in employees to do the right thing for the business.
There is very little evidence that TM believes in empowerment as a strategy in HRM! However, potential benefits
for TM might be:
Store managers at each TM location are better able to respond quickly to local market needs; for example,
responding to competitor actions; implementing CSE initiatives to benefit the local community
Empowerment would help the level of employee motivation and morale by introducing one of Pinks intrinsic
motivators autonomy. For example, TM store managers and section managers would be able to make
independent decisions without always reverting back to central management in South America. This would give

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UNIT 2: HUMAN RESOURCE MANAGEMENT


them some autonomy a sense of ownership in their job role and responsibility for the outcome of their
commercial decisions and work.
Some element of empowerment will demonstrate to TM store managers and employees that central management
in South America respect and trust them, thereby improving their level of motivation and job satisfaction.
2.5 Organizational (corporate) culture (HL only)
Describe two features of
the organisational culture at
the TM hypermarket in St.
Laurent [4 marks, AO1, HL]

Key features of the organisational culture at the TM hypermarket in St. Laurent include:
A low-cost culture: all aspects of the way the business is organised and managed is based around the objective of
being able to offer the lowest-prices in the market. The result is an obsession with cost minimisation and efficiency
above all other considerations.
A power culture (Handy): typical of organisations with centralized decision-making where authority is
concentrated in the hands of a few senior managers. For TM the power resides in the management based in South
America.
Elements of role culture (Handy): work in the TM organisation is based on clearly-defined rules and regulations;
employees at TM operate within very tightly controlled work instructions and procedures. This is consistent with a
culture based around a tall, hierarchical organisational structure.

Examine the key features of Organisational culture represents the complex mix of values, attitudes, beliefs and behaviours that combine to
the organisational culture at determine how things are done in an organisation.
TM [6 marks, AO3, HL]
The key features of the organisational culture are listed above: low-cost; power / role.
The over-riding feature is a Power Culture:
With reference to TM, to
what extent does the
organisational culture
reflect the aim, mission and
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TMs power culture to a large extent reflects the strategic positioning, aims and objectives of the business.
The centre of TMs power culture is the headquarters (HQ) in South America. This is where the culture is
determined, influenced to a large extent by the nature of leadership there.

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UNIT 2: HUMAN RESOURCE MANAGEMENT


objectives of an
organisation? [6 marks,
AO3, HL]

The way TM is organised, and its functional strategies are entirely consistent with its power culture. For example:
Clear structures of command and control
Clear hierarchy, reinforced by segregation of management and employees (e.g. at meal times)
Strict working procedures and rules
Relentless focus on cost minimisation (outsourcing, trading relationships with suppliers)
Overall, the culture at TM is extremely strong, although you might describe it as negative in terms of impact on key
stakeholder groups.

Examine whether there is a


culture clash between the
employees of TM and the
senior leadership in South
America [6 marks, AO3, HL]

Culture clash where the beliefs and values of employees differ from those of senior leaders
Evidence of culture clash at TM:
Employees protesting about working conditions and management style
Henri suspecting that his paternalistic management style is not consistent with the style required by his seniors
Few employees promoted internally suggests many employees dont share core values and want to pursue a
career with TM
Rumours that employment practices and contracts likely to change as TM continues to cut costs further likely
cause of clashes with employees who are already paid the minimum

2.6 Industrial / employee relations (HL only)


Describe two sources of
conflict in the workplace at
the TM hypermarket in St.
Laurent [4 marks, AO1, HL]

Potential sources of conflict are:


TM employees are paid at the lowest minimum wage a source of conflict with senior management
Relatively few employees are promoted internally likely to generate discontent about promotion prospects
Rumours that employment contracts are to be changed soon and wages reduced further

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UNIT 2: HUMAN RESOURCE MANAGEMENT


Evaluate the strength of
employee relations at the
TM hypermarket in St.
Laurent [6 marks, AO3, HL]

Key points to explore:


Case study itself provides only limited evidence about the strength of employee relations
No evidence of industrial disputes, but this does not mean that relationships between employees and senior
management are not strained
No evidence that employees at TM are allowed to be unionised; given the culture at TM, it is perhaps unlikely that
this is permitted. We are told that TM does not want them [managers and employees] expressing collective
opinions. [line 58]
Some evidence of a climate / culture of fear at the hypermarket in St Laurent; Henri reluctant to report the two
misbehaving stockroom employees for fear they would be immediately dismissed.
The MBA case study SWOT analysis suggests that the major weakness at TM is a workforce that is treated badly. If
this judgement is correct, then it is hard to imagine anything other than poor employee / employer relations in the
business. And these relations are likely to get worse (if that is possible) if TM goes ahead with new employment
practices and contracts [line 100].

