OCR Business Studies AS F292 PreRelease Toolkit June 2014

OCR AS Business Studies (Unit F292)
All About the Baby Ltd (AAB)

Summer 2014
Pre-release Case Study: Support Toolkit

OCR AS Business Studies Unit F292 June 2014

Tutor2u 2014 www.tutor2u.net Page 2

Contents
AAB - Putting the Business in Context .................................................................................................................................................................................... 3
Introduction ............................................................................................................................................................................................................................ 3
Key topics ................................................................................................................................................................................................................................ 5
Specification Notes ................................................................................................................................................................................................................. 5
Reality Check ........................................................................................................................................................................................................................... 5
Exam Overview ....................................................................................................................................................................................................................... 6
Specification map .................................................................................................................................................................................................................... 7
Marketing ................................................................................................................................................................................................................................ 7
Accounting and Finance ........................................................................................................................................................................................................ 13
People in Organisations ........................................................................................................................................................................................................ 16
Production ............................................................................................................................................................................................................................. 18
Application Analysis & Evaluation ........................................................................................................................................................................................ 22
Key case study issues: potential exam style questions application, analysis and evaluation .......................................................................................... 23
Exam Technique Advice ........................................................................................................................................................................................................ 27
Case Study Terms .................................................................................................................................................................................................................. 32



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

You will quickly appreciate that marketing is fundamental to the success of AAB. The company operates 60 branded retail stores (line 5) and its
products are also stocked by over 200 independent and national retailers, in the UK (lines 5-6). It also has a significant international presence (line
8). Successful marketing is central to the companys success. Although it made a pre-tax loss of 1.4m (line 10) last year, the problem seems to stem
more from rising costs than falling revenues. Nevertheless, if the firm is to achieve its goals of a return to profitability in the next 12 months and
that growth will continue into the future (lines 12-14), the company will need to address its marketing mix. Your discussion of marketing in the exam is
almost certainly going to talk about the importance of place in that mix. For the first half of its life as a company, AAB had no retail presence, but this is
now a crucial side to its business, having just opened its 61
st
store in Northampton, the eighth new store in 12 months. Over the next year the plan is
to open a new store in the UK every month (lines 26-27). These are challenging times for bricks and mortar (i.e. traditional) retailers. AABs
expansion is against a backdrop of severe problems for some competitors the firms main UK competitor has closed a quarter of its stores (lines 27-
28). AAB are committed to internet sales and now have a very strong online presence, where our full range of products can be bought (lines 28-29).
Every three months the senior directors of the company carry out a review of the AAB product portfolio. This consists of hundreds of different
products in the baby care market (lines 32-33). This process is more than just a review of products it examines the firms market share, market
growth and all aspects of the marketing mix (lines 36-37). You will need to look at a small slice of AABs product portfolio too, and make reference to
the Boston Matrix and Product Life Cycle (table 1) in your answers.
AAB have some tough decisions to make about the future direction of their marketing mix, and its highly likely that you will offer advice in your exam,
based on this case study. It doesnt help that there is a bit of guesswork in terms of each products market share (furthermore) we know how
difficult it is to identify the competitors for each product, never mind their sales (lines 39-41). This realistic uncertainty about market data will boost
your evaluation of the next steps AAB should take when adapting their marketing mix to support sales of both new (line 52) and existing products.


Although the products (designed and marketed in Plymouth) are produced by sub-contracted firms in the Far East (lines 3-4) there are many
operations management issues that are worth your consideration. The complexity of their operations is increased by the firms network of overseas
links. A growing proportion of the brands sales are being generated abroad, about 12% of AABs sales and there is a five year plan to increase this to
over 20% (line 72). There is a complex web of retail stockists franchise stores in Europe, the Middle East and Japan. There are also distribution
partners in Russia, South Africa and China (lines 73-75). Design of products starts in Plymouth and they are then produced by many sub-contractors in
the Far East these finished products are delivered to a central distribution depot (lines 76-78). This is a huge logistical exercise and one in which
AAB has recently invested heavily this is just one example of AABs recent strategy to improve all aspects of its business, in terms of waste
management and efficiency (lines 80-83). This topic emerges as an important area for your thought and discussion, especially as the firms efforts in
this area have not run entirely smoothly. There continue to be problems with the distribution system some stores regularly ran out of stock of key
items (lines 84-85). This is bad for business on several fronts. The company carries well over 20m worth of stock on its balance sheet (lines 86-87,
Fig.2). This is obviously a significant and on-going problem, since despite some improvements in this area, all this investment (in distribution) is taking
some time to bed in (line 93), according to AABs Logistics & IT Director.

Another feature of AAB which is quite complicated is its organisational structure (line 103). You will be challenged in the exam to talk about people in
organisations. This toolkit will take you through the structure of AAB and the potential advantages and disadvantages of being made up of three
interlinked companies (line 104) of almost 1,500 people. Although AAB has remained a family business that operates as a private limited company, its
continued expansion and success has placed a strain on the organisational structures. A management consultant has recently been contracted to advise
on the suitability of the current structures as part of a review of efficiency across the whole business (lines 115-118). You might like to imagine
yourself in the role of that consultant.

There is of course an interesting finance and accounting dimension to the success of AAB. Remarkably for such a large business each stage of AABs
growth has been financed organically, without any external equity funding (line 121). Nonetheless, the company has certainly borrowed a lot of
money, and not every part of the companys balance sheet is healthy. Recent losses will draw your attention to the firms profit and loss account, since
although the company has emerged from the latest recession in a much stronger position than most of its competitors things have been tough and
margins continue to be affected by the rising costs of raw materials (lines 126-128). Quite a lot of financial information is provided in Fig.1 and Fig 2
that you may wish to comment on, as understanding the firms financial position is critical when offering effective advice on the next steps it should
take, and how to respond effectively to current challenges. External stakeholders - especially the banks - will want detailed data and financial
reassurance in the form of accurate accounts, and effective plans for the future.


All told, AAB face a wide range of issues that need to be successfully addressed. This toolkit is designed to help you understand and appreciate these
issues in more detail.

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

How should the firm manage its product portfolio and marketing mix in order to return to robust profitability?
To what extent will further growth be constrained by problems with quality and supply chain issues?
What recommendations should be made about adjusting the companys organisational structure to cope with further growth?
Why is it important for AAB to have accurate accounts, and what do the accounts tell us about problems the firm might face in the near future?

Specification Notes
Several themes emerge in this case study that are examined in the F291 exam. The stand out examples are sources of finance (AABs organic financing),
legal structure (the franchise model of growth, and the companys private limited Ltd status), AABs need for effective market research and analysis
and the importance of providing financial details to key stakeholders. AAB is a growing business, so the concepts of economies and diseconomies of
scale are also highly relevant. Although these concepts may not be examined directly, they serve as a reminder that the F292 exam(s) build on the
knowledge you gained from the first unit of the AS course, and you may wish to (briefly) refer to these topics in your answers.

