Edexcel A-Level Business A2 3.3.6 Managing Change Questions

Extract F Reimagine, redesign, reorganise: the Starbucks approach to strategic transformation In June 2020, Starbucks reported a large decrease in its American sales. Starbucks announced a significant shift in strategy; the launch of a new service concept called Starbucks Pickup for an 'on-the-go' experience. The company calls this a 'transformational phase' and a 'bridge to the future' that targets customers who simply want to pick up their drink and who prefer advance payment options. After ordering and paying on the Starbucks app, customers just look for their name on the status board when they arrive at the store and collect their order. Starbucks is speeding up plans to roll out the new concept to help boost sales and to allow for mobile ordering. Starbucks has been testing the strategy at two Starbucks Pickup stores in Manhattan and Toronto. The company is also equipping employees with handheld point-of-sale devices to help increase speed of service in drive-throughs. Kevin Johnson, President and CEO said, "Every step of the way, we have thoughtfully addressed the needs of Starbucks' stakeholders and are particularly proud of the industry-leading investments we have made to support our stores while creating a safe, familiar and convenient experience for our customers." Starbucks shares are up more than 30% since a dip in March 2020 and increased by 6% after the announcement.

Extract G Starbucks America results, June 2020

Evaluate the likely impact on Starbucks' stakeholders from the strategic
decision to expand its Starbucks Pickup service.

Sources for use with Extract H Bob Iger’s management sequel at Disney In Hollywood, a superhero often returns; when an action film does well at the box office, the lead character gets at least one sequel. Disney extended this approach to the company’s governance. It has removed Bob Chapek as its Chief Executive and has brought back his predecessor Bob Iger, who held the top job at Disney from 2005 to 2020. Disney shares initially rose 9% in the hope that Iger will be more successful than Chapek. Share prices had fallen by 40% in 2022 with losses of $1.5bn in just three months at its streaming service Disney+ under the leadership of Chapek. At a meeting with employees announcing Iger’s return he was met with cheers and applause. Iger responded by saying he thought he would cry. During his 15-year term as Disney CEO, Iger oversaw its successful acquisitions of Marvel and Pixar and launched the Disney+ streaming service. Iger will serve for two years until a replacement is found and will set the strategic direction for renewed growth. Susan Arnold, Chair of the Disney board, said, “The board has concluded that Bob Iger is uniquely situated to lead the company through this pivotal period.”

Extract I Iger begins shaking up Disney Organisational Structure The next day, after his surprise return to Disney as CEO, Bob Iger sent a memo to his 220,000 employees saying, “Over the coming weeks, we will begin implementing organisational and operating changes within the company. There is a lot to do. Quickly.” The Disney boss faces a difficult task. He must restore morale at the company, particularly at its studio and streaming creative divisions. “It is my intention to restructure things in a way that honours and respects creativity as the heart and soul of who we are. This is a time of enormous change and challenges in our industry, and our work will also focus on creating a more efficient and cost-effective structure,” added Iger.

Sources for use with Section A

Extract A

Selected figures from Burberry's Statement of Comprehensive Income, 31 March 2018

Extract B All change at Burberry Group plc

Burberry is a 162-year-old British luxury fashion house with its headquarters in London and has a market capitalisation of £8.3bn. It sells trench coats, outerwear, fashion accessories, fragrances, sunglasses and cosmetics.

Growth slowed after Christopher Bailey became its Chief Executive Officer (CEO) in 2014. Profits dropped and the shareholders lost confidence in him. In July 2017 Marco Gobbetti replaced Bailey as CEO. Christopher Bailey then became the Chief Creative Officer until his resignation in November 2017. This was followed in March 2018 by the appointment of a new Chief Creative Officer, Ricardo Tisci.

As expected, Tisci has shaken things up at one of Britain's best-loved brands. He has already changed the brand's iconic logo. The red, black and beige pattern that has been the brand's most recognisable trademark for over 20 years has now been altered into a more contemporary stripe. The rebranding indicated a major change for the British luxury brand.

Extract C

Can Ricardo Tisci reinvent Burberry?

The figure below shows Burberry's share price from September 2017 to September 2018. It identifies Christopher Bailey's departure announcement following Marco Gobbetti's appointment as CEO, Bailey's last Burberry collection at London Fashion Week, and Ricardo Tisci's appointment as Chief Creative Officer.

Extract D

Burberry's digital presence

As one of the first businesses to use technology, we have an outstanding digital reach with over 51 million followers globally, across 13 platforms and 11 languages. Our Burberry app, now available in 33 countries, is our customers' gateway to the world of Burberry. Customers can explore and buy from the new collections while managing all their orders in one place.

In China, over 80% of online shopping is done on a smartphone or tablet. Burberry customers can now book in-store or online appointments with a salesperson via WeChat, China's number one multipurpose social media mobile application.

