IB Business Management Paper 1 Exam Style Questions

Define the term corporate social responsibility.

CSR is a set of internal policies designed to demonstrate a firm's commitment to its internal and external stakeholders, by focusing on the well-being of all stakeholder groups, such as executives, employees, shareholders, and the local community.

Explain two key functions of management.

- setting organizational objectives
- organizational planning
- managing human and physical resources to meet organizational objectives
- directing and motivating staff
- coordinating operational activities
- controlling and measuring performance

Explain the importance of leadership at RDM.

- to inspire and influence others to achieve organizational goals - in order to get the best out of RDM's employees, strong leadership is needed to motivate them and earn their respect, trust and loyalty, especially those who have worked at RDM for a long time under different leaders
- to create a sense of purpose and strategic direction - without effective leadership, RDM cannot achieve its aims, especially as it faces changes and challenges (such as competition from Asian manufacturers); it is vital that the CEO plans effectively and initiates action to achieve RDM's organizational goals
- to coordinate business operations - as the most senior leader, Jan Radeki de Dovnic oversees and coordinates the strategic direction of the business, including delegating responsibilities to senior executives whilst maintaining overall responsibility for the outcomes of RDM
- improved communication so employees are clear about the purpose of strategic and tactical decisions made by the executive board at RDM
- to shape the organizational culture - Jan Radeki de Dovnic's leadership style will ultimately determine the organizational culture at RDM, thereby affecting its daily operations, productivity and corporate image
- to achieve corporate success - ultimately, strong leadership builds morale and raises productivity, which will have a favorable impact on the RDM's long term profitability

Explain two roles of a mission statement.

- communicate to stakeholders the purpose of RDM's existence
- guide the organization's aims and objectives
- provide a sense of drive (motivation) and direction for executive, engineers, computer experts, and other employees at RDM

Explain one advantage for RDM of implementing a project-based organizational structure.

- improved communication between workers from different areas (departments)
- gain from the broader range of skills and expertise of people across the organization
- improved sense of teamwork, which can increase motivation and productivity at RDM

Define the term vision.

The vision of a business is a written declaration of where the business aspires to be in the future, i.e. it is the overall long-term goal of a business. Having a vision gives the organization and its internal stakeholders a clear sense of purpose.

In the context of RDM, explain the meaning of capital expenditure.

- capital expenditure refers to spending by RDM on acquiring, maintaining and/or upgrading its fixed assets, e.g. machinery, equipment, and robots
- it is a financial investment in the organization, e.g. investment in highly integrated and automated production facility to manufacture the healthcare devices

Explain why it is important that RDM generates new revenue streams.

- increased sales revenue, beyond the sale of healthcare devices, and to earn more profit
- to remain competitive, innovative, and sustainable by securing new revenue streams
- to motivate employees and keep shareholders contented

Explain the importance of a human resource plan for RDM.

Human resource planning refers to the forecasting of RDM's future human resource needs. It enables the organization to plan ahead, e.g. identifying the required skills and knowledge of the labor force (such as the number of engineers and computer experts) in order to help RDM to meet its strategic goals. It also involves planning RDM's current and future recruitment and training needs.

With reference to RDM, describe two benefits of having a marketing plan.

- providing a framework for the introduction of a new product to the market; this is particularly useful for RDM as it currently only focuses on medical devices
- helping to develop appropriate marketing objectives/targets, which can be particularly beneficial if RDM lacks marketing experience
- helping with marketing budgets, which is particularly important if the business doesn't have a marketing strategy, even if it is profitable
- helping with decision making around RDM's marketing strategies
- keeping shareholders and other stakeholders informed about RDM's operations and corporate strategies, especially as there isn't a formalized or written marketing strategy

Describe the purpose of a mission.

- to show/state RDM's core values/aims/purpose
- to direct/guide and motivate the executives, engineers, computer experts and other employees at RDM
- to address the interest and needs of various stakeholder groups (such as employees and the shareholders, (i.e. Radeki de Dovnic family) and external stakeholders (such as suppliers and the government)

State two stages in the product life cycle.

- introduction
- growth
- maturity (or saturation)
- decline
- withdrawal

Describe one feature of a wholesaler.

