IB Business Management Medimatters Paper 1 Mock Examination SL Model Answers

2016 Standard Level Paper 1 Mock Examination Medimatters: Exemplar Answers Interactive! Click or Tap to go Question 1 1 A B Question 2 A B Question 3 A B Question 4 A B C D
2016 Standard Level Paper 1 Mock Examination  Medimatters  Exemplar Answers Interactive  Click or Tap to go  Question 1 1 ...
IB Business Management Standard Level Paper 1 Examination IB Business Management: www. BusinessManagementIB.com N16/3/BUSMT/HP1/ENG/TZ0/XX IB BUSINESS MANAGEMENT STANDARD LEVEL PAPER 1 Practice examination 2016 – Medimatters 1 hour 15 minutes INSTRUCTIONS TO CANDIDATES         Do not open this examination paper until instructed to do so. A clean copy of the IB Business Management case study – Todos os Mercados is required for this examination paper. Read the case study carefully. A clean copy of the IB Business Management formulae sheet is required for this examination paper. Section A: answer two questions. Section B: answer question 4. A calculator is required for this examination paper. The maximum mark for this examination paper is [40 marks]. Jump to start P a g e 2 | 17
IB Business Management Standard Level Paper 1 Examination IB Business Management  www. BusinessManagementIB.com  N16 3 BUS...
IB Business Management Standard Level Paper 1 Examination IB Business Management: www. BusinessManagementIB.com SECTION A Answer two questions from this section. QUESTION ONE a. With reference to Medimatters, outline two key features of operating as a private limited company. [4 marks] A Private Limited Company such as Medimatters is a company that can only raise share capital from friends and family, not the general public. Key features off a PLC include: Directors can maintain overall control over the business as they control the trading of shares in their company. Thus, the six founding members of Medimatters will be able to choose who owns how much of the company. Further, the six owners (shareholders) of this private businesses will be able to have more of a say as there are less shareholders and so each director has more influence over business decisions. Another feature is that it is relatively less expensive to start a private limited company rather than a public one. Medimatters is looking to become established with only $60 000 in startup capital. However private companies such as Medimatters will not usually be able to raise as much finance as public limited companies.   Award 3-4 marks if the student’s answer meets the following criteria:    b. The student demonstrates knowledge and understanding. Appropriate terminology is used and explained. The response is applied to the stimulus material. With reference to Medimatters, distinguish between leadership and management (line 24). [6 marks] Ahmed is the leader at Medimatters. Leadership I defined as the art of motivating a group of people towards achieving a common objective. Leadership is different to management as:  It is essentially about motivating and inspiring others Jump to start P a g e 3 | 17
IB Business Management Standard Level Paper 1 Examination IB Business Management  www. BusinessManagementIB.com  SECTION A...
IB Business Management Standard Level Paper 1 Examination IB Business Management: www. BusinessManagementIB.com  Leaders are innovators who encourage others to accept change     It stems from personal qualities and traits Leadership is based on an individual’s natural abilities and instincts The leader believes in doing the right thing He or she is respected and trusted by followers – they want to follow because of the leader’s personality A leader creates and develops a culture of change  Ahmed is the driving force behind Medimatters, and he has the trust and respect of the group of directors. Establishing a new business is a risky proposition and Ahmed is seen by the group as being the most capable of leading the company through the startup stage. Management on the other hand is defined as the organisation and coordination of the activities of a business in order to achieve defined objectives. Management is different to leadership as:        It is about directing and monitoring others It attracts problem-solvers to positions of managerial responsibility It is an official position of responsibility in the organisation The manager skilled and qualified to perform role The manager believes in doing things right The manager is listened to by others because of status – not necessarily because of personality He or she accepts and conforms to the norms of the organisation Leadership is a key part of being a successful manager. Ahmed, as a leader and as a manager will need to set a clear direction and vision for Medimatters that others will be prepared to follow. Employees will want to follow a good leader and will respond positively to them. A poor leader will fail to win over staff and will have problems communicating with and organising workers effectively. Most good managers are also good leaders – but some managers are not. Managers who focus on control of people and allocation of resources can fail to provide a sense of focus that others will understand and be prepared to follow. Without the clear and charismatic leadership that Ahmed is said to provide, workers may very well be managed', but will they be inspired to help Ahmed and Medimatters take a fresh direction and achieve new goals? Jump to start P a g e 4 | 17
IB Business Management Standard Level Paper 1 Examination IB Business Management  www. BusinessManagementIB.com       Lead...
