CAIE A-Level Business 4.1.2 Efficiency & sustainability

Practise measuring labour productivity and judging how efficiency, effectiveness and sustainability affect business performance.

[Maximum number: 8]

Fizzy Drinks (FD)

FD is a private sector business that manufactures an international brand of carbonated drinks. Its slogan was 'A premium drink for premium customers'. The market for FD's drinks is very competitive, with 7 national and 12 international brands all competing in the same market. Recently FD lost the title of market leader to TR, one of its largest competitors. TR is a multinational public limited company.

Table 2.1 FD financial data 2023

Employee morale has dropped as a result of the negative feedback. Key employees have left to work for FD's competitors. The lack of experienced employees has led to a drop in the productivity of the production process.

Analyse two possible impacts on FD of a fall in productivity.

Figure for Answer to Question 4.1.2—Efficiency and sustainability question 1 — CAIE A-Level Business AS

2(c)

Indicative content

Responses may include:

AO1 Knowledge and understanding

Knowledge of productivity (max of 1 mark if no impact of a fall in productivity)

Knowledge of impacts of a fall in productivity (max 2 marks - annotate first impact on left and second impact on right) including:

- Knowledge of productivity - the effectiveness of productive effort

- Producing fewer products

- Productivity is the ratio of outputs to inputs during production, e.g. labour productivity

- Resources are not being utilised to their maximum potential/producing less with the same resources

- Measurements of productivity - average output/costs, time or resources incurred in a time period

- Producing output at the highest ratio of output to input (more out of less)

- Knowledge of possible impacts of a drop in efficiency

- Profitability

- Average costs of production

- Wastage of resources

AO2 Application

Context applied to an impact of a fall in productivity □ (max 2 marks), including:

- Loss of 'market leader' title

- Great brand name high brand awareness and customer loyalty lost

- Cost of raw materials have increased

- Quality of ingredients reduced instead of increasing selling price per unit

- Reduced marketing budget

- Lack of distinctiveness

- Falling demand

- Data from table 2.1

- Drop in employee morale and loss of key employees

2(c)

AO3 Analysis

Limited analysis - candidate shows one link in the chain of analysis.

Developed analysis candidate shows two or more links in the chain of analysis or a two-sided analysis.

- Reduced productivity will increase the average cost of making each unit of output

- Lowers output per time period of fizzy drinks, which may lead to an increase in the unit cost which can further reduce the profit margin per unit which may lead to an increase in the selling price

- FD may run out of inventory if supply is not equal to demand, which may lead to an increased lead time for the customer order which may further increase consumer dissatisfaction and help the competitor strengthen their market dominance

- May lead to KPI's not being achieved which may impact on the financial reward for the employees which may persuade remaining employees to find alternative employment

- Unexperienced employees may be pressured to increase productivity, however without the prior manufacturing experience may make further mistakes which may negatively impact on the taste and therefore the already dropping brand name and demand which can affect cashflow and reputation

- Employee morale may fall further due to the fall in productivity

Accept all valid responses.

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4.1.2—Efficiency and sustainability question 1