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

UNIT 3: FINANCE AND ACCOUNTS


3.1 Sources of finance
With reference to TM, explain
the difference between internal
and external sources of finance
[4 marks, AO2, SL/HL]

Internal sources of finance: finance that is generated from within the business.
For most businesses, particularly a quoted MNC like TM, the most important source of internal finance will be
retained profits. These are the profits that are kept in the company rather than distributed as dividends to
shareholders.
External sources of finance: sources of finance such as bank loans, bank overdrafts and credit from suppliers
which are received from outside the business
TM is likely to have a complex range of external sources of finance, including:
Trade credit provided by its suppliers (as part of the favourable terms negotiated by TM). Look out for a higher
creditor days ratio as evidence of the importance of trade credit as a source of finance to TM
Share capital: as a quoted company, TM will be able to raise significant external finance through the issue of
new shares.
Loan capital: it is very likely that TM has some loan or debt capital in its financial structure. Long-term loan
capital is a very efficient way of sourcing finance, providing that the business has the ability to be able to meet
the interest and loan repayments.

3.2 Costs and revenues


With reference to TM,
distinguish between the variable
and fixed costs of operating a
hypermarket [4 marks, AO2,
SL/HL]

Variable costs: costs that vary directly in relation to output or volume sold
Examples of variable costs for a TM hypermarket include:
-

Purchases of stocks from manufacturers of branded consumer products


Commissions payable to providers of services delivered in store

Fixed costs: fixed costs that do not change in relation to output or volume sold:

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UNIT 3: FINANCE AND ACCOUNTS


Examples of fixed costs for a TM hypermarket include:
-

Store rent and business taxes based on the size of each store
Advertising and other promotional campaigns
Store management salaries

3.3 Break-even analysis


Explain two benefits of using
breakeven analysis to assess the
financial performance of TM
hypermarkets [4 marks, AO2,
SL/HL]

Breakeven analysis is a very useful tool to help assess what level of revenues or output is required for a
business (or business unit) to cover its costs.
It also helps focus management attention on two key indicators that drive the overall profitability of a
business, namely:
-

Contribution per unit


Fixed costs

Effective use of breakeven analysis at a TM hypermarket would encourage management to:


-

Maximise the contribution per unit for key products


Allocating store selling space to products with the highest contribution per unit
Focus on cost control to minimise fixed costs

3.4 Financial accounts


In the context of TM, explain
two ways in which the financial
accounts of the company would
be of interest to TMs external
stakeholders [4 marks, AO2,
SL/HL]

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Government
The published financial accounts of MNCs like TM have come under increasing scrutiny by governments in
many countries, including France.
For example, the French Government will want to ensure that TM is not engaging in inappropriate tax
avoidance and is paying a satisfactory level of taxation on the profits generated by TM in France. The profit
and loss account will be a key source of information for Governments.

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UNIT 3: FINANCE AND ACCOUNTS


Suppliers
TM is likely to require suppliers to provide trade credit as part of the purchasing terms it negotiates with them.
So suppliers will want to ensure that TM has a satisfactory liquidity position to ensure TM is able to repay
amounts owed. The balance sheet would be the best source of financial information for this purpose.
3.5 Profitability and liquidity ratio analysis
With reference to TM explain
why a large retailer like TM
might safely conduct its business
with a very low current ratio [4
marks, AO2, SL/HL]

The current ratio is the most commonly used liquidity ratio. It compares the relationship between current
assets and current liabilities, by dividing one over the other.
Normally a business will want to operate with a current ratio of well above 1, since that would imply that the
business has enough current assets (including cash) to be able to settle amounts owing in the next 12 months.
However, supermarket retailers often operate safely with a much lower current ratio than 1 without
experiencing any significant liquidity problems. This is because of the way in which a supermarket operates, in
that:
(1) It has high stock turnover
(2) Customers all pay in cash or via payment card which is received by the supermarket a few days after
each transaction
(3) Suppliers are used to offering extended credit periods
A consequence of this is that, when you look at the balance sheet of a larger supermarket retailer:
-

Trade debtors are very low


Stocks are low
Trade creditors are high

Which has the effect of making the current ratio very low too! Of itself, therefore, a very low current ratio
should not be a concern when assessing the liquidity position of TM. However, it is also important to look the
change in the current ratio. For example, when used alongside the Creditor Days ratio, it may indicate
evidence that TM is taking too long to pay suppliers.
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3.6 Efficiency ratio analysis (HL only)
With reference to TM comment
on how TMs approach to
operations management will
benefit its stock turnover ratio
[4 marks, AO2, HL]

TMs approach to operations management is based around lean production, where the aim is to minimise
waste, outsource activities to reduce cost of sales, and minimise the amount and value of stocks held through
the use of JIT.
The stock turnover ratio is used to calculate how many times a business stocks need to be replaced in a given
time period (typically a year).
Effective use of JIT by TM should mean that it is able to carry a significantly lower average level of stock
compared with other supermarket retailers since it will be minimising the need for buffer stocks.
A consequence of this is that TMs stock turnover ratio should be higher than comparable businesses.