IB Business Management Standard Level Paper 1 Examination IB Business Management: www. BusinessManagementIB.com Award 5-6 marks if the student’s answer meets the following criteria:    An analysis of the relevant issues is made with good use of business management tools (where applicable), techniques and theories. Appropriate terminology is used throughout the response. There is effective use of the stimulus material. QUESTION TWO a. With reference to Medimatters, outline one internal source of finance and one external source of finance that could be used by the startup company (line 64). [4 marks] Internal finance is internal money raised from the businesses own assets or from profits left in the business (retained profits). At this stage, Medimatters has not been operating long enough to be able to make, let alone, retain any profits. Nor are there any assets mentioned in the case study. This leaves Medimatters with only external sources of finance which is defined as external money raised from sources outside the business. At this very early startup stage of operations it is unlikely that a bank is going to lend money (unless it is secured against the personal assets of the directors of Medimatters) so the best form of external finance will likely come from the issuing of shares. Investors could be found that are willing to purchase shares in Medimatters in return for an equity stake in the company. Award 3-4 marks if the student’s answer meets the following criteria:    The student demonstrates knowledge and understanding. Appropriate terminology is used and explained. The response is applied to the stimulus material. Jump to start P a g e 5 | 17
IB Business Management Standard Level Paper 1 Examination IB Business Management  www. BusinessManagementIB.com  Award 5-6...
IB Business Management Standard Level Paper 1 Examination IB Business Management: www. BusinessManagementIB.com b. With reference to Medimatters, distinguish between flow and batch production methods (line 90). [6 marks] Flow production (also known as line production) is where items are produced in a continually moving process and this production method comes under the category of mass production (where large quantities of a standardised product are produced). Flow production involves the production method being carried out in a sequence where as soon is one task is complete; the next stage in the process must start immediately. Thus, there will be different stages in the manufacturing of lenses for the Medimatters’ product, and each lens passing through the production line will undergo a new process on the production line until it emerges at the other end as a fully functional lens, carrying the Medimatters logo and encased in Medimatters packaging. This is different to batch production. Batch production involves producing a limited number of identical products (known as a batch). From this case study, batch production is an option that is being explored to manufacture the lens that Medimatters aims to produce. The level of demand for the lens and app has made batch production ideal for this specific product for Medimatters. Both batch and flow production produce more of the same product, unlike, say, job production which customises each order to customer specifications. Both manufacturing processes can enjoy economies of scale as machines can be used to produce larger quantities (technical economies) and also the degree of specialisation can lead to increased productivity. Given the level of estimated demand – just over 800 lenses would be required each month – it does not make sense for flow production to be considered. Flow production typically requires a much higher level of capital investment to produce the automated machinery needed for the production process, and the level of extra investment needed is justified through economies of scale. 800 lenses are unlikely to achieve any meaningful economies of scale. Flow production is suited to mass production and could be considered by Medimatters if the level of demand reached a scale where lens manufacturing could occur continuously over at least one, but preferably two, shifts each day. Demand would likely need to be in the order of 1000 lenses per day (30 000) each month before it could be justified. Batch production has a little more flexibility, as before a batch has been started, it is possible to change the requirements for that batch of lenses – different sizes or positioning mechanisms for different types of phones, could be an example here. If Medimatters considered setting up their own manufacturing production lines and not outsourcing the production of lenses, then batch production would be more cost-effective than flow production as the capital equipment is likely to cost far less than a fully automated flow production system. Jump to start P a g e 6 | 17
IB Business Management Standard Level Paper 1 Examination IB Business Management  www. BusinessManagementIB.com  b.  With ...