Reality Check
The firms main UK competitor has closed a quarter of its stores (lines 27-28). Although the case study is fictional, you may well have guessed that
this rival business is likely to be Mothercare. Although it would be wise not to refer to this similarity in the exam, you might want to take on some
outline research into that company to familiarise yourself with the type of market AAB operates in.



Exam Overview
Unit F292 - Business Functions
AAB Pre-Release Case Study Toolkit
Exam Structure:

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

Section A This will consist of a number of short-answer questions (totalling 18 marks) on any topics from the F292 specification. These
questions will not relate to the pre-released case study on AAB.
Section B This will consist of one calculation/numbers question likely to be worth 4 marks and then four essay questions (likely to be worth 16-
20 marks each). These four questions will test the four functional areas of business set out in the F292 specification and will be
specific to the case study and AAB

Operations Management
Marketing
Accounting and Finance
People in Organisations

Module Length Raw Marks UMS
F292 2 hours 90 120


Specification map
The AAB case study can be broadly mapped with the Unit F292 specification as follows:
Specification Topic Case Study Topic
Marketing

Marketing
Objectives

.
Marketing objectives indeed any objectives are likely to be more helpful if they follow SMART principles. That means that they
should be specific and measurable (rather than vague). In addition, it helps if they are achievable and realistic (rather than just
hopes or aspirations). Effective objectives are also likely to be time specific and be matched against dates and deadlines.
AAB have marketing objectives that meet some of these criteria. Consider the aim for the business to return to profitability in
the next 12 months (line 12). This helps us understand what AAB are trying to achieve, and its clear how effective marketing
could help the company reach that goal, basically by boosting revenues faster than costs. The next stated aim, expressed in the
latest company report that growth in the business will continue into the future (lines 13-14) is rather more vague. But we can
see that AAB are committed to growth as a fundamental corporate aim. Specifically, we are told that about 12% of AABs sales
come from abroad and there is a five year plan to increase this to over 20% (lines 71-72). That is a marketing objective.
Theres some evidence that AAB breaks down these longer term, broader goals into other more specific and focussed short term
marketing objectives, primarily through their quarterly review process that feeds through to adjustments in the marketing mix for
hundreds of product lines. That would seem to suggest that the firm has a clear process in place for setting marketing objectives
and then using these to inform effective decision making.
A good example is provided in the discussions around the new mattress, currently nicknamed the HealthySleep and due to be
launched in February 2014 (a) potentially ground-breaking product for AAB (lines 56-58). The objective (launching this product)
is almost certainly a considered contribution to AABs wider aims a return to profitability and continued growth. The marketing
director is keen on the new mattress and he hopes that once the product (has) the final green light (the company can) agree a
pricing and marketing strategy (lines 67-68). That strategy will be made up of a smaller set of steps, or objectives.




Market Analysis
including
segmentation,
share and growth

There can be little doubt that AAB are heavily committed to a customer orientated approach to marketing. AAB isnt a business
with product lines to push, so much as one that is looking carefully at consumer trends and tastes, and then seeking out products
that meet that wants and needs of that group of customers.
The fundamental basis of marketing is to understand the concept of market segments groups of consumers with the same
buying habits. Those different segments will have different wants and needs, meaning that the marketing mix (see below) will
need subtle adjustment to ensure that AAB meet those needs effectively. You might argue that basically, AABs market segment is
obvious mothers. Yet its almost certain that AAB will take a much more nuanced approach. For a start, not all products have to
appeal to just mums. Both parents often make joint purchasing decisions, especially concerning more expensive items.
Grandparents are also significant consumers in the nursery market, as are other family members and friends. The market is
further divided between products for new-borns, toddlers and infants too.
You could perhaps understand this market mainly in terms of big market segment called parents and carers, but then spilt that
segment in various smaller market niches. The wide array of mattresses available (see Table 1) serves to emphasise the fact that
the child mattress market itself splits according to the amount of money people are prepared to pay - for what you might have
assumed is a fairly standard product. We know this since the director of design refers to the bottom end of the market (line 49).
AABs target market segment is also probably characterised by consumers who are in the market for high quality and stylish
products (lines 1-2) and those looking for fashion and emotion (line 19), which doesnt describe all parents and carers. Many
(particularly those raising a 2nd or 3rd child) are comfortable with cast-offs, hand-me-downs, charity shop and eBay purchases.
Finally, its also crucial to remember that about 12% of AABs sales come from abroad and there is a five year plan to increase this
to over 20% (lines 71-72). Its certain that customers in Japan and the Middle East will have different buying habits, as compared
to those in Europe after all, even German, French and British markets will be slightly different.
Product, including
product life cycle
and Boston Matrix)
You cant expect to be an expert on the hundreds of different products (line 33) that make up the complete AAB product
portfolio, so its perhaps best for you to focus on the two products that the case study discusses in more detail: AABs range of
mattresses for standard-sized baby cots sold in the UK (Table 1), and the new and potentially ground-breaking product (lines
57-58), the HealthySleep mattress.




You can anticipate writing about the product life cycle in your exam, since its clearly referred to in the case study, and its such a
helpful concept that will add depth and quality to the analysis and evaluation portion of your answers. Be sure to have this topic
revised and ready to incorporate into your responses. Your key challenge is to form links in your mind between the concept of the
product life cycle and the marketing mix (see below). The marketing mix needs to be adapted to reflect the products position in
its life cycle.
Firms like AAB think carefully about the product life cycle when planning their product portfolios and supporting marketing mix.
The example of the mattresses illustrates the case perfectly. The firms existing mattress products will have been gradually
introduced partly to replace existing products that had gone into decline. One of the reasons for firms to develop a diverse
product portfolio is to protect themselves and prepare for this (almost) inevitable process. The Supreme mattress is a recent
launch and it has made a good start, there is certainly a lot of potential there (lines 44-45). The Pocket sprung mattress is
probably a bit older and is becoming better established. The 3 lowest priced mattresses are all very well established, to the point
that one, the Basic, is said to be in a market saturated with rival products. That starts to be a problem, and one that requires
action most obviously through the release of new products, and/or other tweaks to the marketing mix.
However, understanding and interpreting the life cycle process isnt easy. It isnt always obvious how long a product will stay in
each phase of the life cycle, nor the total length of the products life. Furthermore, it can be difficult to read the signs that
indicate when one phase is ending and another starting. Falling sales dont necessarily mean that a product is going into decline,
for instance. These difficulties are all too apparent with the previous top priced mattress, the Ultimate (that) has lost a lot of
market share. Its only been on the market for three years and its already in the decline phase (lines 46-47). That might be true.
But falling sales and market share doesnt prove that the product is in decline it might yet have potential for growth. That means
it could be too early to be planning a replacement, when changes to the products marketing mix might yet see it recover.
A decision to launch the new HealthySleep product will be made after careful consideration of the product life cycle. If indeed
the Ultimate is coming to the end of its life, the HealthySleep product, priced for a similar market segment, might fit the bill
nicely. This is an issue that will be discussed in further detail in the potential exam-style questions presented on page 23.




Another way of analysing the product portfolio to inform marketing strategy is to use the Boston Matrix.