Suggest two consequences for


TM of having a very high
creditor days ratio [4 marks,
AO2, HL]

The creditor days ratio calculates the period of time taken, on average, for a business to pay its suppliers. Most
suppliers will offer customers a period of trade credit as part of the agreed purchasing terms and this period
will vary enormously from industry to industry.
A very high creditor days ratio (compared with other competitors in the same industry) is likely to indicate two
things:
(1) A business has been granted a very long payment period as part of the agreed purchasing terms with a
supplier, and/or
(2) The time taken to pay suppliers is being extended beyond what is agreed, in order to maximise cash
flow and minimise working capital
Two consequences for TM of this, if it is happening would be:
Major suppliers may refuse to supply TM, or may negotiate for higher purchase prices to compensate for the
delayed payment (this would have the effect of increasing TMs unit costs);

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Industry regulators may look at TMs behaviour towards its suppliers and conclude that it is abusing its
dominant market position. This may have significant cost implications, depending on the how the industry is
regulated in each country.

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

UNIT 4: MARKETING
4.1 The role of marketing
With reference to TM, outline
two differences in the way that
services and goods are marketed
[4 marks, AO1, SL/HL]

Services are different from goods in several ways: for example


Services are intangible (e.g. quality of advice by a TM in-store pharmacist) compared with goods which are
physical (e.g. the hardware items in Henris section)
Services are inseparable from the people (staff) who deliver them to customers accordingly the marketing
of services needs to emphasise the quality of customer service
Services are perishable in they are consumed in person (e.g. a visit to a TM optician) whereas goods are
stored in store and warehousing (e.g. TMs range of automotive parts and office supplies)

Explain two benefits of having a


high market share in the markets
in which TM operates [4 marks,
AO2, SL/HL]

Key potential benefits of a high market share include:


Maximising revenues per store resulting in the fixed costs of store operations being spread over a higher
volume of sales. This results in lower unit costs, which should enable TM to be competitive as it implements
its lowest-price strategy. This is an example of how market leadership can enable TM to benefit from
economies of scale.
TM is better placed to use its bargaining power as a market leader to obtain the most favourable purchasing
terms form suppliers who are likely to want TM to buy from them in order to maximise their own sales. A
consequence of using the bargaining power of a market leader is that TMs unit costs are likely to be lower
than its competitors for similar goods and services which will also support its market positioning of offering
the lowest prices in the market.

Discuss why high market share


and market leadership are
important if TM is to achieve its
stated main aim of having the

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The two key benefits described above are two reasons why market leadership is important.
Economies of scale: TM able to achieve lowest unit costs in the market, which is a source of competitive
advantage since it wants to compete on price

IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

UNIT 4: MARKETING
lowest prices in the market [6
marks, AO3, SL/HL]

Bargaining power with suppliers: another way of reducing unit costs, maximising the gross profit margin on
each item sold.
Other potential benefits of high market share and high leadership:
Brand loyalty: a market-leading brand is well-placed to develop strong customer loyalty. In supermarket
retailing, this might be because the TM brand is so well-known and trusted (to deliver low prices). If
customers see a TM store, they know what they are going to get.
Corporate reputation: market leaders often enjoy a good corporate reputation; after all, there must be a
reason why a business has become the market leader! However, does this help TM deliver on its promise of
lowest prices? Dont forget too that corporate reputation is easily damaged which can lead to a loss of
market share there may be a danger that this could happen to TM if customers perceive the lowest-price
aim is being achieved partly through unethical or socially-irresponsible behaviour.

Discuss whether TM is acting


ethically through its marketing
practices and strategies [6 marks,
AO3, SL/HL]

Marketing ethics represent the moral aspects of a firms marketing strategies, tactics and marketing mix. In
most industries and markets there are widely accepted ethical practices, in addition to legislation and
regulations that set out what is expected of firms. The consequences can be quite damaging if a firm is found
to be acting unethically.
What is the evidence for TM?
The only explicit evidence is that pressure groups are urging TM to adopt ethical behaviour [lines 46-47].
This is perhaps linked to the evidence that when TM opens a hypermarket in a town, many small shops in
that town go out of business. [lines 44-45]
The implication of this evidence is that TMs decision to open new stores may be perceived as being anticompetitive.
Is this criticism justified? On the one hand, TM surely has the right to open stores in what ever location
(place) it feels is justified from a commercial point of view. If the competition authorities in each international
market believed that the store opening programme was anti-competitive, they would take action.