IB Business Management Standard Level Paper 1 Examination IB Business Management: www. BusinessManagementIB.com QUESTION THREE a. With reference to Medimatters, distinguish between a product being a good and a service. [4 marks] In business management, products can be classified into goods and services. Goods are items that are tangible, such as books, pens, salt, shoes, hats and folders. Services are activities provided by other people, such as doctors, lawn care workers, dentists, barbers, waiters, or online servers. Although goods and services are often discussed separately, the goods and services continuum illustrates that goods and services often occur jointly. For example, having the oil changed in your car is a service, but the oil that is delivered is a good. Similarly, house painting is a service, but the paint is a good. The goods–service combination is a continuum. It can range from primarily goods, with little service, to primarily service, with few goods. There are relatively few pure goods or pure services, companies usually sell product packages, which are a combination of goods and services. There are elements of both goods production and service delivery in these product packages. This makes managing operations more interesting, and also more challenging, which can be seen within the Medimatters business model. The IBAT app is a pure service (intangible), and the lens necessary to make the IBAT work is a pure good (tangible). Together, Medimatters will need to establish an operations strategy that combines both elements of a good and service into its product. Award 3-4 marks if the student’s answer meets the following criteria:    b. The student demonstrates knowledge and understanding. Appropriate terminology is used and explained. The response is applied to the stimulus material. Analyse the impact of two external environmental factors on the business objectives of Medimatters. [6 marks] Without specifically stating what the business objectives of Medimatters actually are, it is safe to assume that the company’s objectives are profit maximisation, market share and shareholder value – the most common business objectives in for profit firms. External environmental factors refer to the importance of external influences on business performance Jump to start P a g e 7 | 17
IB Business Management Standard Level Paper 1 Examination IB Business Management  www. BusinessManagementIB.com  QUESTION ...
IB Business Management Standard Level Paper 1 Examination IB Business Management: www. BusinessManagementIB.com and decision-making. To survive and prosper businesses must understand and respond to external factors that are beyond their control. There are various factors a firm needs to consider within the external environment it operates in – social, technological, economic, ethical, political, legal and environmental change.  Economic factors such as interest rates, economic growth, employment, international trade and the state of infrastructure will impact on business objectives. For example, since the Global Financial Crisis of 2007-2008 and the Great Recession that followed global interest rates have been at historical lows. Low interest rates would make it easier for the directors of Medimatters to take out personal loans which they could then invest in the company to fund operational activities and capital investment (e.g., computers and servers). Further, once the company is established then low interest rates would enable the company to borrow relatively inexpensively from banks to finance the expansion of the company. Thus, if an initial objective was to become established, to make and begin selling the product, low interest rates would help with the financing of this objective. Likewise, if objectives changed at a later date to one of achieving company growth (such as increasing sales by 50%) then long-term bank financing to fund expansion would be made easier by low interest rates.  The fast-changing technological environment presents constant threats and opportunities for a business. Technology affects all aspects of business functions. The fast-moving healthcare app industry is subject to much technological change and Medimatters and its competitors would be researching and developing technological innovations and incorporating the new technologies developed in other industries into their processes and perhaps their products too. Medimatters must respond to changes in technology to remain competitive and ensure that their competitive rivals do not have a point of differentiation or a unique selling point that enables them to develop and sustain a competitive advantage over Medimatters. Technological advances (e.g., chatbots, virtual reality) are a real long-term possibility that Medimatters needs to consider and plan for. For example, developments in machine learning and artificial intelligence would, in time, allow customers to interact with a health platform using chatbots applications in ways that the first iteration of the platform cannot possibly consider. In my opinion, the future of such information and diagnostic platforms is likely to be based on technology that allows doctors and patients to simply ask an app a question (e.g., “Computer, what caused this bite and what should I do about it”) that would then guide an interaction between human and machine until the desired diagnostic outcome was achieved. However, intuition suggests such technology is still ten years away from becoming mainstream in applications and it will take even longer for the healthcare industry to incorporate such applications into day-to-day practice. Considered and careful investment in R&D and/or partnerships with companies such as IBM and its Watson chatbot platform could then produce the next Medimatters application. Jump to start P a g e 8 | 17
IB Business Management Standard Level Paper 1 Examination IB Business Management  www. BusinessManagementIB.com  and decis...