- an intermediary in the distribution channel that breaks large quantities (bulk) of products into small quantities for sale by retailers
- enjoys significant purchasing and. marketing economies of scale they purchase goods in very large quantities direct from producers
- tends to only purchase a few types and/or brands of a particular product
- helps to improve the efficiency of the supply chain / distribution of goods

Describe the time rate method of paying wages to RDM's employees.

Wages are a financial payment system that remunerates employees based on the duration of time that they work.

Explain how the motivation of the engineers and computer experts differs from those who survived the Second World War and experienced Communist rule.

- D.H. Pink's theory of autonomy, mastery, and purpose is more applicable to the skilled engineers and computer experts at RDM
- Maslow's physiological (basic) needs and Taylor's scientific management theories of motivation are more applicable to the less skilled factory workers who one mass produced stoves at RDM

Define the term mission statement.

- a statement of the purpose of an organiztion
- typically indicates what makes the organization unique
- the mission statement often shapes the organization's value statement (its core beliefs)

Define the term location.

Location refers to the geographical position or site of an organization or its production facilities. It can have profound implications on the profitability and survival of the business.

Describe the role of an entrepreneur such as Jan Radeki de Dovnic.

- someone who bears the financial risk of overseeing and sunning a commercial business, in return for the possible reward of profits
- someone who develops new ideas or find a new way of offering an existing product to the market
- has responsibility for strategic decision making in the organization

Outline two features of a private limited company as a form of business ownership.

- shares in a private limited company such as RDM cannot be bought by the general public, i.e. shares can only be sold with the approval of existing shareholders such as Jan Radeki de Dovnic
- shareholders have limited liability, i.e. they cannot lose more than the value of their investment in the company, if it defaults
- the company should be able to raise more capital than a sole trader or partnership, as it has greater access to capital markets and investors
- the company needs to prepare and publish its final accounts - this is a legal requirement and the accounts need to be checked and audited (approved) by an independent chartered accountant
- the company must have at least one shareholder and director (who can be the same person), plus a company secretary (who does not have to be a shareholder)

Explain the importance of branding for RDM.

- an appropriate brand is needed to meet the expectations of the target market
- brand association can have a direct impact on sales
- branding helps to differentiate a product from rival ones on the market, and can give it a unique identity
- brand recognition can help to increase sales, especially in international markets
- it can enable RDM to change premium prices for its devices, enabling the firm to benefit from greater profit margins
- successful branding can create barriers of entry for other producers, thus benefiting RDM
- effective brand management helps to lengthen a product's life cycle

Describe the purpose of a vision.

- it describes what the owners or founders want the organization to ultimately achieve in the future
- it provides the focus for an organization's strategic direction

RDM is a private limited company. Distinguish between privately and publicly owned companies.

- A privately owned company (Ltd.) is a limited liability corporation that cannot raise share capital from the general public via a stock exchange. Instead, shares in RDM can only be sold to private family members and friends. The shares of RDM cannot be traded without the prior agreement from the existing shareholders, such as Jan Radeki de Dovnic. This makes it significantly easier to maintain overall control of the family business.
- By contrast, a publicly owned company (PLC) is a limited liability company that is able to advertise and sell its shares to the general public via a stock exchange. In general, there is a greater divorce of ownership and control in publicly owned companies.

Explain two reasons why RDM's corporate objectives might have changed over time.

- RDM may have repositioned itself to create a new brand image (of selling bespoke healthcare devices, not stove)
- RDM has launched different products, from stoves to medical devices and aluminum water bottles; so its target markets and hence corporate objectives have changed
- changes in fashion and trends, such as the end of the life cycle for its stoves
- new business opportunities, such as the production of aluminum water bottles
- external influences, such as globalization and competition from Asian manufacturers (so RDM has needed to evolve and adapt to the world around it)

Describe two driving forces that have influenced changes at RDM.

- demographic changes (aging population of baby boomer generation)
- technological progress (automation)
- societal expectations (CSR)
- external influences (changed in political regimes)

Explain the importance of having a mission statement for RDM.

- makes it clear to all stakeholder groups what RDM really exists for; at present this is not clear, so RDM may simply be perceived as any other commercial manufacturer
- guide the setting of the organization's aims and objectives
- provide a sense of drive (motivation) and direction for its executives, managers, and employees

In the context of business functions, define the term marketing.

