Motivation (Cambridge International A-Level Business): Exam Questions

Explain one disadvantage of a piece rate payment method.

[case-study] Designer Clothing (DC)

DC is a medium sized private limited company. It has been trading for 10 years. DC makes luxury dresses for women using job production methods. DC has an excellent reputation for quality. A DC designer has a meeting with every customer to design a dress that satisfies the customer’s individual needs, including choice of fabric and colour. Cost-based pricing is used with 50% added to the average cost of each dress.

DC’s employees are highly skilled and paid hourly rates (a time based method). Ikram, one of the designers, has just had a meeting with a new customer, Lydia. Lydia wants Ikram to design and make a new dress for her. Ikram has worked out the production data shown in Table 2.1 for the dress.

Table 2.1: Production data for the dress for Lydia

Production time	20 hours
Hourly rate	$10
Material costs	$250
Indirect cost allocation	$25
Other costs such as packaging	$25

Jenny, the Managing Director, wants to use DC’s excellent reputation and move into a new market. Jenny wants to create a new range of DC branded trousers for women. Jenny has developed some elements of a marketing mix for the new trousers:

• Product: quality trousers aimed at women aged 25–50
• Distribution channel: sold in large shops
• Promotion: branded with the DC logo

Jenny will develop a business plan when she receives the market research report, which includes feedback from a focus group. Jenny thinks that the pricing strategy DC currently uses will not be appropriate for the new trousers.

The new product range would use a batch production method. The Production Director, Khaleal, has identified the machinery needed for the new production method. Khaleal is worried about the problems that introducing the new production method might cause DC’s employees.

Explain one payment method, other than time based, that DC could use to pay its employees.

Define the term commission.

Define the term ‘piece rate’.

Explain one disadvantage to a business of using empowerment to motivate its employees.

Define the term ‘performance-related pay’.

Define the term ‘motivation’.

[case-study] Market Solution (MS)

MS is a public limited company in the tertiary sector. MS advises businesses on elements of the marketing mix. Most of its customers are small businesses who cannot afford their own marketing department. MS designs marketing materials for these businesses to use.

Although MS uses computer aided design (CAD), the business is labour intensive. MS employs specialist marketing workers as well as administrative support workers. Table 2.1 shows some data about employees of MS.

Table 2.1: MS employee data

	Specialist marketing workers	Administrative support workers
Average number of workers in 2019	40	88
Payment method	Salary plus bonus	Performance related pay plus bonus
Number of workers who left in 2019	2	11
Average pay (compared to national average)	High	Low
Main need of the workers	Achievement	Affiliation
Main hygiene factors	- Pay - Flexible hours of work	- Staff restaurant - Holidays
Is a bonus expected in 2020?	Yes	No

MS has recently employed Hetti as the new Human Resources Manager. Hetti thinks that the ideas of the motivational theorists are important when managing employees. She is particularly worried about the labour turnover of the administrative support workers.

MS has recently taken on a new customer, named Books Outlet (BO). BO has an objective to increase its revenue by targeting a younger market segment. BO has provided MS with the following information about its current marketing mix (see Table 2.2).

Table 2.2: Current marketing mix for BO

Product - Books aimed at customers who are 30 years and older - Specialist books on many topics – BO is often the only seller in the area	Price - Price skimming
Promotion - Window display - Local newspaper advertising	Place - A retail shop on the main street - Postal sales from a brochure

Explain the term ‘performance related pay’.

Explain how team working could improve the motivation of employees.

Explain one effect on a business of low employee motivation.

Explain one advantage to a business of using a time based payment method.

Explain one advantage to employees of performance-related pay.

Explain one benefit to a business of having motivated employees.

Analyse two possible disadvantages to a business of using performance-related pay to motivate its employees.