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UNIT 4: MARKETING
On the other hand, is there more that TM could do to alleviate the damage to local retail businesses when it
opens a new store? We are told TM has a poor record of corporate social responsibility [line 46], suggesting
that TM senior management are relatively unconcerned about any stakeholder group other than
shareholders.
Consider another possible issue: is it ethical to have a market positioning offering the lowest prices in the
market?
On the one hand, there is nothing to stop TM from offering everyday low prices that are lower than
competitors, particularly if its scale and efficiency enables it to do so.
However, it TM is not permitted to undertake predatory pricing to deliberately offer pries so low as to be
designed to discourage new entrants into a market (which is both unethical and illegal).
4.2 Marketing planning (including introduction to the four Ps
With reference to TM, analyse
which element of the marketing
mix (4 Ps) is most important in
enabling it to achieve its stated
main aim [4 marks, AO2, SL/HL]

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The relative importance of the elements of the traditional marketing mix for TM might be summarised as
follows:
Mix Element

Importance for TM & Justification (in relation to stated aim)

Product

High Importance: the extended TM hypermarket format has increased the importance of
product range, and the emphasis on negotiating favourable supplier terms and operating
lean with JIT shows how important product is to TM.

Price

Very High Importance: Achievement of TMs aim can be clearly measured and
monitored by comparing TMs prices for comparable products with key competitors
(including those online). The price positioning goes right to the heart of how the business
is managed and the organisational culture of TM.

IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

UNIT 4: MARKETING
Promotion

Medium Importance: Promotion for TM is relatively straightforward. The promotional


mix simply needs to emphasise the lowest-price message. There is nothing complicated
about this the message just needs to be delivered clearly and consistently.

Place

High Importance (and growing): It is often said that retail is all about location, location
and location, so Place will always be important. However, you might argue that this is
likely to increase in importance due to the significant changes happening in supermarket
retailing due to e-commerce.

Compare and contrast the unique


selling point (USP) of Henri
Trouves family hardware
business and that of the TM
hypermarket in St. Laurent. [4
marks, AO3, SL/HL]

A USP is a point of differentiation that, if sustained, can provide a source of competitive advantage.
Henri Trouves family hardware business:
USP was customer service
Key features:

Deep product knowledge


Time taken to understand customer requirements
Service ethos rather than a selling ethos

Price: likely to be higher than available elsewhere, but customers appreciated the expert advice, customer
care and attention.
TM Hypermarket:
USP is lowest prices in the market because TM is the biggest in the market
Key features:

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Widest product range (one-stop shop)


Unbeatable prices

IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

UNIT 4: MARKETING

Little expert service; employees there to achieve sales

4.3 Sales forecasting [HL only]


Describe two difficulties that TM
may experience when it tries to
forecast sales for its stores
around the world [6 marks, A3,
HL]

Potential difficulties include:


Changing state of the Economy in different markets: sales forecasting for a supermarket retailer generally
takes into account (to some extent) the economic conditions in market and potentially within different
regions of each country. TM is a global MNC and this information may not necessarily be reliable in each
country.
Variable impact of e-commerce
A factor that will potentially significantly affect the reliability and accuracy of sales forecasts for TM is the
extent to which e-commerce is being offered (and adopted by customers) in each geographical market. This
method of retailing is developing rapidly in most developed and developing economies, with a particular
feature being the disruption caused by new market entrants. For example, France, how might TMs sales
forecasting be affected if Amazon repeats what it has done in the UK and entered the grocery food market?
TMs Centralized Approach to Management
TM has a highly centralized approach to decision-making, Yet, for sales forecasting in an MNC to be reliable, it
requires detailed input and insights from local managers. Given that TM appears to discourage
communication between the layers of the organisational structure, there has to be a risk that difficulties will
arise if local management do not feel able to input into, and challenge, sales forecasts for their stores and/or
areas.

4.4 Market research


Explain the importance of market Market research is usually an essential part of the analysis and evaluation of key commercial decisions (e.g.
research for TM as it actively
new product launches, promotional strategies, location decisions).
investigates development of new
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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

UNIT 4: MARKETING
markets in Asia [4 marks, AO2,
SL/HL]

Research is particularly important for TMs market development strategy in Asia because:
Asia is a vast continent containing hugely diverse economies, markets and cultures
Customers needs and wants are known to be significantly different from South America and Europe; an
effective marketing mix by TM in Asia is likely to be significantly localised to reflect different customs,
tasters, preferences etc.
TM is highly likely to face intense competition in its chosen Asian markets, not just from MNCs with the same
global ambition (e.g. Walmart, Tesco, Carrefour) but also leading domestic retail chains who will enjoy
significant advantages such as brand awareness and loyalty, the best existing locations and a network of
logistics (suppliers, warehousing etc.)

4.5 The four Ps (product, price, promotion, place)


To what extent do you think that
product has become more
important than price in TMs
marketing mix? [6 marks, AO3,
SL/HL]

Possible reasons why product may have become more important than price:
Once the market has got used to the lowest-price positioning, there is little extra benefit to TM sales and
profits other than maintaining a price advantage over competition retailers.
Further price cuts are unlikely to enable TM to significantly increase revenues and profits. As market leader,
TM will already have a large percentage of the potential customer based.
TM will face increasingly intense price competition (particularly from online retailers) which may erode its
price advantage. Having a better and wider product range may, then, become a more effective source of
differentiation from the competition.
Possible reasons why price is still more important than product:
Economic downturn in many of TMs core markets means that customers are increasingly looking for value
for money. For example, the rise of the discount retailers such as Aldi, Netto and Lidl across Europe suggests
that price is increasingly important factor in how competitive a supermarket is.