IB Business Management Standard Level Paper 1 Examination IB Business Management: www. BusinessManagementIB.com Award 5-6 marks if the student’s answer meets the following criteria:    An analysis of the relevant issues is made with good use of business management tools (where applicable), techniques and theories. Appropriate terminology is used throughout the response. There is effective use of the stimulus material. Jump to start P a g e 9 | 17
IB Business Management Standard Level Paper 1 Examination IB Business Management  www. BusinessManagementIB.com  Award 5-6...
IB Business Management Standard Level Paper 1 Examination IB Business Management: www. BusinessManagementIB.com SECTION B Answer the compulsory question from this section. QUESTION FOUR a. Distinguish between qualitative and quantitative research. [3 marks] Quantitative research is research that leads to numerical results that can be presented and analysed. Quantitative methods emphasise objective measurements and the statistical, mathematical, or numerical analysis of data collected through polls, questionnaires, and surveys, or by manipulating pre-existing statistical data using computational techniques. Medimatters may ask medical professionals to rate the app across different dimensions and criteria (e.g., ease of use, comprehensiveness of the data, etc.). Qualitative research is research into the in-depth motivations behind consumer buying behaviour or opinions. Qualitative Research is primarily exploratory research. It is used to gain an understanding of underlying reasons, opinions, and motivations. It provides insights into the problem or helps to develop ideas or hypotheses for potential quantitative research. Medimatters may choose to use a focus group or groups to assess their IBAT app. A focus group is marketing research technique for qualitative data that involves a small group of people that share a common set characteristics (demographics, attitudes, etc.) and participate in a discussion of predetermined topics led by a moderator. A focus group could be used to assess doctors’ reactions to the app. b. Using information in Table 1 above calculate i. Calculate the break-even quantity per month. [1 marks] Unit contribution = Price – AVC = $99.00 - $26.50 = $72.50 Break-even quantity = Fixed costs ÷ unit contribution BEQ = $4000 ÷ $72.50 = 55.17 = 56 units (IBAT + lens) ii. If the business has sales at 80% of its capacity, calculate the margin of safety and profit. [2 marks] → MOS = level of demand – break-even quantity Jump to start P a g e 10 | 17
IB Business Management Standard Level Paper 1 Examination IB Business Management  www. BusinessManagementIB.com  SECTION B...