[case-study] Delicious Cocoa (DC)

DC is a co-operative owned by cocoa farmers in country X. It has 500 workers. In 2022, DC produced 2000 tonnes of raw cocoa beans. Productivity is expected to increase by 5% in 2023. Although DC is profitable, it has no retained earnings.

DC focuses on the triple bottom line as its main objective. The members of the co-operative (farmers) are motivated within the current operation.

Zara, the Managing Director, has recently completed a workforce plan. She has identified that young people do not want to work on DC’s farms. Their concerns are:

• lack of investment in training
• most of the work is manual
• lack of control over earnings.

Ranjit, the Operations Director, has identified an opportunity to create added value by investing in a capital intensive factory.

The factory will process raw cocoa beans produced by DC’s farms into cocoa butter. Cocoa butter is a premium product and attracts higher profit margins than raw cocoa beans. The processing factory will require a significant capital investment (see Table 2.1).

Table 2.1 Data for the cocoa processing factory

	$
Initial investment: Land Machinery Training	100 000 150 000 15 000
Average variable costs per tonne	5 000
Average selling price per tonne	10 000

Analyse two ways DC can motivate young people to work on its farms.

Analyse how a business might satisfy the self-actualisation needs of its employees.

[case-study] Energy Solutions (ES)

ES is a public limited company in country X. The business was set up in 1980. For 25 years most of ES’s revenue came from coal mining. Although ES still owns many coal mines, the business now specialises in hydraulic fracturing, known as fracking. This is a process used to extract gas from underneath the ground.

The government of country X encourages firms like ES to grow. The growth of ES has led to economies of scale and lower unit costs.

ES considers the effects of fracking on all the stakeholders of the business. Fig. 1.1 is an extract from a recent newspaper article about fracking.

Fracking is not liked by everyone. On the positive side it could produce enough gas to mean that country X can produce its own energy for the next 100 years. This is also likely to mean lower energy prices for both businesses and consumers. Competing companies in the market have taken full advantage of fracking and are expecting to increase their revenue and profit substantially in the future. However, people who live near the fracking sites have reported many minor earthquakes. These have not damaged any buildings but the price of houses in those areas has decreased significantly. There has also been a concern that fracking could lead to pollution and a loss of wildlife.

Fig. 1.1: Extract from a recent newspaper article about fracking

Despite the complaints from some external stakeholders, ES plans to increase the number of fracking sites in country X. This will require ES to buy licences from the government of country X. Each licence costs $50m and ES will require both internal and external sources of finance to fund this purchase.

ES employs over 1000 people. Every worker benefits from a profit-sharing scheme (see Table 1.1) as well as their basic pay.

Table 1.1: Profit-sharing scheme at ES

Profit in 2019	$12m
Each director’s share of profit	0.25%
Each manager’s share of profit	0.1%
Each of other employees’ share of profit	0.002%

Calculate the difference in dollars received by each director and each manager from the profit-sharing scheme.

[case-study] Sana Textiles (ST)

Sana Textiles (ST) is a private limited company in country M that manufactures and sells premium cotton fabric. Its slogan is 'crafted for those who demand the best'. The market for fabric is very competitive, with ST facing growing pressure from cheaper foreign competitors. ST has traditionally used a price skimming strategy, targeting customers who value quality over price. However, ST has recently lost market share as more customers switch to lower-priced alternatives.

ST's products are currently sold exclusively through a network of authorised distributors across country M. The Finance Director has produced financial data for 2023, shown in Table 2.1.

Table 2.1 ST financial data 2023

Average selling price per unit ($)	25
Average variable cost per unit ($)	10
Total fixed costs ($000)	180
Total units sold (000)	20
Maximum capacity (000 units)	25

Employee motivation at ST has become a serious concern. Many employees report that their work is repetitive and offers little opportunity for personal development. Two senior supervisors recently left to work for a competitor. ST's management is considering introducing performance-related pay to motivate the remaining workforce.

Analyse two non-financial methods ST could use to motivate its employees.

