CAIE A-Level Business A2 7.1 Organisational Structure Questions

Practise analysing product, geographical and other structures, delegation and centralisation through decision speed, expertise, control and business growth in the case.

Exam points

identify the structure or authority arrangement and apply it to the organisation's activities
analyse an advantage or disadvantage through communication, expertise, control or response speed
judge structural fit using growth, geography, product diversity and management capability

Covered syllabus points

7.1.1—Objectives and structure 7.1.2—Types of structure 7.1.3—Delegation and accountability 7.1.4—Control, authority and trust 7.1.5—Centralisation vs decentralisation 7.1.6—Line and staff

[Maximum number: 8]

Clean Delivery (CD)

CD manufactures and sells detergent which is used to wash clothes. Sales are made to households through a subscription service using postal deliveries to distribute the product.

International expansion

CD started to export its products in 2022 by setting up a subscription service in country C. Although this is not yet profitable, Gianni and Anna are satisfied with the sales growth. They are now planning to expand further by exporting to three other countries that have similar economies to country K. Gianni has also proposed that CD should open factories in two of these countries.

Organisational structure

CD has a hierarchical organisational structure based on the business functions of marketing, finance, human resources, operations and research. Gianni believes this structure has supported growth by ensuring consistency throughout the business. There are also ambitious plans for further international expansion. Anna now suggests changing to a geographical organisational structure.

Analyse two advantages to CD of changing to a geographical organisational structure.

Figure for Answer to Question 1 — CAIE A-Level Business A2

Note:

- Only reward advantages.

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

2

Indicative content

Responses may include:

AO1 Knowledge and understanding

Definition of organisational structure / geographical organisational structure (max K1 mark)

- The internal, formal framework of a business that shows the way in which management is linked together, and how authority is passed through the organisation.

- Structure based on geographical area in which each division is self-contained with its own functional areas.

Benefits of a geographical structure:

- Better customer service.

- More responsive to changing local needs.

- Measure the performance and profitability of each division separately.

- Greater focus on specific market segments.

- Improved customer communication.

- Quicker decisions.

- Reduce costs of production

- Competition between geographic units

- Preparation of managers in geographic units for promotion

AO2 Application

Max one ${ }^{\text {APP }}$ for application for the first element and max one ${ }^{\text {APP }}$ for application for the second element.

- CD's expansion to country C in 2022 is not yet profitable.

- Plans to open factories in two new countries.

- Current plans to export to three new countries.

- Ambitious plans for further international expansion.

- Comment on current hierarchical functional structure.

2

AO3 Analysis
Limited analysis AN - candidate shows one link in the chain of analysis.
Developed analysis L2AN - candidate shows two or more links in the chain of analysis.
- Different international markets may have differing needs in terms of the product, pricing and promotion. A geographical
structure can respond more effectively to those needs AN and thus increase sales L2AN.
- Facilitates the establishment of companies' business units at different local as well as regional levels. This enables
regional managers to better understand local needs, preferences, and tastes AN. As such, they can make relevant
products and better satisfy customers and thus increase sales L2AN.
- A geographical structure can promote improved communication between the local customers and local divisions of the
business. Such local divisions can better interact with local customers and create value for the business AN resulting in
an increase in profitability L2AN.
- Enables local managers to make prompt decisions without the consent of the central management. Quick decision-
making enables CD to serve the right customers at the right time AN resulting in increased sales L2AN.
- May enable CD to better estimate the demand of the local customers and as such it helps to reduce the cost of
overproduction and wastage of raw materials AN leading to an increase in profits L2AN.
Accept all valid responses.

[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

All question bank results loaded

Covered syllabus points

Question 1

Question 2