Analysis using the matrix triggers alarm bells for the Dog products
the Basic foam and Ultimate mattresses. They have been
described as being in decline, or in saturated markets. It would
probably require huge investment to turn around the fortunes of
these products, and so it may be more cost effective to delete them
and seek out alternatives in their niches.
The Sprung interior and Supreme mattresses are perhaps the ones
to watch Question Marks. They currently have low market share,
but the Supreme probably has a lot of growth potential yet.
The Deluxe foam mattress may be nearing the end of its time as a star (before settling down to life as a possible Cash Cow), but
its current market share and sales growth are still solid. The Pocket sprung mattress is the stand out success in this analysis. It has
a high market share, it is still only in the growth phase of the product life cycle and its sales volume growth (5.7%) is outpacing
growth in the mattress market as a whole (which is 3%, line 48).
Its up to you to think how you might respond to this analysis if you were in charge of marketing strategy at AAB. Some
suggestions are offered in the potential exam-style questions presented on page 23.
We already know that AABs adaptability has given it a competitive advantage on the high street, emerging from the latest
recession in a much stronger position than most of its competitors (lines 126-127). Their product mix is flexible. Product ranges
have been adjusted to recognise that most customers are still trying to keep their expenditure under control. AAB has
accommodated this by producing more non-premium products but without reducing the high quality standards for which the
brand is known (lines 129-131). That statement links directly to the next topic: pricing.



Price
(including price
and income
elasticity)
Pricing is obviously a key component of the marketing mix. Prices are charged to reflect the perceived quality of the product being
sold (the price should almost always cover the cost of the stock, of course). Prices, like products, are also varied to meet the
willingness to pay of each market niche being targeted. The retail prices presented in Table 1 clearly indicates how AAB are trying
to target a variety of mattresses to a variety of niches, using a variety of prices to match. Its interesting to see that their main
problems are in their bottom-of-the-range Basic foam product and towards the top, the ill-fated Ultimate mattress the two
Dogs of the Boston Matrix presented above.
Now is a good time to recall AABs marketing objectives. They want to grow sales and boost revenue (and hence profit). Careful
pricing could be a very effective way to achieve this goal.

Price elasticity of demand is often presented as a complex concept, but its really very straightforward. Even if you dont feel
confident handling the calculations (though you really should try), its an idea that you can very easily express in words anyway.
The idea of elasticity is to consider how consumers respond to price changes. Do they make a big (elastic) reaction? Or a smaller
(inelastic) response? If AAB had data to answer this question they would be in a good position to price even more effectively.
Consider those products where demand is relatively elastic. In these cases, discounting makes sense. If consumers are sensitive to
prices, then a 10% price cut (say) would increase demand by more than 10%, generating additional revenue. That might boost
takings for those products reaching into maturity and saturation in the product life cycle. Other products, in less cluttered niches,
with effective branding (and with customers who have relatively higher incomes) might show more inelastic demand. Here,
premium prices make sense. A price increase of 10% (say) would reduce demand, but by less than 10%, thereby generating more
revenue in total. Since increasing revenue is a key route to higher profitability, if the business (is) to return to profitability in the
next 12 months (line 12), then constant adjustment to pricing in this way will be crucial.

You will want to discuss pricing in the potential exam-style questions presented on page 23, perhaps referring to the launch of the
new HealthySleep mattress with the idea that AAB can set the retail rice somewhere between 250 and 300 (lines 69-70).
That price point would be similar to the unsuccessful Ultimate mattress, which is worth your consideration and comments.


Place This is a very interesting component of the AAB marketing mix. For the first half of its life as a company, AAB had no retail
presence, but this is now a crucial side to its business, having just opened its 61
st
store in Northampton, the eighth new store in
12 months. Over the next year the plan is to open a new store in the UK every month (lines 26-27). These are challenging times
for bricks and mortar (i.e. traditional) retailers. AABs expansion is against a backdrop of severe problems for some competitors
the firms main UK competitor has closed a quarter of its stores (lines 27-28). The retail side to AAB is also complex and diverse,
with sales channels including AAB branded stores in the UK, other UK retail stockists, overseas franchise holders and other
distribution partners. The advantage to this approach is that this degree of diversity probably helps the firm reach out to many
potential customers, in a variety of economies. The risk lies in their exposure to the tough retail environment.
AAB are obviously strongly committed to retail and believe that they have a very strong retail offer, with products and brands that
work even when their goods are sold via other retailers, stockists and distribution partners. Its not obvious to see how they could
readily improve or accelerate their retail expansion. The risk may be that it is taking the firm in the wrong direction, or growth is
at a rate that is faster than distribution systems can handle. The toolkit returns to these questions in the sections on finance and
operations.
Unfortunately, no figures are provided to show the share of sales made through each sales channel, so we cant judge the relative
importance of each. It would be especially interesting to see what proportion of sales are made via the internet, since AAB also
now have a very strong online presence, where our full range of products can be bought, and we have just launched a Eurozone
website (lines 28-29). Most observers might be expecting online sales to rise as a proportion of total sales. With that possibility
in mind, the rapid growth in retail outlets looks very ambitious, although it may be justified.
AAB may have other, more minor channels of distribution, such as catalogue sales.
Promotion Theres obviously a bewildering array of above the line and below the line promotional techniques that AAB could use to support
their enormous product range across so many markets. This toolkit isnt going to address this issue. Instead, you might like to
propose a few ideas yourself, perhaps reflecting on the reality check mentioned on page 5.



Accounting and Finance
Budgeting A budget is a planned spending total for a department, action or process. Budgets are set in advance so that a firm can plan out its
spending priorities as financial resources are always limited. For most companies its important to budget carefully as the
company advances through its objectives. More significant objectives may be given a higher budget priority and allocated more
generous resources. Later on, the firm can then carefully investigate and consider reasons for budget variance so that at the end
of a budget cycle, actual spending can be compared to the budget figure and enquiries can begin into the reasons for over- or
under- spend.
The issue of budgeting is definitely worth your consideration, and it clearly links to the other topics in this section of the toolkit.
Effective budgeting could really help AAB, since careful financial management will be needed for the launch of new products, new
stores and further improvements to distribution systems. We are told that the pace of growth at AAB has been controlled and
they have tried to ensure that it has not had a detrimental effect on the workings of the business (lines 119-120). The business
has always seen opening stores as a very big step (line 123). The track record of AAB suggests that they take the budgeting and
review process very seriously: we made mistakes along the way, thats how we learnt (line 125). Although AAB have expanded
without additional equity funding (by selling more shares in the company), they have clearly borrowed heavily, partly to cover
recent losses, but partly to fund expansion. Lenders will be looking for reassurance that effective budgeting is in place before they
commit any more money to the company.
Cash Flow Cash is constantly flowing in and out of organisations, yet the timings of these movements can be awkward. Even a profitable
business may find that there are pressure points during the year when cash outflows stay high, but inflows dry up. A rapidly
expanding business might be doing really well, but furiously burning through cash as it acquires assets. A forecast of these cash
movements guides firms as they raise finance or plan capital expenditure.
Cash flow will be a crucial consideration as AAB moves forwards, and although we dont have detailed data to work on there are
some worrying indications. As you will see in the forthcoming section on the balance sheet, AAB is holding on to very little cash at
any one time. If debtors fail to pay up or worse still sales slow significantly, the company could be overwhelmed by demands
for the money it owes to creditors. AAB dont want to be in a situation where they are taking out further loans, at short notice.