‘Non-financial motivators are the most effective way of improving employee motivation in a house building business’.

Discuss the extent to which you agree with this view.

[case-study] Clever Televisions (CTV)

CTV is a public limited company that produces and sells televisions. It has been operating in country A for 30 years. CTV owns 3 factories and has over 100 employees. CTV’s factories use a combination of capital and skilled labour to produce the televisions. The leadership style in all the factories is autocratic. Employees’ pay is based on time worked each week.

The CTV brand is known for high‑quality and reliability. It targets high‑income customers. CTV uses price skimming when it launches a new product.

In total, 6 million televisions were sold in country A in 2019. Table 2.1 shows market growth data.

Table 2.1: Television sales in country A

Year	Market growth
2020	+2%
2021	+1%
2022	–3% (forecast)

The market for televisions in country A is very competitive and the business environment is dynamic. CTV plans to introduce a lower priced television brand to appeal to the mass market. This brand will be known as STV.

CTV has decided to introduce automation into one of its factories to produce the STV televisions. This will lead to redundancies in that factory.

The employees in the other two factories are concerned they might also face redundancy and so motivation is currently low. The Human Resources Director recommends that CTV should find ways in which employees can participate in the management and control of the business.

Recommend ways in which CTV employees can participate in the management and control of the business. Justify your recommendation.

‘The economic man theory used by Taylor is the best way to motivate the employees of a customer service call centre business.’

Discuss the extent to which you agree with this view.

[case-study] Auto Bike (AB)

AB is a private limited company that repairs and maintains motorbikes. AB has nine garages in country J and employs eight highly qualified mechanics in each garage.

Two of the most popular motorbike services that AB sells are the standard service and the advanced service. Table 2.1 contains price and cost information for these services.

Table 2.1: Price and cost information

	Price	Direct costs per service	Allocated indirect costs per service
Standard service	$250	$50	$60
Advanced service	$400	$60	$100

In April, AB sold 1000 standard services and 200 advanced services. The profit margin for an advanced service is higher than the standard service. The directors have decided to promote the advanced service to try and increase sales. Each garage has been given a budget to use for below the line promotion methods with an objective of increasing sales of advanced services in the next six months.

The level of motivation of the mechanics is low. Many mechanics believe that they are not paid well and the conditions of work are dirty and noisy. AB uses a time-based payment method which rewards each mechanic at the same hourly rate. In a recent survey, many mechanics complained that the payment method was unfair. They believe it rewards ‘lazy workers’ as much as those who work hard. It also does not take into account the difficulties involved in some jobs and the simplicity of others. The Human Resources Director has been asked to investigate a new payment method.

Recommend a new payment method for the mechanics at AB. Justify your recommendation.

Extract:

Normax Hotels (NH) NH is a public limited company that owns 32 hotels in country X. Jolin is the Chief Executive. NH has a centralised organisational structure. NH has three types of hotel: • Luxury hotels offer high quality accommodation at premium prices in city centres and exclusive beach resorts. They attract guests from all over the world as well as high‑income earners in country X. • Family hotels offer family rooms, children’s play areas, babysitting services and activities for children in rural and seaside locations. • Basic hotels offer clean, simple accommodation with basic food and facilities. The guests are low‑income travellers and students. They are located in city retail parks. Each hotel manager has limited authority to make decisions because they are told what to do by NH’s Head Office. NH is organised into the following functional departments: administration, operations, finance, marketing, human resources, IT and strategic planning. International expansion? Country Q is a low‑income country. It has a small but growing number of locally owned hotels. Jolin has held two meetings with the Minister for Tourism in country Q to discuss the possibility of opening three NH hotels in her country. These would be located in areas of outstanding natural beauty. Jolin told her that the three hotels would employ several hundred people and generate significant profits. However, the Minister expressed concern that country Q could lose more than it gained from such an investment from a large foreign company. She would have to consider the proposal in more detail. Operations issues Jolin is concerned that profits have recently decreased. He monitors key statistics and is considering introducing lean production principles. Table 1 shows some relevant information. NH holds high levels of inventory of supplies needed for the rooms. Each hotel can supply enough sheets, towels, soaps and cosmetics to every room every day, whether needed or not. The kitchens are expected to have enough food inventory for three days. A small but increasing number of employees have been dismissed for taking home food from the kitchen stores.

