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Case Study Analysis IB Business Management www BusinessManagementIB com P S Trawlers May 2020 exam Derek Burton

IB Business Management Pre Released Case Study May 2020 Critical Thinking IB Business Management www BusinessManagementIB com IB BUSINESS MANAGEMENT PRE RELEASED CASE STUDY MAY 2020 CRITICAL THINKING Below is a list of all key terms as they appear in the IB Business Management May 2020 pre released case study for SL and HL Paper 1 examinations Term Industry Business The terms and concepts are defined They are then considered in the context of the case study Line Definition 2 6 Critical thinking The aggregate of manufacturing or technically productive enterprises in a particular field often named after its principal product e g the automobile industry the steel industry the Italian tourist industry PST operates in a profitable but mature industry Any organisation that uses resources to meet the needs of customers by providing a product or service PST is an established privately held company It has good profitability and options for expansion The firm has new fishing technologies well integrated into its business model increasing productivity fish caught per day s fishing There is likely to be Weak growth in fish stocks at best and tight quotas to sustainably manage current fish stocks Increased government regulation compliance costs and Strong global demand in developed and less developed markets for fresh quality fish The Norwegian government allocates more quotas to its fishing industry then it is provided with by EU authorities It then compensates the EU authorities for doing so a form of state subsidy to its fishing firms Innovation creativity teamwork and CSR are well embedded in the company s corporate culture P a g e 1 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking that they demand They identify the needs of consumers or other firms They then purchase resources which are the inputs of the business or factors of production to produce output The outputs of a business are the goods and services that satisfy consumers needs usually with the aim of making a profit Market 5 An actual e g retail shop or nominal place e g an online shop where forces of demand and supply operate and where buyers and sellers interact directly or through intermediaries to trade goods services PST has diversified the markets that it sells its fish into a competitive advantage Price 6 The amount paid by consumers for a product Price is a vital component of the marketing mix as it impacts on the consumer demand for a product The pricing level will also Determine the degree of value added by the business to the fish it brings to market Influence the revenue and profit made by the business due to its impact on demand P a g e 2 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking Reflect the marketing objectives of the business and identity of a product Fish is a commodity product and prices are very much subject to the forces of supply and demand As more fish are caught prices decrease and increasing demand provides upwards pressure on prices There are a few ways that PST can differentiate its product freshness quality type of fish caught and command above market prices a premium price However PST is also willing to engage in supply contracts with major retailers where the negotiated price is lower than market prices to ensure that its product is sold If PST gets the pricing decision wrong much work in market research and development can be put at risk Partnership 9 Two or more partners carrying on a business in common with a view to make a profit e g architects engineers It is owned by two or more people and up to 20 this may vary from country to country PTS has changed from a partnership to a private limited company It remains a family owned private company with shares tightly held between the immediate family The firm is managed by the partners Capital comes from partners Partners can pool funds together to make more funds However companies have limited liability which means that the business owners shareholders are not personally liable for business debts Therefore the owners will not have to sacrifice their personal assets if the business is unable to repay all its liabilities This could be a very important consideration considering the possibilities of setting up new businesses e g fish retail shops or purchasing new and larger fishing trawlers Sources of finance Savings Loans Retained profits Students should be ready to evaluate the advantages and disadvantages of changing from a partnership to a private limited company The change in legal ownership makes a lot of sense Company directors can still be held responsible and liable for damages if they have been shown to be willingly negligent in their duties e g gross safety issues and the death of a crew member preventable oil and diesel spillages causing significant environmental damage etc Continuity becomes easier We are not given precise information on how old Shae and Patsy the parents are but we confidently assume that they are getting on It is likely that their shares will transfer to the children in time P a g e 3 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking Private limited company Risks A small to medium sized business that is owned by shareholders who are often members of the same family This company cannot sell shares to the general public 11 The exposure a company or organisation has to factor s that will lower its profits or lead it to fail Anything that threatens a company s ability to meet its target or achieve its financial goals The more shares a person has in a business the more influence they have in business decisions as each share counts for one vote There is significant risk associated with PST primarily due to the industry it operates in Examples include safety risks to seagoing workers market price risks in the fishing industry and risks of social disruption due to changes in fishery regulations fishing industry technology or resource abundance A company with a higher amount of business risk should choose a capital structure with a lower debt ratio to ensure it can meet its financial obligations at all times When revenues drop the company may not be able to service its debt which may lead to bankruptcy On the other hand when revenues