CAIE A-Level Business A2 7.1.5 Centralisation Vs Decentralisation

[Maximum number: 8]

Devonice Ltd (DL)

Gabriel Romana founded DL in 2012 in country Y. He used his savings to develop Devonice, a luxury ice cream brand made from natural ingredients. DL started manufacturing ice cream in a small factory in 2013.

Organisation and growth

DL has grown rapidly. Gabriel has increased the product range with new flavours of ice cream. In 2016, DL opened its second factory and its first Devonice ice cream shop in country Y. At present, most sales are made to supermarkets in country Y. However, Gabriel has plans to open more ice cream shops. He is also considering selling DL franchise agreements to increase export sales.

Gabriel enjoys being in control of the business and intends to maintain a centralised structure. Managers of the functional departments report directly to Gabriel and he makes all major decisions.

A competitive market

Devonice is now the market-leading brand in country Y and is exported to 10 other countries. DL’s innovative marketing and high quality product have contributed to sales growth. DL targets young adults and has developed a premium brand image. Promotion includes the use of social media, school sponsorship and celebrity endorsement. DL also donates a share of its profits to environmental charities.

Market conditions in country Y are challenging. A multi-million dollar advertising campaign by a global ice cream brand has increased competition. DL sales have remained stable but market share has fallen. In response, Gabriel is considering reducing the price of Devonice or increasing promotional spending.

Analyse two possible advantages to DL of centralisation as the business continues to expand.

Level	AO1 Knowledge and understanding 2 marks	AO2 Application 2 marks	AO3 Analysis 4 marks
2			3–4 marks Developed analysis • Developed analysis that identifies connections between causes, impacts and/or consequences of two points. [4 marks] • Developed analysis that identifies connections between causes, impacts and/or consequences of one point. [3 marks]
1	1–2 marks • Knowledge of two relevant points is used to answer the question. [2 marks] • Knowledge of one relevant point is used to answer the question. [1 mark]	1–2 marks • Application of two relevant points to the business context. [2 marks] • Application of one relevant point to the business context. [1 mark]	1–2 marks Limited analysis • Limited analysis that identifies connections between causes, impacts and/or consequences of two points. [2 marks] • Limited analysis that identifies connections between causes, impacts and/or consequences of one point. [1 mark]
0	0 marks No creditable response.	0 marks No creditable response.	0 marks No creditable response.

Table A

Analyse two possible advantages to DL of centralisation as the business continues to expand.

Use Table A to mark candidate responses to this question.

AO1 out of 2 marks.

AO2 out of 2 marks.

AO3 out of 4 marks.

Note:

- Only reward advantages.

- If more than two advantages are referred to, reward the best two.

Indicative content

Responses may include:

AO1 Knowledge and understanding

- Definition of centralisation: keeping all the important decision-making powers within head office or the centre of the organisation.

- Possible advantages include:

Rapid decision-making

Consistent policies throughout the organisation

Decisions taken in the interest of the whole business rather than just one division of it

Central buying

Experience of senior managers resulting in better decisions.

AO2 Application

- DL is the market leader in country Y so the success of DL has been achieved with centralised structure.

- Central buying of milk and other ingredients gives opportunity for economies of scale.

- Experience of Gabriel as founder and director of DL since 2012.

- Linking centralisation to future growth plans of the business including opening shops in country Y and franchising abroad.

- Quick decision-making needed to compete against global brands that have entered country Y's market.

- Protecting Devonice as a premium brand.

1

AO3 Analysis

- Central buying and economies of scale leading to lower unit costs. Enables DL to compete against global brands.

- Decisions made in interests of the business as a whole will ensure consistency in tactics to support DL's strategic goals. As a premium brand it is important that there is consistency, for example the decision about lower prices or increased promotion in relation to brand image.

- Senior managers at head office will be experienced decision-makers resulting in better decisions for DL to achieve its objectives.

- Centralisation more likely to ensure that as DL expands, with new shops and franchises abroad, there will be more consistent marketing to support the brand image. This will boost sales.

Accept all valid responses.

AO1

AO2

AO3

CAIE A-Level Business A2 7.1.5 Centralisation Vs Decentralisation Topic Practice

Question 1