Table 1: NH capacity utilisation (room occupancy) and price data, 2019 Hotel type Total number of rooms Budgeted average number of rooms occupied per night Average number of rooms actually occupied per night Price per room per night Luxury 1600 1400 1300 $150 Family 1400 1100 1000 $110 Basic 2000 1800 1600 $40 Customer service Hotel managers claim that they follow company policy and insist that employees do the same. However, many customers complain about the difficulty of communicating with employees and managers who often claim that they are ‘too busy’. Another common complaint is that the hotels need modernising. Head Office has received some letters from employees with ideas for improvements but these have not been considered. Table 2 shows information about NH customers’ experience. Table 2: NH customers’ experience Hotel type Customer complaints 2019 Percentage change of customer complaints from 2018 Average customer satisfaction rating out of 10 Luxury 8560 +8 8.3 Family 6800 +7 7.1 Basic 9040 +9 8.1 Human resource issues Hotel employees are recruited by each hotel manager. Many employees have part time, flexible and temporary contracts. None of them are on zero hour contracts. All employees are trained to perform only one role in the hotel. The hotel managers are given strict labour cost budgets. Each manager has assistant managers who decide the allocation of tasks. Employees have worksheets that detail each task and how long it should take. No time is allowed to discuss these details. The Human Resource Director has just returned from a conference about Management by Objectives (MBO) and is now considering the information in Table 3.

Table 3: NH employee information 2018 2019 Employment costs as a percentage of total costs 68% 74% Employees average hourly wage rate $8 $8 Trade union membership as a percentage of employees 14% 18% Percentage of employees involved in disciplinary proceedings 3% 6% Labour turnover: non‑management employees 14% 26% Labour turnover: assistant managers 4% 15% Average job satisfaction rating out of 10: non‑management employees 6 5 Average job satisfaction rating out of 10: assistant managers 9 8 Marketing NH hotels Jolin is worried about room occupancy rates being below budget. Katie, the Marketing Director, told Jolin that: • the balance between the advertising media used (magazines, television and direct marketing) needed to be reviewed • economic and market conditions have not been favourable • room prices are fixed at the start of each year. Jolin insisted that Katie should revise the marketing plan to achieve the objectives of increased occupancy rates and increased revenue. A possible takeover Pitro, the Finance Director, has prepared the latest financial statements. See Table 4 and Table 5. Jolin recently told him: ‘I have been approached by the owners of EatBest, a restaurant chain, who want to sell the business. If NH takes over EatBest it could be completed in 2021. It would involve making a cash payment of $20m plus 0.5m NH shares. EatBest’s restaurants are valued at $40m.’ Jolin has forecast that this takeover would result in the following changes to NH’s accounts for the year ending 31 October 2021: • revenue would increase to $170m, cost of sales would increase to $46m and expenses would increase to $109m • additional borrowing of $50m at 5% interest per year • current assets and current liabilities increase by 10%

Table 4: NH income statement year ended 31 October 2020 $m Revenue 140 Cost of sales 36 Gross profit 104 Expenses 84 Operating profit 20 Interest 4 Profit before tax 16 Profit after tax 8 Dividends 5 Retained earnings 3 Table 5: Extract from NH statement of financial position at 31 October 2020 $m Non‑current assets 80 Current assets 35 Total assets 115 Non‑current liabilities (60) Current liabilities (20) Total liabilities (80) Net assets 35 Directors’ meeting Jolin has just had a meeting with the directors. He started by reminding them that NH is recognised as having three core competencies which must provide the framework for any strategic decisions made. These are: • outstanding customer service • professional standards that focus on efficiency • clear leadership based on understanding the industry

