IB Business Management HL Unit 2 Human Resource Management Questions

Build your IB Business Management HL Human Resource Management foundation by evaluating how people, organization and change decisions affect performance.

Exam points

Explain the role and key concepts of Unit 2 Human resource management in business decision-making.
Analyse how Unit 2 Human resource management affects business performance, stakeholders and management choices.
Evaluate strategies related to Unit 2 Human resource management using business evidence, context and relevant trade-offs.

Covered syllabus points

2.1 Introduction to human resource management 2.2 Organizational structure 2.3 Leadership and management 2.4 Motivation and demotivation 2.5 Organizational (corporate) culture 2.6 Communication 2.7 Industrial/employee relations

[Maximum number: 4]

Creative Toys (CT) manufactures toys and markets them business-to-customers (B2C) online only.

Creative Toys (CT) manufactures toys

The management has prepared forecasted financial data for CT, for 2015, based upon the proposed change to the marketing mix, shown in Table 2 below.

Creative Toys (CT) manufactures toys and markets them business-to-customers (B2C) online only. The business operates in a leased industrial site and relies on word-of-mouth promotion only. To make customers believe that CT’s toys are better than its competitors, CT sets prices slightly higher than the competition. Production and sales are mostly between 1 October and 24 December. Most of the employees work on temporary contracts during this busy period. For the remainder of the year, CT operates well below capacity utilization.

In 2014, the management of CT considered a change of the marketing mix to include above the line promotion, lower prices, and an additional sales method called “toy parties”. Toy parties would be hosted by newly recruited CT sales representatives and attended by parents and their children. At the parties parents could see the toys and children could play with them. Sales would be made at the parties by the new sales representatives, who would be paid on a commission-only basis. Toy parties could be held throughout the year and make CT’s total sales less seasonal.

Creative Toys (CT)

Creative Toys (CT) manufactures toys and markets them business-to-customers (B2C) online only. The business operates in a leased industrial site and relies on word-of-mouth promotion only. To make customers believe that CT's toys are better than its competitors, CT sets prices slightly higher than the competition. Production and sales are mostly between 1 October and 24 December. Most of the employees work on temporary contracts during this busy period. For the remainder of the year, CT operates well below capacity utilization.
Table 1 contains selected data for CT, for 2014:

Table 1

In 2014, the management of CT considered a change of the marketing mix to include above the line promotion, lower prices, and an additional sales method called "toy parties". Toy parties would be hosted by newly recruited CT sales representatives and attended by parents and their children. At the parties parents could see the toys and children could play with them. Sales would be made at the parties by the new sales representatives, who would be paid on a commission-only basis.

Toy parties could be held throughout the year and make CT's total sales less seasonal. Based on market research, management has estimated that the parents' demand for toys is price elastic and is planning to set lower prices for all toys sold online and at toy parties. The management has prepared forecasted financial data for CT, for 2015, based upon the proposed change to the marketing mix, shown in Table 2 below.

Table 2

The Finance Manager will carry out a variance analysis in order to determine whether the proposed change to the marketing mix has been successful.

Explain two possible human resource implications for CT's management given the proposed change to introduce "toy parties" as an additional sales method.

[Maximum number: 13]

Transfer

Transfer is a publicly traded shipping business. Its success has been built on its ambitious mission statement:
"Our shipping business will always be about providing a first class service to our customers and making it last. Whatever it takes."
Managers at individual regional profit centres were empowered to make their own decisions in response to local market conditions. Transfer's financial reward package allowed employees to share in their regional profit centre's performance through an employee share-ownership scheme. Transfer had consistently won awards for its excellent customer service. Management and staff turnover was very low.
However, after years of profits that were low by industry standards, Transfer suffered a significant financial loss. The current chief executive officer (CEO) claimed it was due to increased global competition and rising direct costs. Transfer's non-employee shareholders, who owned 60 % of Transfer, demanded that immediate action be taken. At the most recent annual general meeting (AGM) the CEO was forced to resign. A new CEO, Heather Davies, was appointed.
Heather had a reputation as an autocratic leader. She had a successful record of returning loss making companies to high profits, but only after making significant changes. At her first press conference, Heather announced her plan to:
- reduce two-way communication and create a much higher degree of centralization within Transfer
- remove all profit centres.
Immediately, Heather dismissed many managers who were, in her opinion, unproductive.
She defended her actions by arguing that Transfer had become inefficient, with poor decision making at regional levels. Heather argued that regional profit centre managers were setting their own objectives which did not follow the mission statement.
At the same time, an unknown manager gave a national newspaper interview which was highly critical of Heather's leadership style, with examples of workplace unrest. When Heather found out, she threatened to dismiss any manager who questioned her authority or the new plan. Six months later, Transfer's share price had grown by 15 % and profits had begun to significantly increase.

(a)

Identify two characteristics of a company with a high degree of centralization.

[ 2 ]

(b)

Describe one benefit of an employee share-ownership scheme.