The management process of identifying, anticipating, and satisfying consumers' requirements in a profitable way.

Jan Radeki de Dovnic is an entrepreneur. Define the term entrepreneur.

An entrepreneur bears the financial risks of managing/overseeing a business or a commercial venture. Entrepreneurs organize factors of production to produce goods and/or services and assume the risks and rewards of running the business. Jan Radeki de Dovnic is the CEO of RDM, so has the traits of an entrepreneur.

Define the term hierarchical.

A tall (or hierarchical) structure is a method of formally organizing a firm's Human Resources with many layers (or levels) of management and supervision.

Apart from recruiting engineers from universities, describe two methods of recruitment that RDM may have used to appoint its engineers.

- recruitment agencies who help to find suitable engineers for job vacancies at RDM
- job advertisements, leading to formal applications and interviews
- headhunting, as RDM may know of suitable engineers working at rival companies
- personal recommendations, i.e. word of mouth referrals from existing RDM personnel
- internal recruitment, e.g. promotion of engineers already working at RDM

Explain the likely interests of RDM's employees.

- fair wages and salaries; not all workers at RDM are highly skilled engineers or computer experts and many will be motivated by financial rewards
- improved fringe benefits and working conditions
- job security (such as employment contracts)
- input into decision-making at RDM
- the right to belong to a labor union

Define the term customized products.

Customized products are made using job production, i.e. manufacturing unique or one-off orders, scubas RDM's bespoke healthcare devices.

Define the term leadership.

The art of influencing, inspiring, and motivating others to accomplish a common goal. Leadership plays a key role in an organization and involves setting a clear vision and direction for others to follow.

Explain the difference between loan capital and share capital.

- loan capital is an external source of finance that incurs interest charges, i.e. refers to interest-bearing capital, e.g. overdrafts, bank loans, debentures, and mortgages
- share capital can be an internal source of finance, raised by issuing (selling) more shares to existing shareholders; there are no interest charges, but this method dilutes ownership and control of the company

With reference to Daniel H. Oink's motivation theory, explain how autonomy can motivate the highly trained engineers at RDM.

- Pink's motivation theory identifies three drivers that affect a person's level pf motivation: autonomy, mastery, and purpose
- autonomy means that Jan Radeki de Dovnic empowers the highly trained engineers to work independently on their projects, with no or minimal interference from the CEO himself
- autonomy allows the empowered engineers to make their own decisions about how best to manufacture the healthcare devices for their customers
- it can motivate the engineers, as they feel empowered and trusted by the CEO

Explain two reasons why branding is important for RDm.

- branding has an important role in creating awareness of RDM and its products (healthcare medical devices)
- having a stronger brand will give RDM improved brand recognition and customer loyalty, in the medium to long term
- it helps to differentiate RDM from other European and Asian rivals in the industry
- successful branding can increase RDM's sales revenue, market share, and profitability
- successful branding can also create barriers to entry for other producers, thus benefiting RDM in the long term

Explain the role of a chief financial officer (CFO).

- the CFO is a senior executive with coral responsibility for the organization's finances
- the CFO's roles and responsibilities includes the management of RDM's financial planning, master budgets, record-keeping, and financial reporting
- being a member of the executive team, the CFO is involved in strategic decision making, e.g. RDM's CFO has suggested that the company should build an additional production facility elsewhere in Europe to cater for a larger market

Explain how paying fair wages is an example of corporate social responsibility.

CSR is about businesses acting in a socially responsible or morally acceptable way towards their various stakeholder groups. Paying employees a fair wage (i.e. commensurate to the world they do and what competitors pay their own employees) is deemed to be respectful and fair RDM's workforce.

Explain two appropriate sources of finance for the additional production facility, should the CFO's proposal be implemented.

- long term loans or mortgages
- share capital, via the insurance of new shares to members of the Radeki de Dovnuc family
- becoming a publiclly listed company (PLC), thereby easing additional funds
- the issuance of debentures (although RDM might struggle to attract buyers for their debentures)
- accumulated retained profits, as RDM enjoys healthy profits (although this might not be enough for the expensive expansion plans)

Explain two advantages of RDM being a private limited company.

