Test 2

The business environment

1 According to Johnson and Scholes the social influences that should be monitored include which of
the following?
A Education levels/Income distribution/Social mobility
B Cultural tastes/Public attitudes/Consumerism
C Population size/Health/Lifestyle changes
D Employment levels/Housing quality/Social values (2 marks)

2 With regard to world demographics which of the following is correct:

A The population of the world is decreasing
B On average the human life span is increasing
C Developing countries are experiencing a “baby boom”
D The majority of health issues, such as diabetes and obesity, have been successfully addressed in the
USA and UK (2 marks)

3 Which of the following statements is/are correct?

(i) Due to changes in social structure, more people are starting a family later on in life.
Governments are trying to address the associated problems by giving subsidies for childcare in order
to increase the birth rate.
(ii) The proportion of one person households in the UK is increasing at a significant rate.
A (i) only
B (ii) only
C Both
D Neither (2 marks)

4 Home-working refers to:

A Giving employees work they should finish at home before coming into the office the next day
B Working on people’s homes with the aim of refurbishing them
C Allowing people to work from home rather than having to come into the office
D A sales person working from house to house to increase his turnover (2 marks)

5 Which of the following is NOT a benefit of an organisation adopting a sustainable approach with
regards to its impact on the environment?
A Potential cost savings due to operational efficiencies
B Increased competitive advantage over companies who are not environmentally friendly
C Reduction in the probability of additional environmental legislation
D Less administration required (2 marks)
6 Which of the following, according to Porter, results in a firm becoming “stuck in the
middle”?
A Trying to be both a cost leader and focused
B Trying to be a cost leader
C Trying to be focused
D Trying to be both a cost leader and a differentiator (2 marks)

7 Which of the following statements is/are correct?

(i) If a company is trying to pursue a cost leadership strategy, it will aim to produce products that are
of lower quality and which are therefore cheaper.
(ii) Service is a secondary activity in Porter’s value chain.
A (i) only
B (ii) only
C Both
D Neither (2 marks)

8 Which of the following would a large retailer monitor under the Political heading as part of a PEST
analysis?
A Interest rates/State of the economy/Oil price movements
B VAT legislation/Changes to planning regulations/Food labelling
C Predicted shopping patterns/Public concerns over small retailers
D Developments in till manufacture/Automated analysis of shopping patterns (2 marks)

9 Which of the following statements is/are correct?

(i) An employee has a duty to consider the health and safety of other people who may
be affected by his or her actions.
(ii) Data protection refers to keeping data safe from physical and human hazards.
A (i) only
B (ii) only
C Both
D Neither (2 marks)

10 H has recently employed a builder to perform some repairs to her house.

The work was completed on time, but upon inspection, H found that the work done was of very poor
quality.
The builder has also sent H an invoice for slightly more than the amount he had originally, verbally
quoted for the work.
Which of the following is likely to be a reason that H would be able to dispute the invoice
under consumer protection legislation?
A The work was more expensive than originally quoted
B The repairs should have been undertaken in a reasonable length of time
C The work should have been carried out with reasonable skill and care
D The original quote was only given verbally (2 marks)
11 What is an acronym used to describe the key elements of an organisation’s external
environment?
A SWOT
B SMART
C PEST (1 mark)

12 Which of the following is not a legitimate method of influencing government policy in the
interests of a business?
A Employing lobbyists to put the organisation’s case to ministers or civil servants
B Giving lawmakers non-executive directorships
C Offering financial incentives to public officials to use their influence on the organisation’s behalf
D Attempting to influence public opinion, to put pressure on the legislative agenda
(2 marks)

13 ................... is an analysis of statistics on birth and death rates, age structures of people and
ethnic groups within a community.
Which word correctly completes the sentence?
A Ergonomics
B Economics
C Psychographics
D Demographics (2 marks)

14 A recent trend in organisation and management is the rise in ‘virtual organisation’ and ‘virtual
team working’.
To which of the following environmental (PEST) factors is this most directly attributed?
A Economic
B Socio-cultural
C Technological
D Political (2 marks

15 The stationery and printing company S Co, has recently upgraded its computers and printers so
that more production has become automated.
Many middle managers will now be made redundant.
This is known as:
A Downsizing
B Delayering
C Outsourcing (1 mark)

16 In the context of ’best practice’ employment protection law, in which of the following
circumstances is dismissal of an employee automatically considered unfair?
A Selection for redundancy on the basis of age
B Misconduct
C Marriage to an employee of a key competitor
D Incompetence (2 marks)
17 Which of the following socio-cultural trends will have a direct impact on most business
organisations?
(i) Increasing ethnic and religious diversity in populations
(ii) Falling birth rates
(iii) Focus on ‘green’ issues
(iv) Increase in single-member households
A (iii) only
B (i) and (iii) only
C (i), (ii) and (iii) only
D (i), (ii), (iii) and (iv) (2 marks)