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

UNIT 4: MARKETING
Price remains at the core of what TM is all about. The entire business is organised around operating
efficiently so that low prices can be offered.
With reference to TM, describe
two ways in which the operation
of the business enables it to
compete effectively with a lowprice strategy. [4 marks, AO1,
SL/HL]

Ways in which operations support the TM pricing strategy include:


Lean production methods = lower stockholding costs
Outsourcing to external suppliers = lower cost of sales
Wages kept to a minimum & no mention of any performance-related incentives = lower fixed costs
Squeezing suppliers for the most favourable terms based on TMs market scale = higher gross profit margins

Explain two advantages for TM of Potential advantages for TM include:


expanding its product range into Consistent with delivering a one-stop shopping experience for hypermarket customers: a logical extension of
the services market [4 marks,
broadening the product range to include non-food items such as automotive parts and office supplies
AO2, SL/HL]
Hypermarkets are very large locations with significant
4.7 International marketing [HL only]
Outline two reasons why TMs
attempts at external growth
through franchising may have
failed [4 marks, AO1, HL]

Possible reasons include:


TMs organisational culture and structure:
A highly centralized and autocratic is somewhat inconsistent with running a successful franchise-based
business. Whilst a franchisee will accept that it needs to follow the business format it is licensed to operate,
successful franchisors like McDonalds, Subway and Costa encourage their franchisees to be entrepreneurial.
For example supporting initiatives by stakeholders such as the local community, running local promotions.
That requires a degree of decentralisation so that franchisees can have some freedom (empowered) to run
their TM stores.
TMs market leadership

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

UNIT 4: MARKETING
It is possible that the TMs market share is so strong in many locations that new stores operated by
franchisees struggled to gain market share because of competition from local TM hypermarkets. So the
franchised stores may have suffered the same fate as Henris fathers hardware store!
Store Format of the Franchises
We are not told what kind of stores TM attempted to open as part of its franchise-based external growth
strategy, nor when the strategy was implemented. However, it is quit unusual for franchised retail stores to
be of a size anywhere near that of a hypermarket. Much more likely is that the franchised stores were small
in size (perhaps similar to the traditional convenience store format such as Spar).
With reference to TM, outline
one opportunity and one threat
of entering new markets in Asia
[4 marks, AO1, HL]

Key opportunities:

China rapidly growing middle class, increasing their consumer spending


New markets in Asia are enjoying relatively faster economic growth than Europe
Substantial populations in Asia
Exploits TM global brand name in potentially attractive markets

Key threats:

Discuss two ways in which TM


could pursue a strategy of
entering new markets in Asia [4
marks, AO3, HL]

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Existing competition hypermarket formats already established by domestic competitors and existing
MNC competitors
E-commerce: use of online shopping for traditional grocery products already well-established in many
Asian markets
Legislation / Regulation: significantly different regulatory environment

Possible approaches:
Sell direct to customers using e-commerce only: an internal growth approach: this is a low-risk approach for
TM and is quite easy to do using existing e-commerce platforms (particularly in China using Tmall).
Enter into a Joint Venture with existing hypermarket operators in target markets: this also reduces the risk
for TM and would enable it to learn more about what it takes to be successful in the new markets. Joint

IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

UNIT 4: MARKETING
Ventures need careful negotiation and planning, particularly when it comes to choosing the right JV partner.
Tesco used this approach when it entered the supermarket sector in Thailand and South Korea.
Acquire an existing retailer in the target market: a much higher risk approach (assuming it is permitted by
the competition authorities in the target market). However, an appropriate takeover would enable TM to
enter the market quite quickly and take-on potentially quite a large market share overnight + gain control of
the required logistical infrastructure
Open new stores in the target market: another internal approach. This would still be high risk and it is
unlikely to result in a high market share in the short term.
4.8 E-commerce
Explain two ways in which TM
Reaching new customers: e-commerce may enable TM to extend its customer base beyond the core
might benefit from using ecustomers who prefer shopping in the hypermarkets. This would support a strategy of market development.
commerce [4 marks, AO2, SL/HL] For example, many small businesses are likely to buy their office supplies online rather than at hypermarkets.
If TM were able to offer the lowest prices in the online office supplies market (taking on global competitors
such as Amazon and Staples) then it might enjoy significant revenue growth.
Further expand TMs product range: E-commerce could enable TM to expand its product range even further,
beyond the goods and services it provides in the one-stop store environment. This would support a
strategy of product development. For example, it might be able to launch an online clothing and footwear
range, or expand further into financial services (e.g. personal savings products).
Make more efficient use of existing stores: offering e-commerce might enable TM to make more effective
use of the store capacity and infrastructure. For example, online orders could be picked by TM store staff
from existing store inventories, which would improve labour productivity.
Describe two threats to TMs
position in the market arising