Costing and Break-
Even Analysis
Once AAB have deducted the variable cost from the revenue they make from a sale they achieve a contribution towards their fixed
costs. Falling levels of contribution (from rising variable costs and static or falling sales revenue) are driving the companys falling
profit margins; things have been tough and margins continue to be affected by the rising costs of raw materials (lines 127-128).
This has led to its pre-tax loss of 1.4m compared to a pre-tax profit of over 5m the previous year (lines 10-11).
There is no cost data provided in the case study to support break-even calculations, but you will still want to be familiar with the
necessary calculation (above) in case the topics are examined in Section A. The topic could appear in the Section B portion of the
exam if you are presented with new data, such as cost data to accompany Table 1. With new figures it would be a relatively easy
step to deduct the variable cost of producing an item from its intended selling price to derive a contribution figure. Those
contributions must go towards the companys fixed costs.
Investment
Appraisal
To appraise something means to determine its value. The main project that has been discussed is the central distribution depot
a few miles from Gatwick Airport a huge logistical exercise in which AAB has recently invested heavily (lines 78-81). Was this
investment appraised before it went ahead? It would seem likely, given the close attention given to budgeting and financial
control (see previous page). No figures are provided.
No investment projects are outlined in the case study (except perhaps opening new retail outlets) that we can appraise at this
stage, but you will still want to be familiar with way to calculate and interpret methods of investment appraisal such as pay-back
period and accounting rate of return in case the topics are examined in Section A.
These concepts can still be discussed in answers you give about the wisdom of proceeding with any business investment plans AAB
may be considering. You could explain how a decision between rival investment projects might be informed by careful investment
appraisal.

Profit and Loss
Accounts

You should familiarise yourself with the basic story told by AABs profit and loss
account data presented in the case study.
Heres another way of looking at that story, explained in terms of profit margins.


The Gross Profit margin data tells us that out of every 100 in sales in 2012, 41.80 was left as gross profit (41.8%). It therefore
follows that for every 100 of sales, 58.20 was spent on stock (or cost of sales). By 2013, out of every 100 in sales, only 38.90
was left as gross profit. That means that 61.10 was spent on stock. This finding confirms the statement that things have been
tough and margins continue to be affected by the rising costs of raw materials (lines 127-128). AAB need to reduce these
materials costs.
In 2012, the difference between the Gross Profit margin (41.8%) and the Operating Profit margin (4.7%) was 37.1%. That figure
tells us the proportion of sales revenue that was eaten up by expenses. By 2013 the comparable figure was higher, at 38.5%. A
small difference perhaps, but proof that AABs profit margins arent just being eroded by higher materials costs. The business is
also being squeezed by higher expenses (mainly fixed costs). This is a key finding, and one that we will return to later in the
toolkit. Stated simply, AABs return to profitability isnt just about boosting revenue and reducing the costs of stock, it also needs
to find efficiencies that will bring down their expenses bills. A return to profitability will also reduce the need for further
borrowing, which will help control interest costs. Currently these are relatively small but could rise rapidly in the near future.
Balance Sheets You may have already seen a reference to the balance sheet in the section of the toolkit covering cash flow on page 13. Although
the Balance Sheet can seem complex (its an area you will look at in much more detail at A2) there are a few conclusions that you
should be ready to bring into your discussions.
Take a look at the Total Current Assets entry for both 2012 and 2013. Current assets are said to be liquid, which means they can
be treated like money, to some extent. But only a small proportion of Total Current Assets is in fact cash (8.9% in 2012, 9.3% in
2013). A far higher proportion is debtors who may (or may not) pay back the money they owe.
But the Total Current assets figure is dominated by holdings of stock (67.8% in 2012, 67.4% in 2013). Retailers have to hold lots of
stock, and AAB is carrying a very large amount. Two issues arise from this observation: Firstly, if sales of stock start to slow, and
stock is not turned into cash, then AAB may struggle to meet other payments. Secondly, such large stock holdings may be a sign of
inefficiency, and are unnecessarily contributing to higher costs.
Creditors due after 12 months have risen from just under 20m in 2012 towards 25m in 2013. This will largely be due to extra
loans taken out by AAB to cover investment, expansion and losses. The figure is not yet alarming, but needs careful
consideration. Lenders will be keen to see accurate, audited accounts for reassurance, especially if extra loans are needed.


People in Organisations
Labour
Turnover
Labour turnover (and a general trend, carried over a number of years) can give a revealing insight into the people side of AAB. The
value is expressed as the proportion of staff that leaves a business during a year, usually quoted as a percentage. The AAB case study
contains very little discussion of the issues of labour turnover and the related topic of motivation. That might suggest that calculating
labour turnover is a possible area to be tested in the Section A part of the examination.
Motivation
and
leadership.
For most firms, the motivation, leadership and management of the workforce are considered crucial to its performance. The AAB case
study tells an interesting story of a husband and wife start-up business that has morphed into a 140m a year organisation with 1,500+
employees. Its really an astonishing success story, in which successful motivation and leadership will have played key part.
Management theorists Drucker and Peters might draw attention to the way staff are managed, and their overall role in the organisation.
They might identify AABs success growing out of the way in which the company itself is organised. Their analysis would almost certainly
be based on the degree of delegation and autonomy for workers. De-layering, recognition, job enrichment, with staff working towards
their own clear objectives are all ideas that AAB would seem to have implemented. Several of these ideas are discussed on the
following page, in the discussion of organisational structure.
Staying privately owned has allowed AAB to remain a family business (line 112). That all sounds lovely, but family owned businesses
have their problems too (just like families). A husband and wife are in overall control, and half of the directors are family members
(lines 110-111). On some levels thats a huge source of strength. (Family members) have been part of the business from an early age
eventually they will take over ownership of the business (lines 114-115) staying a private family owned business is a key factor (line
132). That is a strong motivation to plan effectively for long term success. However, the quality of leadership decisions in family
businesses can be compromised by loyalties, emotional considerations and an unwillingness to tackle tough decisions or risk
confrontations. Could this be a potential problem for a company like AAB if it does tend towards a paternalistic style of management?
That label supposes a family style set-up, headed by a man. AABs structure may be family (although female) orientated, so it could be
vulnerable to similar problems. Small wonder that AABs continued expansion and success has placed a strain on the organisational
structures. A management consultant has recently been contracted to advise on the suitability of the current structures as part of a
review of efficiency across the whole business (lines 115-118). Thats where our discussion turns to next.