[ 2 ]

(c)

Discuss the effectiveness of Heather's leadership style at Transfer.

[ 9 ]

From a financial point of view, given the increase in profits and share price, Heather's leadership style could be considered to be a success. Non-employee shareholders who voted for the changes at the AGM will clearly be very pleased. The stimulus indicates that the previous organizational structure was too bureaucratic with empowerment and a resistance to change despite the poor industry performance leading to the dramatic financial loss. The empowerment factor may have led to some managers underestimating the extent of Transfer's financial difficulties and to set new objectives without considering the financial implications. Too much emphasis was put on customer service, but with a decrease in productivity.

The turnaround in Transfer's performance occurred within six months. This is a very rapid and significant improvement given the performance of previous years.

However, one may argue that the short-term success is indeed impressive but may not last in the medium and long term when employees and managers will fear her and resent the new culture of Transfer. Low level of motivation, potential high staff turnover may create a real problem for Transfer. An autocratic leader who will do "whatever it takes" to return Transfer to profitability may severely affect motivation.

Recruitment of new employees may be difficult when Transfer expand and need more staff. Customers may also choose competitors due to rumours of the threats to the employees and Heather's leadership style. Negative publicity from a newspaper article is already evident.

Heather's leadership style may conflict with the mission statement of the company (although this may be what she intends to happen) and may lead to industrial action and further unrest, but more importantly to the loss of its USP. However, the stimulus refers to Heather's past in turning other companies around. This might suggest that her tenure is only likely to be short term anyway, perhaps to be followed by a more paternalistic leadership style.

Possible judgment:
The stimulus indicates that Transfer needed to change after a number of years of less than satisfactory performance. Centralization and a reduction in communication may speed up decision making at Transfer and there seems to be a need for increased productivity. Heather's changes have quickened the recovery and were financially successful.

However, effectiveness cannot be judged on quantitative issues only. Given the change, it could lead to long term qualitative problems, perhaps the change has been too dramatic and perhaps a paternalistic leadership style should have been adopted, or perhaps not all of her suggestions should have been implemented at once, but introduced more incrementally.

Heather's changes may have been successful financially in the short run, but we must question whether they will continue to be so over the longer term.

Accept any substantiated discussion.
N.B. It is not expected that the candidates incorporate all of the above points/issues.

A balanced response is one that covers at least two issues for and at least two issues against.

For one relevant issue that is one-sided, award up to [3]. If the response is a one-sided relevant approach with no discussion award a maximum of [4].

Award a maximum of [5] if the answer is of a standard that shows balanced analysis and understanding throughout the response with reference to the stimulus material but there is no judgment / conclusion.

Candidates cannot reach the [5-7] markband if they give judgment/conclusions that are not based on analysis/explanation already given in their answer.

Marks should be allocated according to the markbands on page 4.

[Maximum number: 9]

Martin Kimathi faced three major problems. Firstly, he had employee negotiations about the strike. Secondly, there was the issue with Susan Chapman. Thirdly, Martin would soon have his annual meeting with GP to discuss the strategic direction of The Imperial and to set target profits for the coming year. Because GP had rejected the idea of making a major investment in the hotel (Option 1), the discussions would focus on Option 2 (targeting The Imperial at business travellers staying for at least one week) and Option 3 (forming a strategic alliance with KenSafar).

During negotiations with the employee representatives, Martin discovered that they wanted Susan to be dismissed. Otherwise the entire staff would go on strike in December, which would put The Imperial's profits for the year below target. However, Susan had threatened to take legal action, if dismissed. She said she would claim that she was a victim of discrimination.

Option 2 appeared to be the best and Martin wanted to go even further. He had discovered that outsourcing the housekeeping staff would be even cheaper than the initial idea of a 70 % reduction in housekeeping staff (Item 1). His original decision tree (Item 2), when modified to take this lower cost into account, would make Option 2 even better. This could also avoid the problem with Susan: he could say in court that he was making all housekeeping staff redundant, including Susan, as part of a total business reorganization.

Laying-off all the housekeeping staff worried Martin. Unemployment is high in Kenya, and he feared they might not find new jobs. Intuitively he favoured Option 3 which would build on The Imperial's history while linking it to the fastest growing areas of Kenyan tourism.

Item 1: Internal memo from the Finance Office to Martin Kimathi
To: Martin Kimathi
From: Finance Office
Re: Outsourcing the Housekeeping Department

After receiving bids from several cleaning service companies, I am pleased to report that we can reduce the costs of housekeeping by $\$ 150000$ per year by outsourcing this department; this does not include one-time costs related to making all housekeeping positions redundant. This would lower our break-even number of customers as shown below, which assumes single occupancy of each apartment and 150 apartments (all numbers in the table have been rounded to the nearest figure):

	With the current housekeeping staff	With housekeeping outsourced
Average sales revenue per customer per night	$157	$157
Variable costs per night	$17	$17
Fixed costs	$4600000	$4450000
Break-even number of customers	32857	31786
Average occupancy rate	60\%	58\%

Item 1: Housekeeping outsourcing financial data

Item 2: Original decision tree

Item 2: Original decision tree

Item 3: External Memo from GP to Martin Kimathi

To: Martin Kimathi<br>From: GP<br>Re: Target profits for upcoming year
Due to the global economic crisis, the directors of GP have decided that specific properties including The Imperial hotel will have to reach higher target profits than initially planned. The aim is to compensate for poor returns in other investments.