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Potential threats include:


Online competitors may be able to use dynamic pricing to be able to match or beat TMs lowest-price
market positioning. For example, Amazon uses sophisticated dynamic pricing (where prices are changed

IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

UNIT 4: MARKETING
from the increased use of emany times based on market conditions) to ensure that its Amazon Fresh and Amazon Pantry online
commerce [4 marks, AO2, SL/HL] groceries offer prices that at least match the best prices offered by key competitors.
More consumers will switch to online shopping: can TM afford not to introduce e-commerce? In nearly all
consumer markets, the proportion of sales generated using e-commerce is rising fast. TMs major
competitors in each geographical market are likely to be making full use of e-commerce. So if TM does not
respond, it is likely to suffer from declining market share.

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

UNIT 5: OPERATIONS MANAGEMENT


5.1 The role of operations management
Analyse the importance of
efficient operations management
for TM [6 marks, AO2, SL/HL]

Operations management is concerned with how a business obtains and organises the resources necessary to
deliver the product or services. This involves making choices about how to implement and coordinate all
aspects of operations so that a business can operate efficiently and in a cost-effective way.
For TM the most important role of operations management is to support the main aim of having the lowest
prices in the market.
That means that operations management has to ensure TM is able to benefit from:
High labour productivity since labour costs are traditionally a high proportion of retail operating costs.
Operations management therefore needs to work closely with Human resource management.
Optimal locations: retail space is also a significant part of retailing operating costs. So TM needs to ensure
that it trades from cost-effective locations.
Efficient use of retail space: the key operations measure here is revenue per square foot; this needs to be
maximised in order for TM to operate cost-effectively. For example, it may be that more space in each store
needs to be allocated to the new services offered if they produce higher returns.

5.2 Production methods


With reference to TM, describe
two ways in which the greater use
of customized production might
be an opportunity or a threat [4
marks, AO1, SL/HL]

Customized production involves the personalisation of products based on specific customer requirements.
This is much easier to achieve now due to the integration of e-commerce into manufacturing processes.
Potential opportunity: offer personalisation options for customers in-store: e.g. TM could launch a clothing
product range that enables customers to personalise their requirements during a store visit and then have
the custom-produced garments delivered to their homes.
Potential threat: global product manufacturers will be able to use customized production to enable
customers to buy directly from them rather than buy from retailers.

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

UNIT 5: OPERATIONS MANAGEMENT


5.3 Lean production & quality management [HL only]
With reference to TM, outline one
advantage and one disadvantage
of using lean production methods
[4 marks, AO1, HL]

Lean production is an approach to business management that focuses on cutting out waste, whilst ensuring
quality. This approach can be applied to all aspects of a business from design, through production to
distribution. Lean production aims to cut costs by making the business more efficient and responsive to
market needs.
Possible advantages for TM:
Lean production a key part of a strategy of cost minimisation. All aspects of operations are scrutinised to
minimise costs to enable the business to maintain its positioning of lowest market prices
Helps support and reinforce the organisation culture at TM. It is often said that the most successful low cost
operators in any market have a culture where low cost is embedded in the values, beliefs and decisionmaking.
Possible disadvantages for TM:
One of the chosen methods of lean production used by TM is just-in-time (JIT). This is a complex stock
management approach that requires very close coordination with suppliers to help ensure that buffer stocks
are at a minimum. A risk for TM is that the JIT systems break down and its stores are not able to offer
products that are in high demand, thereby leading to lower revenues and store profits if this is sustained and
significant.

Examine the importance of lean


There is no doubt that lean production methods used by TM are entirely consistent with its stated aim of
production for TM [6 marks, AO3, having the lowest prices in the market.
HL]
Implemented properly, outsourcing and JIT can significantly reduce some store operating costs and reduce
the costs of holding buffer stocks.
However, lean production is just one part of TM operating at low cost. Other factors are perhaps more
important in enabling TM to be the lowest cost operator in its market. In particular:

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

UNIT 5: OPERATIONS MANAGEMENT


Economies of scale: TMs market leadership is perhaps the most important factor in supporting its
operational objectives of efficiency and lowest cost.
Relationships with suppliers: this too is very significant. A hypermarket will normally benefit from quite a
high stock turnover, regardless of whether JIT is used to manage stock levels. Of far greater impact on gross
profit margins and units costs are the prices that TM agrees to pay its suppliers.
5.4 Location
Suggest two possible benefits and
drawbacks of TM using
outsourcing to cut cost of sales [4
marks, AO2, HL]