increase it experiences larger profits and is able to keep up with its obligations Selected financial information provided in Appendix 1 indicate that the company is in a reasonable financial opinion The company is profitable without long term liabilities i e there are no long term loans that need to be serviced This means that there are company assets primarily its fishing fleet that can be used as collateral to finance to borrow for expansion PST has a low gearing ratio However on the negative side the company has a current ratio of 1 0 which is on the low side Accountants usually recommend businesses operate with a current ratio of between 1 5 to 2 0 Projections for 2020 indicate that PST will face a liquidity crunch when current assets will exceed current liabilities Regulation 13 A rule of order having the force of law prescribed by a superior or competent authority relating to the actions of Fishing has traditionally been a dangerous industry to work in Health and safety obligations in Finnish fisheries are likely to be strong and tightly regulated Quotas are set by the EU with adjustments made by the Finnish government The Common Fishing Policy CFP is a set of rules for managing European fishing fleets and for conserving fish stocks Designed to manage a common P a g e 4 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking those under the authority s control Regulations are issued by various EU national and local government departments and agencies to carry out the intent of legislation that has been enacted resource it gives all European fishing fleets equal access to EU waters and fishing grounds and allows fishermen to compete fairly Stocks may be renewable but they are finite Liability 14 The state of being legally responsible for something i e the firm s debts and financial penalties imposed by regulators Limited liability applies to a private company whose owners are legally responsible for its debts only to the extent of the amount of capital they invested Shares 15 A share is a small unit of ownership in a company When you own a share you own a piece of a company Each share represents an equal portion of the company s total capital the more shares owned the greater the portion of ownership assigned PST ownership The sum of techniques skills methods and processes used in the production of goods or services Firms adopt new technologies to increase their productivity thus reducing their cost per unit of output i e less money spent per tonne of fish caught Technology 18 Shae and Patsy 20 Pekka 40 Tapio 40 If there is any disagreement with the direction of the company by the main directors Pekka and Tapio the parents would have the deciding vote Any strategy for growth will need to be arrived at by mutual consent P a g e 5 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking Sustainability Quotas 20 20 Sustainability in operations management refers to intergenerational equity The production of goods and services for today s generation of consumers should not compromise the consumption for future generations A sustainable business is an enterprise that has minimal negative impact on the global or local environment community society or economy A sustainable business strives to meet the triple bottom line are also called the three Ps people planet and profit or the three pillars of sustainability Often sustainable businesses have progressive environmental and human rights policies In general business is described as being sustainable if it matches the following four criteria social environmental or ecological and financial Under the quota management system QMS a yearly catch limit the total allowable catch is set for every fish stock a species of fish shellfish or seaweed from a particular area By controlling the amount of fish taken from each stock the QMS helps keep EU fisheries sustainable Individual fishing quotas IFQs also known as individual transferable quotas ITQs are one kind of catch share a means by which many governments regulate fishing The regulator sets a species specific total allowable catch TAC typically by weight and for a given time period P a g e 6 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking Marketing 22 The management task that links the business to the customer by identifying and meeting the needs of customers profitably It does this by getting the right PRODUCT at the right PRICE at the right PLACE with the right PROMOTION PST s offer must be distinct from those of its competitors and should fulfil the requirements of the customers of its target markets This is difficult to do considering theirs is a commodity product Differentiation may be achieved by Fishing more efficiently and competing on price Delivering higher quality fish to the market e g fresher fish or preferred species Distribution advantages such as direct delivery tom restaurants and fish retailers PST s positioning is the result of whatever the company does Its marketing mix is the most tangible and the most flexible tool to create the desired positioning PST must use their marketing mix to create something specific and special for the customer otherwise they will have to accept the market price PST s USP is probably based around the fact that they operate in an ethical and sustainable manner They are an established Finnish fishing company providing it with advantages in the Finnish market as consumers move to purchase locally produced products Finance 22 The function in a business responsible for acquiring funds for the firm managing funds within the firm and planning for the expenditure of funds on various assets Without a carefully calculated business plan the firm has little chance for survival Financial management is the job of managing a firm s resources so it can Selected financial information provided in Appendix 1 indicate that the company is in a reasonable financial opinion The company is profitable without long term liabilities i e there are no long term loans that need to be serviced This means that there are company assets primarily its fishing fleet that can be used as collateral to finance to borrow for expansion PST has a low gearing ratio However on the negative side the company has a current ratio of 1 0 which is on the low side Accountants usually recommend businesses operate with a current ratio of between 1 5 to 2 0 Projections for 