The directors discussed whether the organisational structure of NH should be changed. Jolin told the directors: ‘I am convinced that we need to change the organisational structure of NH. When the company started with just one hotel it was obvious that functional organisation was best. Now I think this is a barrier to success. Perhaps we should consider management theory including Chandler’s assertion that strategy and structure are linked. Maybe we also need to consider delayering NH’s organisational structure.’ Jolin finished the meeting by telling directors: ‘We also need a new strategy to avoid decline. We have to review our objectives and structure as part of producing a detailed strategic plan for success.’

Read the following extract before answering

Recommend a strategy that could improve the motivation of employees of NH. Justify your recommendation.

Extract:

Garbanzo Restaurants (GR) Leff Alfa left school with no formal qualifications. However, he had a passion for food and started working for a fast food business in country F. Leff worked hard and within five years was promoted to restaurant manager. By 2010, he had become dissatisfied with not being able to make strategic decisions. He decided to start up his own business. Leff is now the Managing Director of GR, a medium-sized private limited company in country F. GR has a chain of 15 restaurants which sell high quality, healthy food using locally sourced produce (ingredients). GR has expanded slowly. However, Leff is now considering ambitious growth strategies requiring significant capital investment. Leff makes the decisions GR has an organisational structure with a tall hierarchy. Leff retains control of all key decisions aided by the Finance, Human Resource and Marketing Directors. These directors report directly to Leff and help him plan and decide on strategies, tactics and policies for GR and its restaurants. GR employs a manager for each restaurant with responsibility for implementing Leff’s policies, recruiting employees and sourcing local produce. Leff makes decisions about pricing and menus. He sets and monitors budgets for each restaurant. Restaurant managers have a small marketing budget. GR has a much larger central marketing budget to develop the GR brand. Restaurant 16 Leff has decided to open a new restaurant. He has identified two possible locations. Location X is an existing fast food outlet in a shopping mall near a city. There are three other restaurants in the shopping mall. Location Y is in a tourist resort and would require more work to convert the building to a suitable restaurant layout. Leff has gathered information about the two locations. This is shown in Table 1.

Table 1: Information on the two locations Location X Location Y Estimated time until opening of restaurant 2 months 6 months Target market Local community Tourists Capital cost of building work and equipment $30000 $100000 Monthly fixed costs (including leasing cost) $12000 $24000 Estimated average variable cost per customer $2 $2 Estimated average revenue per customer $8 $10 Expected average monthly number of customers 3000 5000 Number of customers per month needed to break even 2000 See Question 2(a)(i) Expected monthly profit $6000 See Question 2(a)(iii) Length of contract for leasing the building 1 year 3 years Human resource problems Suma, the Human Resource Director, is worried about the high level of labour turnover and absenteeism at many restaurants, particularly among kitchen employees. These problems add to GR’s recruitment and training costs. All new employees receive the minimum legally required training in food hygiene and health and safety. Most restaurant managers are recruited externally and Leff prefers individuals with strong personalities who ‘get things done’. The restaurant market is highly competitive. Consequently, Leff aims to keep labour costs low and maintain as much labour flexibility as possible. Many kitchen employees and waiters are paid the legal minimum wage. However, waiters can supplement their income through the tips that customers give for good service and food. Some employees have part-time contracts and some employees have full-time contracts. A small number of employees are on zero hour contracts even though the government is planning to make these illegal. Restaurant managers impose the rigid work practices developed by Leff and decide the weekly allocation of tasks. There is little consultation with employees about any changes introduced to the restaurants. Suma has conducted a survey of employees and leavers to provide feedback about GR. Tables 2 and 3 provide selected employee data and information from the survey.