18 Porter’s five forces model identifies factors which determine the nature and strength of
competition in an industry.
Which of the following is not one of the five forces identified in Porter’s model?
A Substitute products or services
B New entrants to the industry
C Bargaining power of customers
D Government regulation of the industry (2 marks)

19 For what function in an organisation would demographic information about social class be most
relevant?
A Human Resources
B Marketing
C Purchasing (1 mark)

20 Which of the following is a support activity in Porter’s value chain model?

A Procurement
B Operations
C Marketing and sales
D Inbound logistics (2 marks)

21 Which of the following statements about the impact of technological developments is not true?
A Technology developments have supported corporate delayering
B Technology developments tend to adversely affect employee relations
C Technology developments creates risk for long-range product/market planning
D Technology developments offer significant advantages for corporate communications
(2 marks)
22 BCD Co is a large trading company.
Steve is the administration manager and is also responsible for legal and compliance functions.
Sheila is responsible for after sales service and has responsibility for ensuring that customers who
have purchased goods from BCD Co are fully satisfied.
He is also responsible for identifying the most appropriate suppliers of plant and machinery for the
factory.
Sam is the information technology manager and is responsible for all information systems within
the company.

According to Porter’s value chain, which of the managers is involved in a primary activity as
opposed to a support activity?
A Steve
B Sheila
C Sunny
D Sam (2 marks)

23 What is the latest stage at which a new recruit to a company should first be issued with a copy
of the company’s health and safety policy statement?
A On accepting the position with the company
B As early as possible after employment
C After the first few weeks of employment
D During the final selection interview (2 marks)

24 In Porter’s five forces model, which of the following would not constitute a ‘barrier to entry’?
A Scale economies available to existing competitors
B High capital investment requirements
C Low switching costs in the market (1 mark)

25 Three of the following strategies are closely related.

Which is the exception?
A Downsizing
B Delegating
C Delayering
D Outsourcing (2 marks)
Section B

1(a) A company has recently dismissed employees in the following circumstances:

Sarah was dismissed following disciplinary proceedings, although she was not guilty of negligence,
and was not given her contractual period of notice by the company.
Trevor was dismissed from the company immediately after committing an act that was found to be
grossly negligent.
Umberto, a relatively new employee who was showing a lot of promise, was dismissed after telling
management that he had joined a trade union.
Vanessa, having previously being rated as one of the best performing employees in the company,
was dismissed after management discovered she was pregnant.
For each of the following situations, classify whether the dismissal is:
A unfair
B wrongful
C neither
(i) Sarah
(ii) Trevor
(iii) Umberto
(iv) Vanessa (2 marks)

(b) Are the following statements about redundancy true or false?

(i) In the event of redundancy, an employee with one year’s continuous employment is
entitled to compensation
(ii) Redundancy can occur where an employer ceases to carry on business in a particular
location (2 marks)

2 (a) The following are steps that governments can take to influence certain areas.
A Tax incentives for investment
B Equal opportunities legislation
C Forbid takeovers
D Product safety standards
For each of the following areas, which government action will positively influence that area?
(i) Output capacity
(ii) Competition
(iii) Employment
(iv) Consumer protection (2 marks)
3 (a) PH is a company that runs train services between several major cities in country B.
It is currently undertaking a strategic planning exercise for its future operations and has decided to
analyse its external environment using a PEST analysis.
This analysis has uncovered a number of major issues within Country B that PH needs to plan for,
including:
A Country B’s government has announced additional expenditure on motorways and roads
B Residents of country B are becoming more environmentally conscious
C New internet systems are available that will simplify the process of booking train tickets
D New health and safety regulations are being planned for all rail operators in country B
E Increased congestion on the roads of country B as residents travel more
F Additional one-off taxes on rail operators are being proposed in country B to help pay for road
upgrades
G Rise in the cost of repairs to trains due to a shortage of skilled labour in country B
H New systems are to be introduced to help improve the efficiency of train arrivals and departures
Required:
Write down which four of the above statements would be most likely to be classified as ‘Political’
factors within a PEST analysis by selecting FOUR of the letters from A-H. (0.5 marks each, total = 2
marks)

