IB Business Management SL 2.2.3 Suitability of organizational structures Question Bank

Accord's Enrich brand is built around natural ingredients, ethical objectives, corporate social responsibility and customer loyalty, but sales have been below forecasts. New customers are confused about whether Enrich is fruit juice or an energy drink, think its health benefits are exaggerated and consider it too expensive. Enrich averages $3.00 per bottle compared with $2.20 for similar MNC products. The MNCs have stronger brands, larger promotional budgets and economies of scale. Aran favours expanding production to reduce unit costs, while Kayla is concerned about research, positioning and the brand. Kayla's snack-bar proposal uses Enrich flavours and recipes and would require $100000 investment with forecast net returns of $80000 for four years. The healthy snack-bar market is highly competitive, dominated by large companies with substantial advertising budgets, but it is growing by an estimated 34% per year and small businesses have entered successfully on a small scale.

Aran and Kayla decided to launch Detox using batch production. It has now been on the market for six months. Detox is showing strong growth, although sales for the first six months were less than a quarter of Kayla's target of 160000 bottles for the first year. The price of Detox is $\$2.50$ per bottle. The cost of goods sold is $\$160000$and the operating costs before interest and tax are $\$20000$per year.

Enrich sales have not grown much and Aran is very disappointed. Customers, mainly athletes, do not use the product frequently and it is difficult to find new customers. However, research into customer perceptions indicates a very strong brand, resulting largely from Accord's corporate social responsibility (CSR) and strong customer loyalty.

Aran does not like the way the business is organized by product and wants to change it so that it is organized by function instead.

Following the success of Detox, Kayla wants to produce a range of snack bars based on Enrich flavours and recipes. Accord would use the Enrich brand name for the snack bars. The market for healthy snack bars is very competitive and dominated by a few large companies who spend large amounts of money on advertising. The market is growing rapidly - some market researchers estimate by 34 % per annum. There are many examples of small businesses entering the market successfully on a small scale. Kayla estimates the proposal would involve an investment of $\$100000$, with forecast net returns of $\$80000$for four years. Aran thinks that the money could be better spent on marketing Enrich drinks.

With reference to Accord, explain one advantage and one disadvantage of an organizational structure based on product.