2020 indicate that PST will face a liquidity crunch when current assets will exceed current liabilities P a g e 7 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking meet its goals and objectives Administration 22 The administration of a business includes the performance or management of business operations and decision making as well as the efficient organisation of people and other resources to direct activities towards common goals and objectives Additional administration for PST would include the compliance work associated with reporting catches bycatch and health and safety reporting to Finnish EU regulatory departments This is largely automated line 108 freeing up management time and reducing labour costs Restrictions 25 A limiting condition or measure especially a legal one Limitations imposed by the government on the size of quotas the size and type of fish caught all increase the cost to PST reducing profitability Future restrictions will likely have major impacts on company revenues and are a significant threat to the company cf SWOT analysis Profit 27 A financial gain especially the difference between the amount earned and the amount spent in buying operating or producing something PST is profitable This profitability is built upon its competitive advantages Total revenues total costs profits if positive losses if negative Trade agreements 27 This is a wideranging taxes tariff and trade treaty that often A diversity of customers reduces the likelihood product can t be sold or sold at a low price Being highly productive and having an opportunity to increase productivity rates further by employing new technology and purchasing larger trawlers Having a talented and engaged workforce Having a great corporate culture including an embedded ethical ethos PST is operating in a market where demand for its product is growing and it can grow revenues as the market expands However regulations and quotas limit the company s ability to take advantage of this external opportunity PST now has added competition from other EU fishing companies and not just local Finnish firms The increased competition means that only the most productive fishing firms will survive and prosper P a g e 8 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking Income Wages Environment external environment 31 32 33 includes investment guarantees It exists when two or more countries agree on terms that helps them trade with each other This fact would be a driving force for PST to expand and grow to reap economies of scale and invest in more technologies to further increase productivity lowering costs per unit Financial compensation generated from company or trade operations This represents money gained from transactions before any expenses or other financial obligations are deducted PST has concerns about the future of its business income There are several threats that PST must respond to Monetary remuneration computed on hourly daily weekly or piece work basis A fixed weekly or monthly wage is usually called a salary According to Herzberg wages are one of the hygiene factors Parts of a job that do not increase job satisfaction but help to remove dissatisfaction such as reasonable wages and working conditions This is a group of factors or conditions that are outside the organisation but affect it to some extent In business this term commonly applies to elements related to A PEST analysis is a strategic business tool used by organizations to discover evaluate organize and track macro economic factors which can impact on their business now and in the future The framework examines opportunities and threats due to Political Economic Social and Technological forces It is also a driving force for a diversification strategy where lower profitability from their commodity product could be offset by higher retail fish prices if the company decided to open its own retail stores vertical integration Increased competition especially from foreign trawlers illegally overfishing This both reduces fish stocks limiting the size of PST s fish catches and increasing per unit costs and depressing prices as more fish floods the market Given that PST has a strong CSR programme AND that much of its workforce is highly trained skilled and experienced overall wages are likely to be high and very competitive within the fishing industry However higher wages are a significant cost to PST and must be balanced by higher labour productivity to be cost effective For example PST would be aware of the following examples and have some plan to mitigate the risks associated with these P a g e 9 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking dimensions out of control of the firm such as society economy regulations and political system Political e g a reduction in quotas may be hedged with a diversification strategy such as into a tourism venture Economic e g exchange rate risk associated with export markets can be mitigated by having a strong position in the domestic market and a range of different export destinations for the firm s products with contracts negotiated in the currency of the importers of PST s products Social e g having a local ethical and sustainable brand image would mitigate the negative effects of any consumer movement against mass fishing companies perceived as depleting global fish stocks Technological e g the new technologies make fishing more productive will need to quickly be adopted if the cost benefit analysis favourable Survive 33 This is a short term objective usually when a new firm enters the market or at a time of crisis The fact that PST has been operating a long time would indicate that the external environment is very unfavourable for the fishing industry Survival as a business goal is really only applicable to new entrants wanting to establish themselves or when businesses are struggling Survival is a short term objective and PST must have longer term objectives beyond this as well as strategies to achieve longer term objectives Management 36 The act of managing a firm s resources e g human resources and financial capital to accomplish desired goals and objectives using available resources efficiently and effectively PST has a delayered organisational structure necessary for the teamworking that occurs at PST This of course has both kits advantages and its disadvantages On balance this