IB Business Management Standard Level Paper 1 Examination IB Business Management: www. BusinessManagementIB.com → MOS = 800 – 56 = 744 units (IBAT + lens) → Profit = MOS x unit contribution → Profit per month = 744 x $72.50 = $53,940 (x 12 months = $647,280 per year) c. With reference to Medimatters, explain the difference between target markets and market segments. [4 marks] A target market is a group of people considered likely to buy a product or service, such as doctors, hospitals and medical centres for the IBAT. A target market consists of customers that share similar characteristics, such as age, location, income and lifestyle, to which a business directs its marketing efforts and sells its products. One of the first steps for Medimatters in developing an effective marketing campaign is determining an appropriate target market so that marketing goals can be set and implemented. Target markets can be separated into primary and secondary target markets. Primary target markets are those market segments to which marketing efforts are primarily directed (say, medical centres) and secondary markets are smaller or less important (say, overly concerned mothers). It is important for Medimatters to identify and select a target market so it can direct its marketing efforts to that group of customers and better satisfy their needs and wants. This enables the firm to use its marketing resources more efficiently, resulting in more cost and time efficient marketing efforts. It allows for better understanding of Medimatters customers and therefore enables the creation of promotional materials that are more relevant to customer needs. Also, targeting makes it possible to collect more precise data about customer needs and behaviours and then analyse that information over time in order to refine market strategies effectively. Target markets or also known as target consumers are certain clusters of consumers with similar or the same needs that most businesses target their marketing efforts in order to sell their products and services. Market segmentation is the process of splitting a market into distinct groups of buyers in order to better meet their needs. Market segmentation includes the following:      Geographic - Addresses, Location, Climate, Region Demographic/socioeconomic segmentation - Gender, age, wage, career, education. Psychographic - Attitudes, values, religion, and lifestyles Behavioural segmentation - (occasions, degree of loyalty) Product-related segmentation - (relationship to a product) Market segmentation divides the market into four main sub categories – demographic (e.g., private and public hospitals), geographic (e.g., Cambodia and Canada), psychographic (e.g., health conscious consumers) and behavioural (frequency of IBAT use) segmentation. After doing market segmentation the subdivision market will be much more specific for Jump to start P a g e 11 | 17
IB Business Management Standard Level Paper 1 Examination IB Business Management  www. BusinessManagementIB.com      MOS  ...
IB Business Management Standard Level Paper 1 Examination IB Business Management: www. BusinessManagementIB.com Medimatters and it is relatively easy to understand consumer demand, and the firm can determine their own service objects according to their business ideology, principles and production technology and marketing power. d. Using the additional information in the case study, table 1 above, and items 1-2 prepare a SWOT analysis to evaluate the Medimatters business model. [10 marks] The internal strengths and weaknesses, and the external opportunities and threats are analysed and used to evaluate the Medimatters business model. A summary SWOT is provided in Table 1 below, and each point is comprehensively explained. Table 1: Summary SWOT analysis for Medimatters STRENGTHS: WEAKNESSES: Innovative application with no direct  Distribution channels competitors  Time to market  Ease and speed of use  Negative initial cash flow  Outsourced production of lenses  No direct sales force  Low break-even point  Small development team  App requires special lens to function properly  OPPORTUNITIES: THREATS:  Barriers to entry in certain markets (e.g.,  Large target market  Segmented target market  Increasing use of digital technologies in  Increased protectionism health care  Global sales tax on digital services  Sell directly to parents  Exchange rate volatility  Possible healthcare partnerships  Technological advances (e.g., chatbots,  Use brand to develop new products and expand into other markets (e.g., skin rashes licensing, regulation) virtual reality)  Exposure to possible litigation and infections) Jump to start P a g e 12 | 17
IB Business Management Standard Level Paper 1 Examination IB Business Management  www. BusinessManagementIB.com  Medimatte...