Outsourcing is one of the methods of lean production used by TM. Outsourcing involves the delegation of
one or more business processes to an external provider, who then owns, manages and administers the
selected processes to an agreed standard.
Benefits:
Outsourcing enables TM to focus on the activities where it has competitive advantage. For example, a
store may outsource store cleaning services, or store security to specialist suppliers. These services are likely
to be sourced by TM at very low rates given its bargaining power and it will be much cheaper than employing
people directly.
TM may benefit from specialist providers who can deliver better customer service. For example, it may be
that TM has outsourced the provision of pharmacy services in TM hypermarkets to specialist providers,
which will benefit customers.
Drawbacks:
As with all supplier arrangements, there is a risk of poor quality, particularly if TM chooses its suppliers
purely on the basis of price, not quality!
TM may have to deal with staff redundancies due to the use of outsourced providers.

5.5 Production planning [HL only]

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

UNIT 5: OPERATIONS MANAGEMENT


Analyse two benefits to TM of
using Just-in-time (JIT) [4 marks,
AO2, HL]

JIT is a system used in lean production which means that inventories (stocks) only arrive just as they are
needed.
Two likely benefits:
Less slow-moving or obsolete stock: supermarkets will always have to offer further price reductions to clear
products that are proving hard to sell, towards their sell-by date or at the end of key seasonal periods.
However, JIT should mean that there is less of such stock that needs discounting or throwing away
The benefit of lower working capital: across its entire store portfolio TM will be holding a substantial value
of stocks. Even a relatively small reduction in the total amount held in buffer stocks could help significantly
reduce the total cost of stocks held at any one time

Explain two potential problems


that may arise for TM as a result
of using JIT [4 marks, AO2, HL]

Two potential problems are:


Complexity for its suppliers: JIT will involve complex systems that interact with key suppliers to its
hypermarkets. Suppliers will be required to deliver stocks to the hypermarkets as they are needed. This is a
difficult task, since there will be products for which demand varies unpredictably and which might, therefore,
run out of stock before the supplier can resupply the stores.
Lost revenues as a result of buffer stocks not being available: TM has significantly expanded its product
ranges. Whilst it is not clear whether JOT has been implemented for all these products, the much wider
range of products is likely to increase the risk of stock-outs, particularly where there are sudden increases
in customer demand, or a supplier experiences unexpected problems supplying all its TM stores.

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

PRACTICE EXAM PAPER SL



BUSINESS MANAGEMENT
STANDARD LEVEL
PAPER 1

PRACTICE PAPER
1 hours 15 minutes
_________________________________________________________________________

INSTRUCTIONS TO CANDIDATES

Do not open this examination paper until instructed to do so.


A clean copy of the Business Management case study is required for this examination paper.
Read the case study carefully.
A clean copy of the Business Management formulae sheet is required for this examination
paper.
Section A: answer two questions.
Section B: answer question 4.
A calculator is required for this examination paper.
The maximum mark for this examination paper is [40 marks].

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

SECTION A

Answer two questions from this section.

1. (a) With reference to TM, outline two key features of operating as a public
limited company.

(b) Complete a PESTLE analysis for TM highlighting key issues facing the
business.

2. (a) With reference to TM, outline two differences in the way that services
and goods are marketed.

(b) With reference to TM, compare and contrast the motivational theories
of Taylor and Pink.

3. (a) Explain two benefits of having a high market share in the markets in
which TM operates

[4 marks]

[6 marks]

[4 marks]

[6 marks]

[4 marks]

(b) Analyse the importance of efficient operations management for TM.


[6 marks]

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

SECTION B
4. Henri has now analysed the financial information for TM provided for his MBA class and has
calculated some financial ratios based on this information as shown below:

Table 1: Extracts from Financial Information on TM provided in MBA Case Study
All figures are in m

2014

2015

Revenues

78.6

82.5

Gross Profit

39.1

44.3

3.4

4.2

3.4

3.1

10.5

14.2

Trade creditors

8.4

10.2

Average stocks

1.5

1.6

2014

2015

49.7%

53.7%

Net profit margin (%)

4.3%

5.1%

Current ratio

0.32

0.22

Acid test ratio

0.22

0.11

18.4%

20.3%

Net Profit

Current assets
Current liabilities


Table 2: Financial Ratios Calculated by Henri Trouv

Gross profit margin (%)

ROCE (%)


Henri is shocked at his ratio calculations and is concerned about the overall financial
position of TM.

(a)

Define the term gross profit margin

[2 marks]

(b)

Describe two benefits to TM from using outsourcing to cut cost of sales

[4 marks]

(c)

In the context of TM, explain two ways in which the financial accounts of the
company would be of interest to TMs external stakeholders

[4 marks]

(d)

Using the financial information provided in Table 1 and Table 2 above and the
case study, examine the financial position of TM and suggest ways in which it
might be improved
[10 marks]



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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

PRACTICE EXAM PAPER HL



BUSINESS MANAGEMENT
HIGHER LEVEL
PAPER 1

PRACTICE PAPER
2 hour 15 minutes
_________________________________________________________________________

INSTRUCTIONS TO CANDIDATES

Do not open this examination paper until instructed to do so.