management style is necessary for the innovation problem solving and high levels of productivity that come from PST s motivated and skilled employees a distinct source of competitive advantage Senior management is generally a team of individuals at the highest level of management of an organisation who have the day to day tasks P a g e 10 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking of managing that organisation Threats Labour turnover 36 40 Threats are anything that could cause damage to an organisation venture or product This could include anything from other companies who might intrude on a market to supply shortages which might prevent the firm from producing a product Threats are negative and external These are likely to be the main threats the management of PST will be cognisant of The rate at which employees leave a company and are replaced by new employees expressed as a percentage number of employees leaving during period average number of people Reducing employee turnover is a common objective of human resource management Not all turnover is bad Getting rid of low performers or problematic employees benefits a business in the long run However the advantage to PST having a low a low rate of labour turnover are as follows Downward revisions to fishing quotas and or the increased price of purchasing said quotas Increased competition from foreign fishing companies and any illegal fishing that occurs Price volatility in the market for fish Poor liquidity in the current financial year low liquidity ratios worsening into 2020 The lower unit costs of larger fishing trawlers reaping economies of scale The cost of installing and upgrading fishing technologies as well as the opportunity cost of not doing so Increased fuel costs as the EU strives to meet to its carbon commitments carbon neutrality by 2050 The largely unknown effects on fish stocks as the planet warms and the oceans become more acidic Labour shortages as the Finnish population ages and a fishing career becomes less appealing to millennials Withdrawal or reduction of EU fishing subsidies currently valued at 3 3 billion Finland s fishing sector received three more in subsidies than the value of their landed catch The fisheries sector which often fails to generate profit owes its life to generous subsidies schemes The EU fishing industry s addiction to European taxpayer funded subsidies has led to overfishing fleet overcapitalisation reduced economic efficiency in the sector and the failure to obtain the potential economic benefits from the resource Anne Schroeer Baltic Sea Project manager at Oceana Europe Cost Savings It is costly to lose one employee and then hire and train a replacement Recruiting hiring processes and training time with the new employee are common costs Additionally companies sometimes forget the opportunity costs that result from lower productivity with a new employee P a g e 11 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking employed during period x 100 Better Production The longer PST retains employees the more experience and skills they develop if they are well managed Having a higher average tenure rate on a firm s staff means sales service production and support performance should benefit PST s staff has a better working knowledge of its business and the customers it serves Customer Retention While customers may appreciate the quality of a product or prices the personal interaction with sales and service representatives still goes a long way in building customer loyalty Customers also benefit from knowledgeable employees who can answer their questions Dealing with constant turnover can frustrate established customers who prefer the face and name recognition of a long time employee High Morale Over the course of time employees develop bonds with co workers Dealing with regular turnover affects those left behind and makes it more likely they will eventually leave as well A high morale culture where employees have good working relationships contributes to the effectiveness of the business In the fishing company employees who know each other well more easily collaborate on production and work through glitches Ethically managed 41 This is the ability and willingness to reflect on values in the course of the organisation s decision making process to determine how values and decisions affect the various stakeholder groups and to establish how managers can use these precepts in day to day company operations Ethical business leaders strive for fairness and justice within As PST practices corporate social responsibility CSR it has every advantage in attracting government support e g subsidies paid to sustainable ethical fishing firms CSR refers to the consideration of ethical and environmental issues relating to business activity A business that adopts CSR will normally act morally towards its various stakeholder groups Benefits of CSR The image of the business and its products can be improved with a green and socially responsible approach This could become a major competitive advantage Attracting the best motivated and efficient employees may become easier as many workers will prefer to work for and be associated with socially aware businesses The goodwill of other stakeholder groups resulting from socially responsible behaviour could lead to better relations with employees suppliers customers and the local community Bad publicity and pressure group activity resulting from socially irresponsible behaviour should not arise P a g e 12 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking the confines of sound management practices Higher long term profitability should result from all of the factors above On balance the benefits to PST of practicing CSR outweigh the costs however the management of PST should be aware of some disadvantages Short run costs could increase e g fitting anti pollution equipment paying workers above poverty levels not exploiting vulnerable groups when advertising Loss of cost and price competitiveness if rival businesses don t accept social responsibilities and have lower costs as a result Consumers may be prepared to pay higher prices for products made in a socially responsible manner but during an economic recession they might prefer lower prices and worry less about how products were made Employs 43 To give work to someone and pay them for it A