- shareholders of RDM, as the owners of the business, have limited liability, so cannot lose more than they have invested in the company if the business fails
- selling shares to friends and family can raise additional funds at a later date for the expansion of RDM.
- the Radeki de Dovnic family will not lose control of the company as shares can only be sold (to friends and family) with the prior approval of the owners (RDM is wholly owned by the Radeki de Dovnic family)
- it is typically less costly and quicker to set up than a public limited company (PLC), which requires its shares to be publicly listed on a stock exchange

Describe two features of hierarchical structures.

- there are longer chains of command than in flatter (less hierarchical) organizations
- a hierarchical structure reduces the direct span of control (at there are more managers hired)
- offers more opportunities for job promotions within the organization (as there are more layers, or levels, of mangers)

Define the term paternalistic leader.

A paternalistic leader is someone who treats employees as if they were family members, by guiding and consulting them. The leader has extensive authority over employees but decisions are made which s/he believes are in the best interest of the workforce. Kristian Radeki de DOvnic was described as a paternalistic leader at RDM.

Define the term innovation.

The commercial development, adoption and exploitation of an invention or creative idea that appeals to customers in a profitable way for the business, e.g. RDM's ergonomically designed medical devices. It can give any business a huge competitive advantage, so Jan Radeki de Dovnic has tried to create an environment that fosters innovation at RDM.

Outline the meaning of an organization being "state owned."

Refers to organizations in the public sector, i.e goods and services that are provided by the government. Following communist rule in Czechoslovakia in 1949, RDM was nationalized, i.e. it became state owned.

Explain two disadvantages of RDM being a private limited company.

- private limited companies cannot sell their shares on a stock exchange, so this can limit RDM's ability to raise share capital compared with being a public limited company
- if the organization is profitable, dividends need to be distributed to shareholders, so this may reduce the company's retained profit (this currently happens at RDM, despite it being a family-owned business)
- external stakeholders can gain access to financial information of all limited liability companies, so RDM's business affairs are not private

Describe two likely influences on RDM's organizational culture.

- the leadership style of the organization, e.g. Jan likes to foster a culture of innovation and creativity in a democratic way
- the organizational structure at RDM, which now has a much smaller number of employees so is less hierarchical
- the decision-making process, e.g. democratic decision-making by Jan, whereas the previous CEO preferred a paternalistic leadership style
- the personalities, attitudes, outlook, and beliefs of the employees at RDM, most of whom love the environment at RDM
- the history and background of the organization, e.g. RDM's long held caring and paternalistic attitude towards workers
- the national culture of the Czech Republic can also influence the organizational culture at RDM

Define the term human resources plan.

The forecast of an organization's requirements for Human Resources, such as recruitment and training needs, in order to meet its strategic goals.

Describe one benefit for RDM of having a good CSR program.

- raises brand awareness of RDM; behaving in a socially responsible way can help to raise awareness and profile of the organization, thereby possibly attracting a wider customer base
- enhancing RDM's corporate image, as being socially responsible is generally perceived as ethical and therefore more favorable or appealing to its various stakeholder groups
- improving customer loyalty, as RDM is perceived by the public to be socially responsible, so customers are more likely to support it
- today, there is ever greater public awareness and support of CSR, especially with the power of social media

Outline two features of a public limited company if RDM were to 'go public.'

- RDM's shares can be bought by the general public, i.e. any individual or institution can be an investor in the company
- the company is able to raise more finance as it has greater access to capital markets and investors
- shareholders have part ownership of the company; whilst this currently exists, the arrangements for voting rights and distribution of dividends are different and more complex for public limited companies
- the company's final accounts must be independently audited and published, i.e. the final accounts became public information

Explain two objectives of for-profit organizations, such as RDM.

- increased market share
- higher sales revenue
- growth, expansion, and evolution
- improved corporate image
- corporate social responsibility

RDM makes good products. Explain two benefits for RDM of meeting quality standards.

- customers regard quality as important because sub-standard output can be harmful/damaging, especially in the healthcare industry
- customers would be more willing to purchase RDM's healthcare devices, helping to attract new customers and retaining existing ones
- compliance with quality standards shows that RDM manufacturers products are fit for purpose and are approved by authorities in the Czech Republic and the European Union
- it makes RDM more competitive from Asian manufacturers
- it can improve staff motivation and morale, especially as the engineers, marketers and computer experts are included in the quality assurance process