A clean copy of the Business Management case study is required for this examination paper.
Read the case study carefully.
A clean copy of the Business Management formulae sheet is required for this examination
paper.
Section A: answer two questions.
Section B: answer question 4.
Section C: answer question 5.
A calculator is required for this examination paper.
The maximum mark for this examination paper is [60 marks].

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

2 -

SECTION A
Answer two questions from this section.

1. (a) With reference to TM, outline two key features of operating as a public
limited company.

(b) Complete a PESTLE analysis for TM highlighting key issues facing the
business.

2. (a) With reference to TM, outline two differences in the way that services
and goods are marketed.

(b) With reference to TM, compare and contrast the motivational theories
of Taylor and Pink.

3. (a) Explain two benefits of having a high market share in the markets in
which TM operates

[4 marks]

[6 marks]

[4 marks]

[6 marks]

[4 marks]

(b) Analyse the importance of efficient operations management for TM.


[6 marks]

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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

SECTION B
4. Henri has now analysed the financial information for TM provided for his MBA class and has
calculated some financial ratios based on this information as shown below:

Table 1: Extracts from Financial Information on TM provided in MBA Case Study
All figures are in m

2014

2015

Revenues

78.6

82.5

Gross Profit

39.1

44.3

3.4

4.2

3.4

3.1

10.5

14.2

Trade creditors

8.4

10.2

Average stocks

1.5

1.6

2014

2015

49.7%

53.7%

Net profit margin (%)

4.3%

5.1%

Current ratio

0.32

0.22

Acid test ratio

0.22

0.11

Creditor days

86 days

102 days

64%

78%

Net Profit

Current assets
Current liabilities


Table 2: Financial Ratios Calculated by Henri Trouv

Gross profit margin (%)

Gearing


Henri is shocked at his ratio calculations and is concerned about the overall financial
position of TM.

(a)

Define the term gross profit margin

[2 marks]

(b)

Describe two benefits to TM from using outsourcing to cut cost of sales

[4 marks]

(c)

In the context of TM, explain two ways in which the financial accounts of the
company would be of interest to TMs external stakeholders

[4 marks]

(d)

Using the financial information provided in Table 1 and Table 2 above and the
case study, examine the financial position of TM and suggest ways in which it
might be improved
[10 marks]


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IB DIPLOMA BUSINESS MANAGEMENT PAPER 1 CASE STUDY TOOLKIT MAY 2016

SECTION C
5. The Board of Directors of TM are considering two of the following options for TMs initial
expansion into Asia. They have set an objective of achieving overall market leadership in China by
2030, recognising that will require sustained long-term investment.

Option 1: Joint venture with a leading hypermarket retailer in China

Likely overall investment for TM: 10.0bn
Estimated Average Rate of Return for TM: 16%
Payback period for TM: 8 years
Projected impact on market share in China by 2020: +10%

The Board has identified China as the most attractive market in Asia for TMs strategy of
international market development. The Board is wary from the experiences of other MNC
supermarket chains such as Walmart and Tesco who have struggled to gain market share in China
and achieved very low levels of average rates of return on their substantial investments opening
hypermarkets in China.

TM has been approached by Wumart Stores (Wumart) proposing a joint venture. Wumart has
about 430 stores in China, 330 of which are convenience stores and 100 of which are hypermarkets.
The stores are located primarily in the Chinese cities of Beijing, Tianjin and the cities of Hebei
province. The company's stores sell products that range from food to general merchandise from
Chinese and Western brands such as Procter & Gamble, Unilever, and Colgate. As part of the plan,
TM would outsource all operations and HRM of TM-branded stores in China to Wumart in return
for a 50% share of the profits.

Option 2: Launch of an online TM shopping site targeted at consumers in China

Likely overall investment for TM: 2.0bn
Estimated Average Rate of Return for TM: 35%
Payback period for TM: 3 years
Projected impact on market share in China by 2020: +2%

The use of online shopping for grocery and other traditional supermarket products is very popular
in China, particularly amongst younger adults who expect to do most of their shopping online.
Indeed, many supermarket chains in China are now closing stores and focusing their investment
on e-commerce.

The option being examined by TM involves setting up a dedicated TM-branded online store hosted
on the popular Tmall e-commerce platform. TM would sell a range of its most popular global
branded consumer products, aiming to offer the lowest-prices. TM would work with leading
Chinese logistics businesses to handle all warehousing and delivery requirements.

Using information from the case study and the additional stimulus above, recommend which
option 1 or 2 is best for achieving TMs objective of market leadership in China within 10 years.
[20 marks]
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