significant cost to the firm Salaries cost PST 6 million each year unchanged across the 3 years of financial excerpts shown in the appendix Salaries are expected to be half of all total revenues in 2020 as anticipated sales decrease Supervision 45 The act of monitoring a person or activity and making certain that everything is done correctly safely etc The fact that labour turnover is low and staff skilled and trusted means that supervision is unlikely to an onerous task for management Port 45 A harbour or place on the water where ships load and unload cargo A necessary piece of infrastructure from which to operate a fishing business Most ports in Finland are still owned by municipalities today but there are also some private ports owned by industrial companies Require government funds to maintain upgrade and expand so may be subject to the vagaries of government spending policies Privatisation may lead to increased fees being charged by the port company which will have a local monopoly Warehouse 46 A structure or room for the storage of supplies merchandise A necessary link in PST s chain of distribution enabling cold storage of product and bait as well as a freezing facility The warehouse is rented and PST should have a contingency plan if the lease on this warehouse is not renewed or rents raised significantly in the future P a g e 13 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking and or commodities Employees 46 A person employed for wages or salary especially at nonexecutive level PST s motivated and skilled employees are a distinct source of competitive advantage Team 47 A group of people made up of two or more people who work together to achieve a common goal Members share information and make decisions so that each member can achieve his or her individual work goals Teamwork has a dramatic effect on organisational performance An effective team can help an organisation achieve incredible results A team that is not working can cause unnecessary disruption failed delivery and strategic failure Administration 47 Includes all aspects of overseeing and supervising business operations From the point of view of management and leadership it also covers fields that include accounting finance project management including compliance and marketing There is an opportunity for PST to save on accounting service costs these functions are outsourced by introducing automated accounting functions e g XERO or MYOB Record keeping 48 Human resources functions are also outsourced This could include payroll dispute and complaint resolution recruitment and contractual compliance The activity of organising and storing all the documents files P a g e 14 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking invoices etc relating to a company s or organisation s activities Invoices 48 A list of goods sent or services provided with a statement of the sum due for these a bill Local customers are expected to pay their invoices immediately restaurants hotels and fish shops have a month to pay their PST for invoiced product The large supermarket chain which buys much of PST s product has 90 days to pay invoiced items creating a lag in cashflows that needs to be carefully managed to ensure that there is no liquidity crunch at the company Managing management 48 The act of managing a firm s resources e g human resources and financial capital to accomplish desired goals and objectives using available resources efficiently and effectively PST has a delayered organisational structure necessary for the teamworking that occurs at PST This of course has both kits advantages and its disadvantages On balance this management style is necessary for the innovation problem solving and high levels of productivity that come from PST s motivated and skilled employees a distinct source of competitive advantage Senior management is generally a team of individuals at the highest level of management of an organisation who have the day to day tasks of managing that organisation Subcontractors 48 A person or company that does part of a job that another person or Advantages of subcontracting PST can hire a subcontractor when it needs more flexibility with a specific job or task It can use a subcontractor for one off jobs and jobs requiring specialist expertise or fast turnaround P a g e 15 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking company is responsible for Using subcontractors enables PST s permanent staff to concentrate on the core business Some subcontractors can start work or project at short notice even when large numbers of workers are required PST can often specify the type and duration of contract you need for the contracted job PST has no PAYE or National Insurance contributions administration for subcontractors Subcontracting allows PST to obtain temporary cover for a permanent staff job or work that needs doing Disadvantages of subcontracting Subcontractors may cost PST more than the equivalent daily rate for employing someone By relying on subcontractors the business does not acquire or develop skills in house Permanent staff may resent subcontractors being paid more money for doing similar work to them Subcontractors may not appreciate the business culture at PST and may lack the motivation and commitment of permanent staff Service 49 Perform routine maintenance or repair work on a vehicle or machine Using outsourced contractors to carry out this service presumably reduces the costs of servicing trawlers to PST However one of Tapio s ideas for growth is to offer services to other fishing businesses PST does not have the expertise to offer maintenance services as a result of using their own contractors unless they hire the necessary expertise and purchase the necessary equipment to provide such services Transport 49 To take or carry goods from one place to another by means of a vehicle aircraft or ship Transport is an essential link in the chain of distribution for PST Efficient cold storage transport could open up new markets for fresh rather than frozen fresh enabling the company to achieve higher prices for more of their product It is assumed that the transport of such a good of such perishability as fish that reliability of service is more important than cost PST does not have the expertise to offer transport services as a result of using their own contractors unless they hire the