Item 3: Target profits for upcoming year

Capital	Nairobi
Population	43013341
Life expectancy	63.07 years
Literacy rate	$87.4 \%$
Unemployment rate (\% of labour force without a job)	$40 \%$
Population below poverty line	$50 \%$

Item 4: Kenya fact-file

Item 5: Kenya GDP growth rate (World Bank)

Item 5: Kenya GDP growth rate (World Bank)

With reference to Martin Kimathi and The Imperial, compare and contrast scientific and intuitive decision-making processes.

Scientific decision-making refers to various approaches to decision-making undertaken systematically often quantitative. Many of the "decision-making tools" that are in the IB Business and Management Guide are types of so-called scientific processes: decision trees, ratio analysis, force field analysis, etc.

Intuitive decision-making processes are often described as a "feeling" about the best possible course of action, but actually intuitive decision-making is often more rational than typically given credit. Intuitive decision-making often involves prior experience usually made consciously, but sometime subconsciously. Often some of these data do not fit the narrow structures necessary for scientific decision

making models. Intuitive decision makers often described intuitive decisions in affective terms: as "a hunch", a "feel", or intuition.

As a good manager, Martin is well trained in scientific decision-making models: decision trees, break-even analysis, ratio analysis, etc. He uses these types of methods to help him to evaluate options. Even when not formulaic, he uses solid logic and reasoning. For example, in addition to the cost savings from outsourcing the housekeeping staff, Martin is aware that this would provide him with an opportunity to terminate Susan's employment and, at the same time, take away most of her basis for a discrimination law suit.

Martin is also being influenced by intuitive decision-making processes. He senses the importance of Option 3, which would connect with the history of the hotel. He also has some sense of the growing importance to people from developed countries of eco-tourism and he can imagine The Imperial connecting to this global trend. Martin has a certain reluctance to lay-off the housekeeping staff (the employees would probably struggle to find new jobs), despite the cost savings involved. These intuitive processes make him question the value of the scientifically arrived at "best solution".

One point of comparison in the case is between Martin and Susan. Susan relied exclusively on scientific decision-making (and bureaucratic approaches, which often overlaps with scientific decision-making, though they do not necessarily have to). Because of this approach, she was perceived as cold, official and impersonal. She consciously would not let what she considered "non-relevant" information to influence her decisions. Martin, on the other hand, relied on both approaches, which made him more appealing at a human level though, from a certain perspective, left him open to criticism, eg his "laissez-faire" style.

Accept any other relevant comparison or contrast.

If the answer is one sided, award a maximum of [5 marks].
If the answer is unbalanced, award a maximum of [6 marks].
Marks should be allocated according to the markbands on page 5.

[Maximum number: 6]

Taxi-M (TM)

Taxi-M (TM) operates 2500 taxis in a developing country. All drivers are full-time employees and have a professional taxi license. Although not compulsory, TM regularly conducts safety inspections of the taxis. Though safe, most of TM's taxis are old and TM charges high prices. Many customers complain.
However, a multinational company, RE, with offices around the world, has started to offer a mobile application (app) called Best-Taxi (BT). Using their mobile phones, passengers can use BT to book and pay for a car journey. Any car owner can offer journeys through BT. For security reasons, the BT app registers passengers' and drivers' personal details.
TM's sales are falling and profits are down. A number of TM's drivers are becoming demotivated. Facing lower incomes, poor management and rumours of redundancies, many loyal drivers have left to offer taxi services using their own cars and the BT app. Some of these drivers are earning considerably higher wages than before.
The situation for TM appeared critical. However, local media have reported a higher rate of road accidents by BT drivers than licensed taxi drivers. Several of its drivers have assaulted and robbed customers. In response, TM's management decided to downsize and differentiate itself from BT by positioning its service as a high-price, high-quality traditional taxi service. TM will:
- sell older cars and lease new luxury cars
- develop a unique selling point/proposition (USP) emphasizing comfort and safety.
Customers can book taxis by telephone and by stopping them in the street. TM's target market will be business people, higher income families and passengers concerned about safety.

(a)

Define the term redundancy.

[ 2 ]

(b)

With reference to Maslow's motivation theory, explain two reasons that some TM drivers left to drive for B T.

[ 4 ]

All question bank results loaded

Covered syllabus points

Question 1

Question 2

Question (a)

Question (b)

Question (c)

Question 3

Question 4

Question (a)

Question (b)