Organisational
Structure
Another feature of AAB which is quite complicated is its organisational structure (line 103). The three appendices to the case
study lay out organisational charts for three interlinked companies. All About the Baby ltd is the non-trading parent company. All
About the Baby (Product) Ltd employs over 350 people . All About the Baby (Retail) Ltd employs over 1,100 people (lines 103-
105). What conclusions can be drawn from the information to hand?
The first observation is that AAB are employing a matrix form of organisational structure. The key idea is that managers reach
across corporate divisions and are not isolated in their own corner of the company. In addition to the two owners there are
ten other directors with wide ranging responsibilities across the three companies (lines 108-110). Ranjit Miner, for instance, is
Personnel Director in the parent company (appendix 1), Personal Director in the product company (appendix 2) and Personnel
Director in the Retail company (appendix 3). The Finance director is in a similar position.
AABs organisational structure has clearly evolved through time and its continued expansion and success has placed a strain on
the organisational structures. A management consultant has recently been contracted to advise on the suitability of the current
structures as part of a review of efficiency across the whole business (lines 115-118). We can tell that the structure is causing
problems, and its a topic that we return to in the potential exam-style questions presented on page 24.
Unfortunately for AAB (but fortunately for exam candidates) theres unlikely to be a right organisational structure, since such a
large and complex organisation, engaged in a range of activities will almost certainly need a flexible organisational structure. AAB
will want to retain some of the features of their existing structure. A few assumptions about AABs current structure are outlined
here:
By splitting the company into separate sections, it would appear that the directors have attempted to decentralise power and
authority within the firm. This should speed decision making and contribute to delegation and give workers opportunity for
greater autonomy (this was identified in the previous section discussing leadership and motivation). The business does not seem
to be highly hierarchical, but instead appears to have a relatively flat structure, making chains of command shorter and de-layering
the business. There are only 3 or 4 levels of hierarchy between the top and bottom of the business. This structure suggests that
managers are likely to have quite wide spans of control. If thats correct, managers may be less inclined to take an autocratic
approach to management, with the structure lending itself to more democratic or even laisser-faire management styles. This is
conducive to a Theory Y style of management.


Production

Operational
Efficiency, Capacity
Utilisation
AAB has grown year-on-year, and seeks to continue on this path. Therefore questions of scale are fundamental as the company
plans for further growth. Is bigger always better? This is a good time to remind yourself of the concepts of economies and
diseconomies of scale. We know that growth presents problems, as discussed on the previous page. The diseconomies of scale
typical of larger organisations like AAB are communication and co-ordination problems, reduced flexibility, slowing rates of
innovation and employee demotivation. If these problems are arising, they should be closely attended to in the forthcoming
review of organisational structure. However, AAB mustnt lose the economies of scale they have captured as they have grown.
These include personnel, financial and marketing economies. Perhaps most relevant to this section of the toolkit are the technical
and purchasing economies that are likely to have grown with the company.
We know, for instance, that AAB have recently attained a scale where they have been able to centralise their stock control system
with the central distribution depot a few miles from Gatwick Airport a huge logistical exercise in which AAB has recently
invested heavily (lines 78-81). This technical economy would probably have been unaffordable for a smaller scale retailer. Yet
the introduction of the new facility has not been trouble free: all this new investment is taking time to bed in new systems and
a new depot at the same time were never going to create the conditions for a seamless transition (lines 93-95). If AAB are going
to improve their operational efficiency, this is a good example of where attention is needed. Its also important that where
capacity is being installed, either in terms of retail new shops or in expensive distribution systems, that capacity is being fully
used. Half empty shops and distribution centres would represent highly inefficient capacity utilisation.
AAB have a significant advantage that many specialised retailers seek to gain: their attentions arent focused on the physical
production of goods. That unlocks another economy of scale in purchasing: as significant bulk buyers it is likely that they can
command significant pricing power when negotiating favourable terms with their suppliers who are subcontracted firms in the
Far East (line 4). One big advantage of this business model is that some of the hassles of having too much/too little production
capacity are passed on to these external businesses. If demand rises steeply, more sub-contractors can be brought in. If demand
dips, other sub-contractors can be let go. The issues presented in this case study generally point to a firm that is struggling to
handle demand, and AAB needs to work on the problems generated by straining pretty close to or beyond full capacity.


Production
Methods
This section of the specification is not directly addressed in the case study. The sub-contractors employed by AAB will use a
variety of batch and flow production techniques.

Quality
Quality is all about meeting the needs and expectations of customers effectively. We can make some assumptions about the
needs and expectations of AABs customers, since the firm feels that their customers are in the market for high quality and stylish
products (lines 1-2) and are looking for fashion and emotion (line 19). AAB has shown flexibility by producing more non-
premium products but without reducing the high quality standards for which the brand is known (lines 130-131). Therefore
Quality at AAB does not necessarily mean fancy. Some of their products might be inexpensive, but they will be stylish, safe, and
represent good value for money.
Customer perceptions of quality will not be restricted to the physical characteristics of AABs products. As a retailer, consumers
will experience good quality if they also get good sales service in retail outlets, online or through franchisees and other
distributors. For many customers, their perception of quality at AAB will start when they first visit a website or store, continue
when they use a product and finish when (or if) they request after-sales care or support.
AAB will certainly draw on different sources of quality. The first, and most important, will be a quality assurance approach that
gets built into AAB products. Although the firms products are manufactured by sub-contractors, the products are made to meet
the companys own designs. Those designs will have been created with quality as a significant product feature. When selecting
sub-contractors, AAB will have carefully chosen those that can meet demanding standards for safety and attention to design
details. Quality assurance is about getting things right first time. AAB may have even adopted a Total Quality Management (TQM)
approach that stresses employee participation, and a philosophy that quality belongs to everyone. On a day-to-day level, AAB
will need to make periodic quality checks, using a quality control approach. This involves expensive checks (that ultimately add no
value) but are often necessary, perhaps when dealing with new sub-contractors, taking delivery of a new product, or opening a
new store. Other quality initiatives might include benchmarking (comparing AABs service to the best rivals) or working towards a
quality standard kite mark or industry/consumer award.
The key quality problem for AAB seems to stem from their difficulty with the distribution system which has led to some adverse
publicity as some stores ran out of key items (lines 84-85). The company has store managers complaining about receiving
(inadequate stock) thats no use to most customers (lines 90-92). This issue takes us directly on to our next topic:



Stock Control
Stock management emerges as one of the key quality assurance issues that AAB need to address. Not having the right stock in the
right places represents a marketing and quality problem for the business and its customers. The case study describes this as
particularly embarrassing for a company which usually carries well over 20m worth of stock on its balance sheet (lines 86-87).
But this problem goes beyond a marketing and quality dimension. Effective stock control is an important route to greater business
efficiency. The basic underlying principle is to only hold just enough stock (since holding stock is costly) without running into the
risk of running out of stock, so that customers are disappointed, or the business doesnt make a sale.
Running AAB is a huge logistical exercise (line 80) and there can be little doubt that the company is absolutely right to heavily
invest time and money into this area as part of its recent strategy to improve all aspects of its business, in terms of waste
management and efficiency (lines 82-83). All this investment is taking some time to bed in (line 93). Remember all the waste
management and efficiency improvements which are taking place at the moment the new systems have already reduced the
turnaround time in the depot from four weeks to six days; we are now able to book forward space on cargo ships up to a year in
advance; and we have reduced the number of cargo firms from 12 to six. However we still use close to 100 different suppliers
across the Far East and the number of outlets and distribution centres we supply around the world seems to grow by the day
(lines 97-102). Phew.
So its hard to overstate the importance of AAB getting their stock control systems working effectively. The implications are not
just in operations and marketing there is a direct financial issue at stake. Remember that AAB carries well over 20m worth of
stock on its balance sheet. That is a vast expense. Heres a quick reminder from an earlier section of this toolkit covering the
balance sheet: AABs Total Current assets figure is dominated by holdings of stock (67.8% in 2012, 67.4% in 2013). Two issues
arise from this observation:
Firstly, if sales of stock start to slow, and stock is not turned into cash, then AAB may struggle to meet other payments.
Secondly, such large stock holdings may be a sign of inefficiency, and are unnecessarily contributing to higher costs.
Also bear in mind the statement that things have been tough and margins continue to be affected by the rising costs of raw
materials (lines 127-128). AAB need to reduce these materials costs. Anything that can cut the costs of holding stock will
contribute to that objective.