b) PH has recently had a number of problems with employees taking the company to court after
leaving their jobs.
To ensure that the company is not guilty of any wrongdoing, it has investigated four recent leavers
and discovered the following:
Employee 1 was employed as part of PH’s IT department.
The department was recently reorganised and PH felt that this worker’s role was no longer needed.
Employee 2 had originally been contracted to work 15 hours a week.
Her manager at PH had recently insisted that she had to work 25 hours a week, which led to the
employee resigning.
Employee 3 recently joined a trade union.
Her manager stated that this made her ‘a troublemaker’ and dismissed her.
Employee 4 was dismissed for no longer having the technical competence for his job (which had
recently been significantly changed in a reorganisation of PH’s operations).
Employee 4 had a three month notice period in his contract, but his manager told him he was only
going to be given two weeks’ notice.
PH is aware that employees may face various types of dismissal, including:
A Wrongful dismissal
B Constructive dismissal
C Redundancy
D Unfair dismissal
Required:
Identify which of the above types of dismissal applies to each employee by writing
ONE letter (A, B, C or D) next to each of the following:
(i) Employee 1
(ii) Employee 2
(iii) Employee 3
(iv) Employee 4 (0.5 marks each, total = 2 marks) (Total: 4 marks)
4 (a) Y Co sells health and home insurance.
Y does not have any physical stores – instead it has a number of call centres.
Customers make contact with the company and purchase insurance policies over the phone.
Y’s call centre management structure is extremely bureaucratic, with many levels of management.
This results in Y suffering high payroll costs, leading to it having to increase its prices to customers,
reducing its ability to compete in the insurance market.
However, Y has recently started to introduce new computerised systems for its call centre staff, which
has led to increased efficiency.
Staff members are able to deal with significantly more calls than previously and less skill is required by
the employees, as much of the complex work is now undertaken by the new system.
Y is now looking to see what changes it can make to the call centres as a result of introducing the new
IT system.
It is considering the following options:
A Delayering
B Downsizing
C Outsourcing
Required:
Classify the following issues as relating to either A (delayering), B (downsizing) or C (outsourcing):
(i) Could allow third party organisations access to Y’s information and processes, leading to loss of
competitive advantage.
(ii) Keeping the current management structure, but reducing the number of staff could lead to
demotivation among the remaining workers.
(iii) Eliminating several levels of unnecessary management to reduce Y’s costs, leading to lower prices
for customers.
(iv) This is likely to lead to a more ‘team-working’ approach, where employees take on different roles in
different teams, as necessary. (0.5 marks each = 2 marks total)

(b) Y has decided to examine the idea of outsourcing its functions in more detail.
Y’s management team have been told that there are four distinct types of outsourcing:
A Total
B Project management
C Ad hoc
D Partial
The following sentences contain gaps which specify a particular type of outsourcing.

Y is considering outsourcing some of its call centre activities to GH Co.

GH will provide _1_ outsourcing, with GH operators taking calls from new customers looking to purchase
a policy.
Y’s existing staff will deal with existing customer renewals, queries and complaints.
Required:
(i) Select the type of outsourcing that appropriately fills gap 1 above; i.e. select A, B, C or D.
Y has been approached by another company, HG Co, which has offered to provide extra call centre staff
in the month of January – which is the busiest time of year for Y.
This _2_ outsourcing would help Y to avoid losing customers due to the long delays customers can face
on the phone during this month.
Required:
(ii) Select the type of outsourcing that appropriately fills gap 2 above; i.e. select
A, B, C or D. (1 mark each = 2 marks in total) (Total: 4 marks)

5 MBV is a manufacturer of fine furniture based in country G.

MBV’s managers have identified that the company’s results for the past three years have been
declining.
They feel that this is due to changes in the external environment – in particular within MBV’s industry.
The managers wish to use Porter’s five forces model to understand the problems the company is
facing, but are uncertain of its proper use.
They have undertaken some analysis and identified a number of key issues (summarised below) but
cannot decide which of the five forces each issue relates to.
Level
High Low
New entrants A B
Power of buyers C D
Force
Power of suppliers E F
Power of rivals G H
Substitutes I J

Required:
For EACH of the following issues, identify which force they relate to and whether the strength of the
force is high or low by writing down ONE letter from A to J.
(i) MBV’s employees are heavily unionised, making it difficult for the company to change their terms and
conditions.
(ii) MBV’s products are sold through two main retail chains in country G. Each retailer sells
approximately equal amounts of MBV’s furniture.
(iii) MBV is much larger than any other fine furniture manufacturers in country G, which has given it an
advantage due to significant economies of scale. MBV still retails its products at a similar price to its
rivals.
(iv) The market for fine furniture in country G is growing very slowly.
(1 mark each, total = 4 marks) (Total: 4 marks)
6 (a) Here are four short references to activities within Porter’s value chain:
A Storing and handling inputs
B Activities after the point of sale
C The way the business is organised
D Purchasing of all inputs, including materials
Required:
Identify the description above which is associated with each of the following value chain activities, by
writing A, B, C, D or None.
(i) Inbound logistics
(ii) Procurement
(iii) Service
(iv) Operations
(v) Infrastructure

(0.5 marks each, total = 2.5 marks)

(b) Below are a number of statements regarding Porter’s generic strategies.
A Focus involves offering general goods to a small segment of the market at a low price
B Cost leadership involves manufacturing goods more efficiently than rivals
C Businesses may become cost leaders by making their goods a lower quality than their rivals
D A focus strategy tends to allow businesses to charge a premium price
E Differentiation involves charging a premium for a product due to its actual or perceived benefits to the
customer
F Businesses that are stuck in the middle are trying to sell products at too high a price.
Required:
Write down which three of the above statements are correct by selecting THREE of the letters from A-
F.
(0.5 marks each, total = 1.5 marks) (Total: 4 marks)