Extract E

Burberry to stop burning unsold inventory

Burberry came under severe criticism in July 2018 when it admitted to destroying £28.6m of unsold luxury goods in a year to prevent them being sold at below market prices and devaluing the brand. Burberry, whose coats sell for more than £2,500 and handbags sell for £1,500, said it would stop this practice and expand efforts to reuse, repair, donate or recycle its unwanted products and work to develop new sustainable materials.

Burberry also said it would follow the likes of Gucci and the leader for ethical fashion, Stella McCartney, in removing real fur from its ranges.

“Modern luxury means being socially and environmentally responsible. This belief is core to us at Burberry and key to our long-term success,” said CEO Marco Gobbetti.

This has come at a time when customer attention to sustainability has increased, with 66% of global consumers willing to pay more for sustainable goods.

Extract B All change at Burberry Group plc

Burberry is a 162-year-old British luxury fashion house with its headquarters in London and has a market capitalisation of £8.3bn. It sells trench coats, outerwear, fashion accessories, fragrances, sunglasses and cosmetics.

Growth slowed after Christopher Bailey became its Chief Executive Officer (CEO) in 2014. Profits dropped and the shareholders lost confidence in him. In July 2017 Marco Gobbetti replaced Bailey as CEO. Christopher Bailey then became the Chief Creative Officer until his resignation in November 2017. This was followed in March 2018 by the appointment of a new Chief Creative Officer, Ricardo Tisci.

As expected, Tisci has shaken things up at one of Britain's best-loved brands. He has already changed the brand's iconic logo. The red, black and beige pattern that has been the brand's most recognisable trademark for over 20 years has now been altered into a more contemporary stripe. The rebranding indicated a major change for the British luxury brand.

Extract C

Can Ricardo Tisci reinvent Burberry?

The figure below shows Burberry's share price from September 2017 to September 2018. It identifies Christopher Bailey's departure announcement following Marco Gobbetti's appointment as CEO, Bailey's last Burberry collection at London Fashion Week, and Ricardo Tisci's appointment as Chief Creative Officer.

Using the data in Extracts B and C, discuss the importance of change in the senior leadership for Burberry's success.

Extract A British Airways: a cash cow British Airways (B A) is the second largest airline in the UK and is part of a larger group of airlines. BA merged with Iberia in 2011 to create International Consolidated Airlines Group (IAG), which has since taken over Aer Lingus, as well as Vueling and Level, two low-cost airlines.

Financially, IAG outperforms Europe's other big airlines. BA is the main reason for this. Its return on capital has grown and it provides the largest share of IAG's operating profits.

Extract B Selected data for an Airbus A350-1000 aircraft

Extract C IAG buys Air Europa for €1bn IAG is spending €1bn to buy Air Europa, another Spanish airline. Air Europa serves 69 destinations. Air Europa is the third largest Spanish airline after Iberia and Vueling - both of which are already owned by IAG.

In 2018, Air Europa made an operating profit of €100m. It had a revenue of €2.1bn from 11.8 million passengers. It serves many niche destinations in South America including Paraguay, Colombia and Iguazú on the border of Argentina and Brazil.

Extract D Angry passengers as tens of thousands affected by $\boldsymbol{B} \boldsymbol{A}$ systems failure In August 2019, BA had many angry passengers as more than 500 flights were cancelled or delayed as a result of an IT systems failure. It affected the travel plans of tens of thousands of people with holiday and business plans travelling from London's Heathrow, Gatwick and City airports. This was not the first time BA has had IT failures.

In 2017, 75,000 passengers were stranded around the world when BA was forced to cancel more than 700 flights over three days due to IT systems failures. A data breach in 2018 affected 400,000 customers and led to a fine of £183m. BA claimed it regularly carries out detailed risk assessments of its IT systems and IT infrastructure. It is dependent on IT systems for many of its key business processes.

Extract E BA to offset domestic flight emissions from 2020 BA will offset all domestic $\mathrm{CO}_{2}$ flight emissions from 2020, after its owner IAG became the first airline group to commit to net zero-carbon flying by 2050. IAG is responsible for about 3% of global aviation's $\mathrm{CO}_{2}$ emissions. Offsetting allows businesses to invest in environmental projects to balance out their own carbon footprints.

Chief executive of IAG, Willie Walsh, said that the company would reach the net zero-carbon target through offsetting but it already has a strong environmental policy that significantly reduces its environmental footprint by recycling and cutting waste from aircrafts.

Walsh said B A is replacing older, less fuel-efficient aircraft. He said the new Airbus A350-1000, which has just entered service on the transatlantic route to Toronto, would typically use 43 instead of 70 tonnes of jet fuel to carry a similar number of passengers.

Assess the extent to which contingency planning might have reduced the risk of an IT systems failure for a business such as B A.