Approaches to
Production

Reducing waste emerges as a central challenge for AAB, as discussed on the previous page. Reducing the cost of holding stock will
be a vital route back towards profitability. Remember also that that AABs profit margins arent just being eroded by higher
materials costs. The business is also being squeezed by higher expenses (mainly fixed costs). Tackling the fixed cost problem may
be supported by the proposed re-organisation of AABs organisational structure. It may also be helped by continuing to work
towards Total Quality Management (TQM), discussed in the previous section.
AABs UK work teams might already be utilising a cell production approach, tackling production problems, costs and motivation
issues all at the same time. Teams of workers organised into cells could train and work together, enjoy the challenges of bringing
new products to market and taking ownership over the wastage and stock management problems. Kaizen, which is a philosophy
of continuous improvement, seems to have guided the company throughout its life.
JIT or Just-in-Time stock management is used in an attempt to reduce stock holding. AAB are clearly already trying to work
towards this goal. Attempts are put in place to take smaller, more frequent deliveries of stock and AAB will be aiming to hold a far
smaller buffer stock. This is easier said than done, and is a challenge that is occupying a lot of management time and resources at
the moment.
Kanban is a scheduling system that helps determine what to hold, when to hold it, and how much to hold. This might help reduce
waste generated by unnecessary stock movement. There is some evidence that some of AABs stock movements may be
unnecessary: products produced by many sub-contractors in the Far East are delivered to a central distribution depot a few
miles from Gatwick Airport. Stock is then sorted and repackaged for delivery to AABs own UK stores, as well as its UK stockists,
international franchises and distribution partners (line 77-80). That might be the only practical way to address this huge logistical
challenge, but there may be ways to streamline distribution, cut out steps and simplify the process.
This issue is returned to in the potential exam-style question presented on page 26.



You should remember that even if a topic may not come up specifically in the pre-issued case study, it could still be tested in Section A of the exam.
There is no substitute for learning and understanding the entire syllabus, details of which are available from the OCR website.
Application Analysis & Evaluation
We have developed the key issues raised in the specification map in the pages below. The following analysis is not intended to be an exhaustive list of
all the potential issues everyone reading the case study will identify their own points about issues they believe are important.
The key point to remember: an effective exam answer in part B of F292
(1) addresses the specific question asked (you must answer the question)
(2) is directed to evidence in the case study (application) rather than making general points or lists
(3) develops a small number of well-argued points in sufficient detail (analysis)
(4) expresses an opinion on the question posed, supported by a balanced appraisal of the analysis (evaluation)



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

How should the firm manage its product portfolio and marketing mix in order to return to robust profitability?
Application Analysis Evaluation
AAB have slipped from a profit of almost 5.5m
in 2012 to a loss of nearly 1.5m in 2013. They
are trying to adapt their marketing mix in
response.
AAB should look at their product life cycle and
Boston Matrix to see what products they should
be supporting and if there are others that should
perhaps be deleted. AAB could bring out new
products such as the HealthySleep mattress.
AAB need to get their pricing right, maybe
pushing up prices on some product lines and
offering discounts on others.
AAB should look carefully where they open new
stores, or license franchisees or other
distributors. They could focus more attention on
their online business too.
Promotion could be tweaked.
Most of the loss in profitability is due to
rising product costs, so sourcing cheaper
products is likely to be important.
The HealthySleep mattress is designed to fill
the gap left by the unsuccessful Ultimate
mattress. It is likely to be sold at
approximately the same price too. Is this
wise? Does the failed Ultimate mattress
show that there is no gap in the market here?
AAB should use price elasticity of demand to
inform their pricing policies. The tough
economic climate has made demand more
elastic, but that might be changing.
Is retail the way forwards for AAB at the
moment? With retail competitors struggling,
might it be better to focus the firms
attention on its online business?
The firm has already tried more products at the
bottom end of the market, but it mustnt do
anything to compromise its brand image. New
products shouldnt be tried unless AAB feel
confident about design and safety features.
As the economy recovers, consumers might react
differently to existing product lines and prices. The
Ultimate might recover if it is supported and
promoted more heavily. What other questions
need to be answered before the HealthySleep is
brought onto the market?
Would a greater focus on online sales help tackle
some of the distribution hassles that plague the
company, as less effort would go into meeting the
needs of other (non-AAB) distributors?
What further questions need to be asked about
further overseas expansion?
Potential exam-style questions on this issue:
How could AAB use the product life cycle and Boston Matrix to improve their marketing mix?
Evaluate the changes AAB should make to their product portfolio.
Assess the changes AAB should make to their marketing mix in order to improve their sales revenues.


What recommendations should be made about adjusting the companys organisational structure to cope with further growth?
AAB has grown very rapidly over several years
and the strain of this growth is starting to
show, especially in terms of the companys
distribution systems.
The company has quite a complicated
structure and is split into different divisions. It
also has complex links with distributors and
franchisees.
Senior managers are using a matrix form of
organisation, to some extent.
The organisation has quite a flat hierarchy,
and managers probably have wide spans of
control.
The firm needs to re-organise without losing
distinctive features that have served it well up
to now. The company has proven to be
flexible and there are no signs of workforce
dissatisfaction.
AAB is a family run business, which has both
advantages and disadvantages.
Larger companies are often able to generate cost
advantages, or economies of scale. Has AAB grown
to a size where these are now diseconomies of
scale?
Any reorganisation would want to ensure that
some aspects of the firms operations remain
centralised. A good example would be purchasing,
where being big can generate bulk buying
discounts in deals with suppliers. Technical
economies of scale are also easier to attain with
centralised organisations.
Decentralising the organisation may make it more
flexible and responsive, but at the risk of
hampering overall control and strategic planning.
Family run businesses often plan for the long run,
but they can be vulnerable to the weaknesses of
paternalistic management, such as misplaced
loyalties and a reluctance to take tough or
controversial decisions.
The priority in the reorganisation is to grapple
with distribution problems. Centralising the
organisation may be the most effective way to
get the necessary degree of oversight, while
maintaining the purchasing advantages of scale.
Alternatively, the business could look at breaking
itself up even further into more decentralised,
smaller units.
The company could consider retreating from
some areas, such as having fewer distributors.
AAB could make up for falling sales here by
expanding their online business. This could be
reflected in a new structure.
Reorganisations can be damaging even
catastrophic. Perhaps there is little real need for
changes now, as time and patience would allow
recent investments to settle in and bear fruit.
The family could look to bring in more outside
directors to guard against inefficient paternalistic
management tendencies.
Evaluate the option of reorganising AAB into a more centralised, hierarchical structure.
Assess the possible impact on motivation of a change in AABs organisational structure.