necessary expertise and purchase the necessary equipment to provide such services in house themselves Human resources 49 The personnel of a business or PST has outsourced its human resource function to specialists who then make the effort to effectively manage the P a g e 16 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking organisation regarded as a significant asset in terms of skills and abilities employees to help them develop their skills and capabilities in order to retain them PST should review this outsourced service to ensure that the HR firm used is performing in terms of helping PST with Attracting top talent Having strategic talent management gives organisations the opportunity to attract the most talented and skilled employees available It creates an employer brand that could attract potential talents and in turn contributes to the improvement of the organisations business performance and results Employee motivation Having strategic talent management would help PST keep its employees motivated which creates more reasons for them to stay in the company and do their tasks The vast majority of employees want more than just money to feel engaged and motivated cf Pink s Drive Theory and Hertzberg s motivational theory Continuous coverage of critical roles Strategic talent management would equip PST with the tasks that require critical skills to plan and address the important and specialised roles in the workforce to its employees This means that the company will have employees to fill critical roles to help it run their operations smoothly and avoid extra workload for others which could lead to exhaustion Increase employee performance The use of strategic talent management will make it easier for the company to identify which employees will be best suited for the job that can lead to less performance management issues and grievances It will also guarantee that the top talent within the company stays longer Engaged employees Strategic talent management would allow PST to make systematic and consistent decisions about the development of staff which guarantees the employees skills and development Furthermore employees will feel more engaged when there is a fair procedure for the development which helps in increasing the retention rates that helps PST in meeting its operational requirements Retain top talent Well structured on boarding practices create higher levels of retention which would save the company on its recruitment and performance management cost in the long run Improve business performance Talent management helps employees feel engaged skilled and motivated allowing P a g e 17 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking them to work in the direction of PST s business goals which in turn increases client satisfaction and business performance Higher client satisfaction A systematic approach to talent management means that there is an organisational integration and a consistent approach to management When systems are more integrated client satisfaction rates are usually higher since they are dealing with fewer people and their needs are met more rapidly Accounting 50 The process of recording financial transactions pertaining to a business The accounting process includes summarizing analysing and reporting these transactions to oversight agencies regulators and tax collection entities This function is outsourced reducing PST s salary costs while providing high quality and specialised services by experienced and skilful experts Outsourced 50 A practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally The best arguments made for outsourcing are that The quality of goods and services being provided can be exceptional much better than a non specialist firm lacking specific software hardware capital equipment or the required human capital skills and knowledge PST can concentrate on its core operations and functions allowing them to focus on what they are best at doing and reap productive and efficiency gains Often the subcontracting firms are able to achieve economies of scale have much higher productivity and thus have lower production costs by providing their services to multiple companies The limitations of outsourcing include Loss of Managerial Control Whether a firm signs a contract to have another company perform the function of an entire department or single task it is turning the management and control of that function over to another company Yes there will P a g e 18 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking Working environment 51 be a contract but the managerial control will belong to another company It is likely the outsourcing company will not be driven by the same standards and mission that drives the contracting company They are driven to make a profit from the services that they are providing to the firms contracting them Hidden Costs Anything not covered in the contract details of the service that they will be providing will be the basis for a firm to pay additional charges Additionally firms will experience legal fees to retain a lawyer to review the contacts signed Remember this is the outsourcing company s business They have done this before and they are the ones that write the contract and often firms will be at a disadvantage when negotiations start Threat to Security and Confidentiality The life blood of any business is the information that keeps it running If a firm has payroll medical records or any other confidential information that will be transmitted to the outsourcing company there is a risk that the confidentiality may be compromised If the outsourced function involves sharing proprietary company data or knowledge e g supply contracts price agreements financial information etc this must be taken into account The outsourcing company must be evaluated carefully to make sure data is protected and contracts have penalty clauses if an incident occurs Quality Problems The outsourcing company will be motivated by profit Since the contract will fix the price the only way for them to increase profit will be to decrease expenses As long as they meet the conditions of the contract PST will pay In addition PST will lose the ability to rapidly respond to changes in the business environment The contract will be very specific and it will pay extra for changes The surrounding conditions in which an employee