IB Business Management Standard Level Paper 1 Examination IB Business Management: www. BusinessManagementIB.com The strengths of the Medimatters business model are as follows:  Innovative application provides an immediately differentiated product with a unique selling point (USP) or value proposition. There is no other application for insect bite diagnosis on the market. Product marketing should focus on this, and the USP will allow the firm to use a market based pricing strategy – adapting prices to the conditions of the market – such as market skimming. Market skimming is setting a high price for a new product when a firm has a unique or highly differentiated product. This aims to maximise short-run profits, before competitors enter the market with a similar product, and to project an exclusive image for the product. If rivals do launch similar products, it may be necessary for the price to be reduced over a period of time.  It is easy to use. Medical practitioners and concerned individuals do not have to search through a series of different pictures of insect bites hoping that they find one that matches the one in question. Doctors and patients are quickly guided to the relevant diagnosis and treatment options with a single click, tap or photo. This compares favourably to the products of competitors where various websites and pages of insect bites need to be scrolled through and/or per-loaded prior to an appointment, and/or require doctors to spend valuable time finding the particular insect bite online. Speed of set up. Medical practitioners will not need to do any preparation prior to an appointment if they so wish. Diagnosing an insect bite is as simple as taking a photo of it.  Outsourced production. Outsourcing is a practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally. Outsourcing is an effective cost-saving strategy when used properly. It is sometimes more affordable to purchase a good, such as the lens, from companies with comparative advantages than it is to produce the good internally. Generally, business functions and processes outsourced to an external company bring cost savings and/or productivity gains. For example, specialist manufacturers of lenses will be able to supply the components or product far more cost effectively and efficiently than Medimatters which is a firm who does not have this area of expertise.  Low break-even point. The firm only needs to produce and sell 56 units of the IBAT (app + lens) each month to break-even. The breakeven point of production is the level of output at which total costs equal total revenue, and Medimatters has a low break-even point of production because it has a relatively high contribution per unit and low fixed costs. Fixed costs are those which do not change as production is increased or decreased, and an example is management salaries. Contribution per unit is defined as the selling price of a product less variable costs per unit, and for the IBAT it is $72.50. Forecast demand is high and so there is a relatively high margin of safety – the amount by which sales level exceeds the break-even level of output. Combined, the low break-even level of production and the high margin of safety should result in relatively high levels of profitability for Medimatters. This can be returned to shareholders quickly and/or used to reinvest in the firm to grow the business. The weaknesses of the Medimatters business model are as follows: Jump to start P a g e 13 | 17
IB Business Management Standard Level Paper 1 Examination IB Business Management  www. BusinessManagementIB.com  The stren...
IB Business Management Standard Level Paper 1 Examination IB Business Management: www. BusinessManagementIB.com  Distribution channels + No direct sales force + App requires special lens to function properly. These three aspects of the marketing mix are an integrated problem that Medimatters needs to resolve. The distribution channel is obvious at this stage – an ecommerce strategy, which is the buying and selling of goods and services over the internet. The IBAT good/service is sold directly to final customers as orders are placed online. There is a mix of both B2B and B2C selling. Selling of goods and services directly to final customers as orders are placed online through the company website - Business-To-Consumer (B2C). Selling/buying of goods and services to/from other businesses - Business-To-Business (B2B). There are different market segments (parents versus doctors) that will need to be marketed to in different ways to maximise sales. The firm is relying on internet promotion such as search term optimisation and Google AdWords, and possibly, later on, word of mouth advertising to inform potential customers about the IBAT and drive sales. Having a direct sales force would be expensive, but with such a marketing tactic the app could be demonstrated to doctors, hospitals and medical centres and the benefits explained. Doctors and administrators are busy people who would have an almost overwhelming array of new medical products being promoted to them. An internet advertisement is easy enough to ignore, especially in these days of ad blocking software, thus, not having a direct sales force could be a major weakness of the Medimatters business model. Most app purchases are instantaneous. The customer polices their order online and the app is immediately available on any array of digital devices. The IBAT has a physical lens which needs to be shipped to the customer before they can begin diagnosing an insect bite. Hospitals, doctors and medical centres may be prepared to wait for a week before the lens is delivered because they could expect to use the IBAT relatively frequently. A concerned individual worried about a particular bite would not be prepared to wait for this length of time. They would want the diagnosis now, not a week later when the harm is done and/or the insect bite has faded. It is possible that in time, and with the progression of camera phone resolution the firm will be able to phase out the hardware component of their product.  Time to market + Negative initial cash flow. The app and the business itself are both only in the early stages of development. It will take some time before both the lenses and packaging, the app, the website, and promotion are all completed and ready to go. The longer it takes the product to reach the market, the greater the degree of risk the firm will face. For example, the greater the time to market the greater the chance that a competitor app may be launched. Further, until the product is ready and sales are being made, the firm will be burning through its cash, of which it is proposed to have a relatively small amount $60,000. Having insufficient capital to cover the cash outflow in the development stage and early days of operations is one of the leading reasons why new businesses will fail. The firm will need to pay close attention to development costs, although it helps to have the lenses manufactured by an outsourced supplier, even so a significant deposit id likely to be required. It may pay for Medimatters to establish access to additional capital if it so needed.  Small development team. This is really the flip-side of one of the company’s main strengths – its model of using outsourced suppliers for the lens. However, it is crucial that the main application achieves the functionality and achieves it within a reasonably tight timeframe Jump to start P a g e 14 | 17
IB Business Management Standard Level Paper 1 Examination IB Business Management  www. BusinessManagementIB.com      Distr...