Table 2: Employee data 2018 2019 Number of restaurant employees 200 200 Labour turnover 20% 22% Days lost through absenteeism 1400 1450 Table 3: Extract from surveys of employees and leavers Positive factors of working for GR • High level of tips (stated by some waiters) • Good working conditions Negative factors of working for GR • Lack of empowerment • Limited consultation Main reasons for leaving GR • Dissatisfaction with allocation of work tasks • Low pay • No opportunities for promotion • Variable working hours Increasing revenues GR’s objective for 2021 is to increase revenue by 10% and profit by 15% at its existing restaurants. Leff and Alec, the Marketing Director, are working on the marketing plan for 2021. Using past revenue data, market reports and primary research, Alec has considered how changes to price and promotion might affect demand. The price of a typical falafel meal at GR is $6 and in the last twelve months, 360000 of these meals were sold. He estimates that competitors in GR’s market segment will, on average, increase prices by 5% in 2021. If GR prices and other factors remain unchanged, Alec estimates additional sales of 14400 falafel meals. Alec has also estimated that promotional elasticity of demand is 0.2. GR’s current annual spend on above the line promotion is $150000. GR’s revenue was $5.76m during the last 12 months.

Budgeting for success Leff sets quarterly budgets for all restaurants. He uses an incremental budgeting approach. Every quarter he meets with individual restaurant managers to monitor performance and give them new budgets. Leff is unhappy with the performance of Restaurant 13, which has failed to meet budget targets for the last 18 months. See Table 4. At the most recent meeting, the manager of Restaurant 13 blamed the adverse variances on: • increased recruitment and training costs due to higher labour turnover • a new competitor opening a nearby restaurant 12 months ago • a reduction in tourist numbers caused by appreciation of country F’s currency exchange rate • an increase in costs of locally sourced food due to poor weather. The manager told Leff that: ‘Unrealistic budgets demotivate me and other employees and do not help with the allocation of resources.’ Table 4 shows recent budget data for Restaurant 13. Table 4: Restaurant 13 – Budget data for the 3 months to 30 September 2020 Budget ($) Actual ($) Revenue 120000 115000 Cost of sales 27000 28000 Restaurant overhead costs 60000 65000 Allocated Head Office overheads 15000 15000 Profit 18000 7000 Strategic options for growth Leff has decided to expand GR. He has conducted a thorough strategic analysis of his business and as a result is considering two strategic options. Strategy 1: Manufacture chilled meals. GR restaurants already sell a range of chilled meals, produced and packaged in each restaurant, for customers to purchase and reheat later. A national supermarket is interested in selling these GR meals throughout country F. GR would need to establish a manufacturing site to meet the potential demand for these meals. Leff estimates a capital cost of $3m. Strategy 2: Takeover of Abila. Abila is a group of 10 restaurants in country F. The owners want to sell the business for $1.5m. If GR purchased Abila it would have to rebrand the group and update the restaurants. This would cost a further $0.5m. Leff believes that he can improve profitability of these restaurants through rationalisation. There would be many redundancies. Appendix 1 and Appendix 2, on the next page, give further information about Leff’s strategic analysis.

Appendix 1: SWOT analysis for GR Strengths • Strong brand image • Quality meals • Low gearing Opportunities • Market growth in restaurant market of 3% per annum • Increasing sales of chilled meals of 10% per annum Weaknesses • Labour turnover • Demotivated employees Threats • Competitors with greater economies of scale • New entrants to the market • Changes in the legal environment Appendix 2: Porter’s Five Forces – Country F chilled meal market Threat of new entrants • Low consumer brand loyalty in market Buyer power • Three supermarkets control 80% of the market Threat of substitutes • Many substitutes available Supplier power • Few manufacturers of chilled meals

Read the following extract before answering

Discuss strategies for reducing human resource problems in GR’s restaurants without increasing unit costs.

'Financial incentives are the most effective way to motivate employees in a retail business.'

Evaluate this view.