Build your IB Business Management SL foundation through Unit 1 questions on how businesses are formed, organized, directed and evaluated.
Buzza
Jo and Demi Straus established Buzza, a partnership, in 1999. Buzza manufactures women's fashion accessories, such as handbags and scarves. Jo, a gifted designer, directs the design team. Demi, a business graduate, organized the business by function. She manages most of those functions.
In 2012, they converted Buzza to a private limited company to help obtain finance for the business's expansion. Jo and Demi retained 60 % ownership between them.
Because of the brand's reputation, Buzza can recruit creative graduates from design universities. Graduates receive 12-month contracts, which are renewed only if Buzza accepts their designs. Buzza tells graduates that, generally, only half of all contracts are renewed. The average age in the design team is 26 . Labour turnover in the design team is much higher than in similar exclusive brands.
Wealthy consumers interested in the latest fashions find Buzza a highly desirable and exclusive brand. Only approved retail outlets sell Buzza products. New collections are produced four times a year. At the end of each season, retailers return unsold products to Buzza. Last year, these unsold products were valued at million. At present, Buzza sends returned products to an incinerator plant to be destroyed. A recent television documentary revealed that Buzza incinerates perfectly good products, which led to damaging social media comments.
In response to the negative publicity, Jo and Demi are considering two options:
Option 1: Sell surplus products at greatly reduced prices on its website.
Option 2: Break down returned products to recover raw materials for re-use in future products. This process of breaking down returned products will be time consuming and costly.
State three of Buzza's main business functions.
Explain one advantage and one disadvantage to Buzza of operating as a partnership.
Discuss the two options that Jo and Demi are considering.
Creative Software Systems (CSS)
Creative Software Systems (CSS), a private limited company, designs custom software packages for public sector organizations. Ebru Aga is the sole shareholder, though she is considering an employee share ownership scheme.
For years, CSS managed its employees closely, setting individual targets for performance and requiring regular progress reports. Following Adams's equity theory, CSS tied financial rewards to frequently measured performance outcomes. Though managers clearly explained to individual employees how additional financial rewards were linked to specific contributions they made, many employees still felt the system was unfair.
After reading Daniel Pink's theory of motivation, Ebru reconsidered her management style and CSS's system of financial rewards. She liked when Pink reported that a major American company allowed employees to work 20 % of their time on projects of their choice. Ebru implemented the following three changes:
- Change 1: Adopting a project-based organizational structure for CSS projects.
- Change 2: Eliminating performance-related pay (PRP).
- Change 3: Allowing employees to spend 20 % of their time on any project they wish, either one of CSS's or their own "dream project".
Employees' reactions were mixed. Some employees were thrilled. They had many ideas of their own that they wanted to explore. Other employees, however, did not like the change. In the 20 % of their time given to any project they wished, they chose to work on projects given to them by CSS. They felt it was unfair. Although they were advancing important projects of the company, they would no longer get performance-related pay (PRP), while others spent their time on projects that might not contribute to CSS's profitability.
Define the term public sector.
In 2022, AH’s costs increased, but it kept prices unchanged. For 2023, AH decided to change its pricing strategy and pass on all cost increases to customers.
Table 2: Selected financial information for AH for 2022 and forecasted financial information for 2023
Alfombras Horizonte (AH)
Alfombras Horizonte (AH) produces natural henequen* rugs in Yucatán, Mexico, and sells them online. AH rugs are very popular among young people because of their eco-friendly materials and AH's mission statement: "We are responsible with Mother Earth for our environment and ourselves."
In 2022, AH's costs increased, but it kept prices unchanged. For 2023, AH decided to change its pricing
strategy and pass on all cost increases to customers.
Table 2: Selected financial information for \(\boldsymbol{A
* henequen: a fibre plant from Mexico and Guatemala. Fabrics made from henequen fibre are used to make a wide variety of products, including bags, rugs and hammocks.
State two benefits to a business of having a mission statement.
Appendix 1: Order/manufacture/delivery process. Step 1: Customer wants product. Step 2a: Customer completes online template, or Step 2b: Customer contacts RDM for help. Step 3: Engineer reviews request, sometimes contacting customer. Step 4: Engineer inputs design into system. Step 5: Accounting and marketing determine price to customer. Step 6: Salesperson confirms purchase. Step 7a: Designs go to the shop floor, where robots configure tooling; Step 7b: designs go to robots, which get and load raw materials. Step 8: Order is manufactured. Step 9: Order is delivered.
Today, RDM is highly automated, though this situation was not always the case. For decades, RDM employed a large unionized labour force, mass produced stoves and sold its product to wholesalers. Because of globalization and fi erce competition from Asian manufacturers, which had lower cost structures, in the early 2000s Jan determined that European manufacturers would have to lower costs. Automation, while requiring signifi cant capital expenditures, lowers costs in the long run. In addition, digitized communication between robots allowed RDM to be responsive to customers’ requirements. As RDM improved its automation processes and integrated cloud computing, mobile devices, big data, artifi cial intelligence and three-dimensional (3D) printing, its ability to customize products improved dramatically regardless of the size of the order. This integration of technologies also meant that RDM was not restricted to manufacturing healthcare devices. Rather, it could easily retool to manufacture other products when opportunities arose. For example, one large medical customer asked RDM to manufacture 500 customized aluminium water bottles. Customization included special design features of the bottles themselves as well as their colour and fi nish. The customer wanted to give one bottle to each of its employees. With its highly automated processes, RDM could quickly and inexpensively produce the bottles, with diff erent coloured bottles for the diff erent divisions of the company and with each employee’s name on his or her own bottle. The success of the order for water bottles was such that several executives at RDM encouraged Jan to make the manufacture of customized aluminium water bottles a distinct division of the company. RDM’s relationship with stakeholders was profoundly changed by the move to automation. In the 1970s, RDM employed roughly 500 workers, making it the largest single employer in Lobjanec. In 2019, the business employs 117 people, only a small number of whom are involved in manufacturing. Further, most of those involved in manufacturing are not skilled manual labourers but highly trained engineers and computer experts who manage the automated process. Their attitudes, aspirations and motivations diff er signifi cantly from the workers who survived the Second World War and had worked under the Communist regime. With this reduction in, and transformation of, RDM’s labour force, the company no longer has the level of local infl uence that it formerly had. The vocational school no longer liaises with RDM regarding the required skills of workers. Now, with the free movement of labour throughout the European Union, RDM recruits engineers from universities across Europe.
Explain how RDM's transformation of its manufacturing process from traditional mass production to highly automated production affected the interests of internal stakeholders.