IB Business Management Standard Level Paper 1 Examination IB Business Management: www. BusinessManagementIB.com of beginning to sell the product. If not, Medimatters will continue to have negative cash flow, and the time to market will inevitably be delayed. It is crucial that the company has a Chief Technology Officer who has enough skills and experience to supervise and project manage the platform build. The opportunities apparent in the Medimatters business model are as follows:       Large target market. Insect bites are a problem the world over, and it is not just a developing country problem. Although increasing incomes in developed economies such as Brazil and Nigeria where there are many harmful insects provide good growth opportunities for the firm. North America, Australia and warmer Southern European countries all have their own harmful insects and arachnids (spiders, ticks, scorpions, mites, etc.). There could easily be over five billion people that could be affected by insect bites and stings at any time. Additionally, much of developed world tourism occurs in developing nations. The larger the target market, the greater the potential for a high level of demand for the IBAT and lucrative profitability for Medimatters. Segmented target market. Segmented target market. The target market is very well defined – doctors, hospitals and medical centres. With such clearly defined customers, the marketing mix can be very specifically tailored to this group of potential customers, and the return on marketing investment would be much higher than it would be with a more diverse group of potential customers. Increasing use of digital technologies in health care. Healthcare apps are becoming common place in doctors’ offices, medical centres and hospitals around the world. As such, potential customers are likely to believe that apps will perform the function they state. Many healthcare professionals are likely to be very pleased to give up their physical books and diagnostic manuals for an easy to use app. Sales should be higher as a result. Sell directly to parents and other concerned individuals (e.g., tourists). These market segments offer the possibility of Medimatters tapping new revenue streams to drive profitability. Possible healthcare partnerships. Health insurance companies, hospital chains and health departments or ministries are all logical partners for the firm. A joint venture or strategic alliance could be formed which would assist Medimatters with its perceived weaknesses in its channels of distribution. Use brand to develop new products and expand into other markets (e.g., skin rashes and infections). Again, this could help the firm tap into new revenue streams in time and diversify its risk. Basing a business model on a single product is inherently more risky than having a few successful products, where revenues can be maintained even if one product is faltering. The weaknesses apparent in the Medimatters business model are as follows: Jump to start P a g e 15 | 17
IB Business Management Standard Level Paper 1 Examination IB Business Management  www. BusinessManagementIB.com  of beginn...
