AS BUSINESS (9609)

SAMPLE ANSWERS

1. Define the term ‘opportunity cost’. [2]

The potential benefits of the next best decision a business gives up when it decides on
one business opportunity over another.

2. Explain two reasons why many new businesses fail in their first year of
operation. [3] (Sample answer- other points related to the concept also
accepted)
Sufficient finance is not secured. A business may not have cash coming in from sales
or enough start-up capital to pay its debts so the business is forced to close.

Poor market research. Businesses forecast demand for their product on service based
on what they project their sales will be. If the demand forecasts are not accurate, sales
will be lower than expected, and the business does not have enough incoming revenue
to continue trading.

3. Explain why the objectives of a business may change over time. [5]
Objectives are the measurable targets that a business sets out to achieve and can
include survival, growth and profit maximisation.

As many businesses fail in the first year after they begin, many start-up businesses
have the objective of survival. However, if a business successfully makes it past the
difficult start-up, phase its objective could change to growth or increasing profits.

In a negative economic environment such as a recession, businesses may need to

change their objectives from growth or profit maximisation to survival.  

This is because in a recession many businesses fail and it becomes much more
difficult to keep customers.  By changing to a survival objective, businesses can’t cut
back on unnecessary costs, reduce prices and ensure they can make it through the
difficult economic circumstances.

4. Analyse the impact of social enterprises on the development of a country. [8]

A social enterprise is a private enterprise that uses profits to pursue environmental or
social objectives. Therefore, social enterprises empower people who may need
additional support to contribute positively to the development of the country.  For
example, social enterprises provide micro-finance to small business people who can’t
access capital from banks. This means that these small business people now positively
to the country’s economy leading to increased employment and GDP for the country.

Social enterprises can also focus on parts of the economy that may be ignored by
companies focused solely on profits and return on investment to investors. For
example, a social enterprise may focus on sustainable eco-tourism, a new market that
may take a long time to develop. This means that economic activity becomes more
diversified as more potential markets are explored. This has a positive impact on a
country’s economy as it means the economy is more innovative and robust and not
just focused on a few small sectors.

Social enterprises can also provide education and training that may not be provided by
the government or local businesses.  For example, training farmers how to use more
sustainable methods for growing crops.  This means that the country’s land becomes
more productive in the long term and leads to sustainable growth in the economy. If
the farmers don’t farm sustainably, it may mean harvest failures in the future that
will lead to a negative impact on the economy. 

5. Discuss why the shareholders of a public limited company might not support
corporate social decisions responsibility (CSR) as a business objective. [12]
Shareholders primary focus is for a business to make profits and provide a return on
their investment in a PLC. Corporate Social Responsibility focuses the objectives of
business not just on what is beneficial for shareholders but on the interests of wider
society.  This means that a PLC must take responsibility for the impact of its decisions
on the environment and other stakeholders in the business. As this may negatively
impact profits shareholders may disagree with CSR.

CSR can increase costs. Netflix offers 52 weeks of paid parental leave to all its staff.
This will significantly increase labour costs as Netflix will have to pay for the staff
who are spending time with their kids and hire a replacement.  The decreased profits
could mean shareholders dividends are reduced and/or less retained profit to fund
future growth.

However, this CSR policy could be beneficial to Netflix as it allows them to attract the
best staff, reduce turnover as staff don’t want to motivate employees and will motivate
employees as it shows Netflix care about the wellbeing of staff and their families.

Furthermore, CSR may distract the PLC leaders from focusing on their core
objectives. For CSR to work effectively leaders throughout an organisation must
consider the impact of all of their decisions on the environment and local community.
For example, Unilever’s aim to be “a force of change for the good in the world” will
require managers to analyse each decision based on CSR, and they may miss
profitable opportunities due to potential conflicts with other stakeholders.

However, if CSR is embedded in the corporate culture, Unilever can benefit from
enhanced reputation and decrease the exposure to legal action or corporate scandals –
which can lead to stable long-term growth.

Shareholders may be ethical investors. For example, only investing in companies that
don’t pollute or treat workers badly. As CSR ensures a PLC’s activities contribute
positively environmentally and socially it will be favoured by ethical investors.

This means these types of shareholders will support CSR and pressure the business to
maintain high ethical standards.

CSR can build customer loyalty. For example, IKEA allows customers to sell back
unwanted furniture to reduce waste. This means that businesses with CSR can reduce
marketing costs for finding new customers.

Furthermore, building a strong relationship with customers will lead to repeat

purchases and long-term revenue growth.

If shareholders take a longer-term view – the costs associated with CSR with being
offset with higher longer-term growth. There is a growing agreement among CEO’s
that thinking only in a corporation’s interests is damages society and the environment
in the long term. Therefore, to secure the stability and prosperity of the business
environment in the future, shareholders should adopt CSR as a business objective.
Shareholders may disagree with CSR as an objective if they are seeking short term
returns and high dividends.

6. Explain how the interests of two stakeholder groups could affect the decisions
of a business. [5]
Stakeholders are people or groups who have an interest in or relationship with a
business. Businesses, especially market-oriented businesses increasingly must make
decisions based on the interests of customers. 

Customers want a good product but also to keep their identity safe. Apple recently
changed its privacy policies so social media companies like Facebook find it more
difficult to access personal data of Apple consumers. This is in response to growing
customer concern about their privacy being at risk from technology companies. 

Private and public limited companies must respond to the interests of shareholders. 

Shareholders are interested in increasing profits so dividends will increase and

increasing the value of the business so the value of their shares will increase. This
means that shareholders will pressure companies like Apple to put profits first and
may be unwilling to protect customer data if it means lower revenue. 

7. Define the term ‘leadership’. [2]

The action of motivating and guiding a group of people to achieve a common or
shared goal.

8. Explain two qualities of a good leader. [3]

Intelligence including emotional intelligence. Good leaders will have to set out the
strategy and direction of the business and foresee threats and opportunities, which
requires deep thinking. 

Tim Cook set Apple’s long-term strategy as subscription-based pricing focused on

user privacy. 

Charisma is the leadership “X” factor which is the ability to inspire followers through
the strength and magnetism of their personality. 

Elon Musk charisma has inspired employees and investors at Tesla to buy into his
vision and achieve highly challenging business goals. 

9. Explain two benefits to a business of having motivated employees. [3]

Lower labour turnover means fewer employees leave an organisation during a specific
period. Low motivation causes high labour turnover as employees don’t want to work
in an organisation where they are not happy. Lower labour turnover means lower
recruitment costs for a business.

Better customer service. Motivated employees are more likely to respond positively to
clients in customer-facing industries. This will lead to a loyal customer base and
higher profits. 

10. Define the term ‘workforce planning’. [2]

Forecasting the number of workers that will be required by a business going forward
and figuring out what skills and experience these employees will need.

A hotel in the Winter season analysing how many staff they will require for summer.

11. Define the term ‘redundancy’. [2]

When a position no longer exists so the employee loses their job.

For example, if a production line shuts down the workers will be made redundant.