Why is it important for AAB to have accurate accounts, and what do the accounts tell us about problems the firm might face in the near future?
AAB have grown to their current size by
careful budgeting and management of
their own financial resources. The
company has remained in private hands,
but producing accurate financial reports
remains essential.
AAB are carrying a large weight of stock
on their balance sheet, as is typical of
many retailers.
AAB has recently turned from
profitability to making a loss, mainly
because of increasing stock prices, but
also because of rising fixed costs
(expenses).
The firm has a very small amount of cash
on its balance sheet, so it could run into
trouble with cash flow.
Accurate accounts are vital for
monitoring the performance of the
company and tracking its progress.
Companies like AAB can use budgets as a way of
setting targets, priorities and objectives. Progress
can then be measured against those targets,
supporting the measurement of success. That
should be really helpful when launching new
product lines, for instance.
Any adjustments to organisational structure will be
expensive, so decisions about making changes
could be considered using investment appraisal
techniques.
The firm knows that if it is to remain solvent, its
important that stock is quickly sold to generate the
cash to cover the firms short run financing needs.
Reducing stock costs will be the main route back to
profitability. AAB will also want to make sure they
are not owed too much by debtors.
Tools like break-even analysis can be used to
determine which product lines will generate the
most contribution towards profit.
Sometimes the judgements firms make are based on
subjective opinions, rather than financial analysis. AAB
have done things that feel right, like remaining in
private hands and building the business organically. It
might actually be more efficient to go public, raising
funds for expansion by tapping external sources like
the stock market.
Long run, strategic decisions might also be based on
hunches rather than detailed and accurate forecasts.
Expanding into new markets or online activities might
be supported by little more than educated guesswork.
Some financial decisions come with large short run
cost implications, but will be to long term advantage,
like a review of organisational structure.
AAB are under some pressure from external
stakeholders banks who need to be confident
about the firms accounts, if they are to keep lending.
Sometimes too much can be read into financial data.
Recent losses may be due to external issues, like
recession or the behaviour of competitors.
What is the importance of accurate financial accounting to AAB?
What do the balance sheet and profit and loss account tell us about the performance of AAB?
How can break-even analysis be used to help AAB return to profitability?


To what extent will further growth be constrained by problems with quality and supply chain issues?
AAB have two clear production
problems, which are closely related:
Firstly, AAB are holding a large amount
of stock, which is a significant factor in
the companys current financial
problems. Holding stock is very
expensive, and the prices of stock have
been rising.
At the same time, AAB are having
problems with the massive co-ordination
difficulties of connecting hundreds of
suppliers across the world with many
thousands of customers. This will
undermine the quality experienced by
the firms customers.
AAB have invested in a new distribution
centre, but they still seem to be straining
at the limits of their capacity.

AAB will already be working hard towards a just-in-
time stock control system, to reduce their stock
holding costs. They also seem to embrace kaizen, or
continuous improvement. The firm might try to
work with fewer suppliers, or make even further
investments in stock control technologies, and
techniques like kanban.
Moving towards a greater online presence might
help the firm to co-ordinate orders electronically.
This might ultimately develop into a build-to-order
relationship with suppliers.
AAB need to embrace a TQM philosophy so that
quality belongs to everyone. The proposed
reorganisation needs to empower store managers so
that they can place orders to suppliers well in
advance, reducing the risk of a stock out.

Success in handling AABs stock and quality assurance
problems depends on several factors. Their priority
should be to get the stock distribution system
working more effectively. This might just be a matter
of time, but resources should be allocated there
nonetheless.
Deeper, personnel related issues should be handled
next, as a way of boosting efficiency. Discussions are
already underway to find ways of reorganising the
company to help it become more flexible, and better
able to match up consumer demands with products
that are in stock and ready to ship.
In the longer term, AAB need to look closely at their
relationship with suppliers. Can supply chains be
shortened? Might some production be moved closer
to the relevant markets? Can communication and
the order process with suppliers be improved?

Comment on the ways in which AAB could reduce their stock-holding.
Evaluate the ways in which efficiency could be raised at AAB.
Discuss the relevance of the just-in-time approach to stock control for AAB.


Exam Technique Advice
The Case Study
Read it, read it and read it again. Then read it again. Learn it as much as you can better knowledge of the case study will save you time in the exam
and allow you to have a better discussion and understanding of the key topics.
Use the Case Study
The examiner spent a long time writing this case study so it must be used effectively. Do NOT just give the text-book answer, everything you write
should be applied and put into the context of AAB.
React to the question set
As an examiner, it is a great pity when we have to write NAQ (not answering question) on a pupils work. Make sure you read the question carefully and
answer it!
Essay Plans
It is a good idea to make a brief plan but plans should be brief allocate a couple of minutes to organise your thoughts.
Timing
Timing is crucially important and this is one of the most common failings of students in the exam hall. Quality not quantity is what counts it is not a
race to fill the answer booklet and any supplementary pages!
Practice
There is no substitute for writing timed answers to practice essay questions and then having them marked your teachers. Knowing what you can
realistically achieve for each question in a timed essay is hugely important before you step into the exam hall
Mark schemes:
Well before the exam you should become familiar with the marking schemes of the module. F292 is a well-established and frequently examined module,
and therefore has a long back catalogue of past papers. These past papers (also case study based) are available from the OCR website:
http://www.ocr.org.uk/qualifications/as-a-level-gce-business-studies-h030-h430/



This is a levels of response paper in essays you must evaluate, with reasoned judgment, effectively for the top marks.
Writing
Get a nice pen (splash out!), this will avoid the dreaded writers cramp particularly with long essays as examiners hate illegible work! If possible
practice a two-hour mock practice paper, your teachers can help you with this and it will benefit you in the long run.
Levels of Response
Some reminders now about how you are assessed in the F292 exam.
According to OCR, candidates are expected to demonstrate the following in the context of the content described:
AO1 Demonstrate knowledge
and understanding
Demonstrate knowledge and understanding of the specified content;
AO2 Apply knowledge and
understanding
Apply knowledge and understanding to problems and issues arising from both familiar and unfamiliar
situations;
AO3 Analyse Analyse problems, issues and situations;
AO4 Evaluate Evaluate: distinguish between, and assess appropriateness of, fact and opinion, and judge information
from a variety of sources.
A typical F292 will allocate the 90 marks on offer as follows:


From this you can see that marks for AO3 (analysis) and AO4 (evaluation) are only available for the four questions in section two of the F292 paper.
Each of the longer questions in section 2 has substantial marks available if you can effectively demonstrate analysis (22 marks) and evaluation (21
marks).
More on AO3 - Analysis
Analysis involves making well-reasoned, step-by-step arguments using appropriate business studies tools & concepts.
To get your marks for analysis, you will need to:
Make a point
Explain why the point is important
Explain the significance of this to .
Your examiner will see that you are analysing when you are doing any of the following:
The causes are.the possible consequences are..