IB Business Management Standard Level Paper 1 Examination IB Business Management: www. BusinessManagementIB.com      Barriers to entry in certain markets (e.g., licensing, regulation). Barriers to entry in US market. Some US states and health districts can dictate which healthcare products hospitals and medical centres can purchase, and there is far less autonomy for doctors and administrators to decide which products are best at suiting their patients’ needs. And this is true of drugs as it is of new technology platforms. Registering the company in the US would overcome many of the barriers to health districts and health boards which can have an official or unofficial America-first procurement bias. Increased protectionism. If barriers to trade are increased, especially in the key US market then sales and revenues would inevitably fall. In America in particular, the public appetite for ever increasing globalisation appears to be waning. The rise of the populist anti-free trade “America first” politician Donald Trump, and the decreasing likelihood that the US congress will ratify the Trans Pacific Partnership show that free trade cannot be taken for granted. Global sales tax on digital services. Presently, there is a very free flow of digital services around the world which bypass sales taxes (e.g., the US), goods and services taxes (e.g., Canada, New Zealand and Australia) and value added taxes (e.g., the UK). There are tremendous advantages being located in one country and exporting digital services into another country because such indirect taxes are not levied on the customer, whereas they are for domestic firms selling competing products. Presently, the avoidance of such sales taxes allows Medimatters to be price competitive in large markets. It is possible governments may move to negate such advantages and claw back such taxes in their domestic market. However, these changes require large adjustments to tax codes and compliance and enforcement practices. Agreements for international cooperation between governments will need to be negotiated. Such factors are likely to mean that Medimatters will enjoy a competitive advantage in key markets for some time to come. Exchange rate volatility. The IBAT will be sold worldwide. Exchange rate volatility needs to be considered, especially adverse currency fluctuations. Any appreciation of the exchange rate in the domestic market will reduce revenues and profitability in the local currency when export receipts are booked. Technological advances (e.g., chatbots, virtual reality). The additional material – ‘Ap Facts’ indicates that many apps are short-lived; i.e., they have a short product life cycle. Technology affects all aspects of business functions. The fast-moving healthcare app industry is subject to much technological change and Medimatters and its competitors would be researching and developing technological innovations and incorporating the new technologies developed in other industries into their processes and perhaps their products too. Medimatters must respond to changes in technology to remain competitive and ensure that their competitive rivals do not have a point of differentiation or a unique selling point that enables them to develop and sustain a competitive advantage over Medimatters. Jump to start P a g e 16 | 17
IB Business Management Standard Level Paper 1 Examination IB Business Management  www. BusinessManagementIB.com           ...
IB Business Management Standard Level Paper 1 Examination IB Business Management: www. BusinessManagementIB.com Technological advances (e.g., chatbots, virtual reality) are a real long-term possibility that Medimatters needs to consider and plan for. For example, developments in machine learning and artificial intelligence would, in time, allow customers to interact with a health platform using chatbots applications in ways that the first iteration of the platform cannot possibly consider. In my opinion, the future of such information and diagnostic platforms is likely to be based on technology that allows doctors and patients to simply ask an app a question (e.g., “Computer, what caused this bite and what should I do about it”) that would then guide an interaction between human and machine until the desired diagnostic outcome was achieved. However, intuition suggests such technology is still ten years away from becoming mainstream in applications and it will take even longer for the healthcare industry to incorporate such applications into day-to-day practice. Considered and careful investment in R&D and/or partnerships with companies such as IBM and its Watson chatbot platform could then produce the next Medimatters application. Exposure to possible litigation. Liability litigation insurance may be too expensive for the firm to purchase initially. Any lawsuit would require considerable resources – time and money – to mount a successful defence. Settlements can often run into the millions of dollars, especially if lives have been lost. The additional material illustrates that this is a real danger for the producers of healthcare apps. If there is a real concern about litigation amongst the directors, then a partnership with an organisation with considerable more financial resources may be desirable.  Overall, by considering the strengths, weaknesses, opportunities and threats apparent in the new business venture, a holistic picture emerges of considerable favourability for developing a business model to exploit the opportunity Medimatters represents, linking together opportunity, strategy and structure. The real advantages lie in USP and lack of competition and the high contribution per unit. However, it is recommended that consideration be given to looking for a partnership in a strategic alliance or joint venture to circumvent the major short-term weakness of the business model – distribution, and the major threat – litigation. Award 9-10 marks if the student’s answer meets the following criteria:    Good understanding of the demands of the question, including implications, where relevant. Relevant business management tools (where applicable), techniques and theories are explained clearly and applied purposefully, and appropriate terminology is used throughout the response. Effective use of the stimulus material in a way that significantly strengthens the response. Jump to start P a g e 17 | 17
IB Business Management Standard Level Paper 1 Examination IB Business Management  www. BusinessManagementIB.com  Technolog...