The advantages for AAB are.the disadvantages for AAB are..
On the one hand AAB mayon the other hand, they may.
The data for AAB shows that..on the other had, it may suggest
This is likely to lead to..but it may lead to
In this case..is an advantage because
The likelihood of this happening isConsequently the business must.
The trend in this case is.shown by data
Analysis is about how you consider the ifs and buts as well as the however and maybe. You should view your written answers as your conversation
with the examiner. Imagine how it would sound if you read a list of bullet points aloud - is this what you want your examiner to hear?
More on AO4 - Evaluation
Evaluation is the hardest skill of all. Very few candidates develop their skills of evaluation which is why it is awarded the highest grade when examiners
see it.
Evaluation means giving your final judgements after dismissing all other arguments and saying why the judgement you have made is superior to all
others. To do this, you must be knowledgeable about all the other arguments over which you are claiming superiority.
It is not enough to use a trigger phrase and to expect the examiner to award the highest mark the examiner wants to see a robust, developed
argument that weighs up the critical points and then come to a conclusion as to which is likely to be most significant given the circumstances of the
case study.
You can demonstrate the skill of evaluation when, in the context of the case study, you:
Make a small number of points pointing out the options and/or the issues
Justify which of several arguments are more persuasive and why
Comment on the reliability of data or information given
Support your judgement with evidence and draw conclusions from the evidence
Consider limiting factors e.g. feasibility, impact and internal and external constraints


Consider long term and short term issues
Discuss how objectives, internal and external constraints limit decision making

Examples of trigger phrases demonstrating evaluation include:
Overall, the greatest effect this will have on AAB isbecause
The extent of the impact will depend upon .
Whether this happens depends upon .
In the short run but in the long run
The most important issue/factor is because so
In addition, AAB needs to consider . and .

Remember evaluation means weighing up options and making a recommendation.
There is no one best option. It all depends on the circumstances of the business in the case study.

Analysis and Evaluation Compared
Candidates often ask what the difference is between Analysis (AO3) and Evaluation (AO4):
Analysis assesses the causes and consequences of an issue and explains the likely impact and reaction of the firm.
Evaluation builds on analysis and involves candidates weighing up options and coming to a view on what the firm should do.
For example the question asks you to discuss a strategy:
Weighing up the evidence upon which a strategy would depend AO3
Recommending one strategy based on analysis AO4


Case Study Terms
This section highlights and defines the key business terms and phrases used in the case. Remember you can demonstrate your knowledge by making
effective use of definitions.
Audited final accounts Audited documents have been approved by a specialist with legal authority, so should come with a complete seal of approval.
Unaudited documents may be rather less reliable.
Brand, branded Branding is a method of making products or services stand out from rival products. It is a way for a firm to differentiate its
products from others in the marketplace. This helps firms, because it often means the product does not sell on price alone. It
can also help consumers, since brands often convey information about quality, desirability or other key features, for instance.
Creditors Creditors have provided credit to a firm; they have lent money either in the short term (less than 12 months) or the long
term (more than 12 months).
Equity Equity finance is provided by shareholders. Equity flows into a firm as a source of finance when shares in the company are
sold. If firms keep a hold of profit as a source of future finance for growth (rather than paying dividends) that too is a form of
equity finance.
Eurozone There are 28 countries in the European Union (EU), an organisation for economic and political co-operation. Britain is one of
the main, largest members (alongside France and Germany, with Italy, Poland and Spain not far behind). 18 countries in the
EU also share the same currency, the Euro . Britain and 9 other EU countries still use their own currencies. The Euro
countries are often collectively known as the Eurozone.
Franchise Firms can often achieve faster sales growth if they license people from outside the business to operate as a franchisee. For a
fee, this franchisee trades under the name of the parent company. They often receive help with set up, promotion and
training. In return, a proportion of their revenue is paid as a royalty to the owner of the franchise. Many branches of
McDonalds are operated by franchisees.
Logistical, logistics Logistics is the study of supply and supply chains. A logistical problem could well arise if production changes meant big
upheaval for delivery schedules and stock management.


Market share Firms dont talk about the share of the market that they own. Instead, they determine the total sales in a market (by units, or
by revenue). Then they work out what proportion of those sales were made by the firm, which was their share of the market.
Net current assets This is the sum broadly reflecting the current spending power of a firm over the short term. The value is calculated first by
adding up the total cash and assets that should be readily converted into cash, like stocks and debtors. From this total of
current assets you should subtract the current liabilities, which might be described as amounts falling due within one year.
Net profit An almost- final profit total, where interest charges, as well as variable and fixed costs have been subtracted from revenues
(see Gross profit and Operating profit below). Tax expenses and dividend pay outs have still to be accounted for before the
firm keeps (or retains) any remaining profit.
Operating profit, Gross
profit
Gross profit is a profit figure in which only the variable costs of production have been subtracted from revenues. Operating
profit considers other costs too, typically expenses or fixed costs.
Parent company Many firms operate as part of a relatively complex family of businesses. For operational and finance reasons these firms may
trade as separate entities, but share the same owner or parent company. The parent company itself may be little more than a
shell that wraps the separate companies together. The parent will hold a "controlling stake" in the companies it owns (a
holding of over 51% of the shares).
Privately owned Companies come in two broad categories. Public Limited Companies (with the suffix PLC after their name) sell their shares
publicly (hence the name) on a stock exchange. Private companies restrict the ownership of their shares to known, agreed,
shareholders. They have the suffix Ltd after their name.
Product portfolio Firms will typically market a range of products or services to cover different market segments, and to manage sales
fluctuations due to the business cycle or product life cycle. A broad portfolio reduces risk, but may raise costs.
Profit margins The proportion of sales revenue that is profit. If out of every 1 of sale profit is 20p, then the profit margin would be 20%.
Quarterly Every 3 months (one quarter of a year).



Recession Total production, output and expenditure across the whole economy is measured by an indicator called Gross National
Product (GDP). A common definition of recession is where GDP falls over a six month period.
Sub-contractors Some firms may not want to be responsible for all the operational processes that business organisations depend on. Payroll,
cleaning, maintenance and IT may be examples of the type of processes that it might be cheaper or easier to outsource to a
sub-contractor. Where the sub-contractor is based overseas, the process is sometimes referred to as offshoring.
Turnaround time The time taken between receiving goods in and then dispatching them out again - either to another part of the company, or to
an external client or customer.
Turnover Another term for sales income, or sales revenue.
Wholesale operation Retailers sell products to the final end consumer. Wholesalers sell to retailers, acting as a bridge between manufacturers
and these retailers in the supply chain.

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OCR AS Business Studies (Unit F292)

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