operates This can be composed of physical conditions such as office temperature or equipment such as personal computers It can also be related to factors such as The working environment ties into corporate culture and employee motivation Getting this right helps create wellmotivated workers Well motivated workers will help an organisation achieve its objectives as cost effectively as possible Motivated workers will also be trying to reach their own personal goals by satisfying their own needs Employers need to be aware of extrinsic needs such as pay which can provide motivation even if the job itself does not Intrinsic motivation stems from the nature of the job itself Get it wrong and levels of motivation will plummet Unmotivated or demotivated staff will not perform effectively offering only the minimum of what is expected Motivation levels have a direct impact on productivity levels and the competitiveness of the business Highly motivated workers have high productivity and this reduces unit costs Motivated P a g e 19 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking Teamwork 52 work processes or procedures as well as the relationships between other team members and management staff will be keen to stay with the firm reducing costs of labour turnover They will be more likely to offer useful suggestions and to contribute in ways other than contractual obligations They often actively seek promotion and responsibility Production is organised so that groups of workers undertake complete units of work This approach to work places each member of staff into a small team of employees Some traditionalists argue that moving away from pure division of labour where one worker performs just one simple task all of the time will result in lower productivity and time wasting team meetings Supporters of job enrichment would respond by claiming that more challenging and interesting work as allowed by team working or cell production will lead to PST has got its working environment right They will need to carefully manage any major changes resulting from strategic decisions to maintain the competitive advantages accruing to the firm from having satisfied and motivated employees Lower labour turnover More and better ideas from the workforce on improving the product and the manufacturing process Consistently higher quality especially when total quality management TQM is incorporated There are a number of benefits to the organisation from team working Team spirit should improve motivation of staff Teams are more flexible than hierarchical systems New teams can be formed and redundant teams disbanded as the needs of the organisation change Management costs may be reduced as fewer middle managers and supervisory staff are required Training Induction training 53 54 Work related education to increase workforce skills and efficiency Introductory training programme to familiarise new recruits with the key people and systems used in Taking the training of its employees seriously has the likely benefits to PST Increased job satisfaction and morale among employees Increased employee motivation Increased efficiencies in processes resulting in financial gain Increased capacity to adopt new technologies and methods Increased innovation in strategies and products Reduced employee turnover Enhanced company image e g conducting ethics training not a good reason for ethics training P a g e 20 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking the business and the layout of the business site Risk management e g training about sexual harassment diversity training Skills 55 An ability and capacity acquired through deliberate systematic and sustained effort to smoothly and adaptively carryout complex activities or job functions involving ideas cognitive skills things technical skills and or people interpersonal skills Increasing the skills of its employees by engaging them in programmes of training increases the human capital within the firm Higher levels of human capital increase productivity at the firm and drives down costs Health and safety 56 Organised efforts and procedures for identifying workplace hazards and reducing accidents and exposure to harmful situations and substances It also includes training of personnel in accident prevention accident response emergency preparedness and use of protective clothing and equipment This is serious stuff Fishing is a dangerous occupation The Bureau of Labor Statistics UK Census of Fatal Occupational Injuries since its inception in 1992 has consistently reported fishers as the single most deadly occupation Persons engaged in this work typically face a risk of suffering a fatal job injury 20 to 30 times greater than the risk for all occupations Accident and injuries have serious detrimental effects on staff morale and motivation not to mention financial penalties that would be levied on PST if it was found guilty of being remiss in its duty of care to its employees P a g e 21 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking Mentoring 57 Employee training system under which a senior or more experienced individual the mentor is assigned to act as an advisor counsellor or guide to a junior or trainee The mentor is responsible for providing support to and feedback on the individual in his or her charge PST uses a mentoring programme to assist in the training of trawler captains a position of significant responsibility within the organisation Benefits to the mentee Receives guidance and support from a respected member of the firm Professional development opportunities Increased confidence Increased institutional knowledge and understanding of how PST works how things get done Greater awareness of other approaches to work Builds a network of colleagues and expanded knowledge of different areas of the organisation Having a confidential sounding board for ideas and challenges Benefits to the mentor Provides fulfilment and satisfaction of helping others and contributing to the development of colleagues Extends network of campus colleagues and builds community Supports use and development of key competencies leading to growth Encourages examination of the status quo and alternative possibilities Encourages renewed ideas and perspectives on one s leadership role Benefits to the organisation Health and safety laws 59 Typically state that employers are responsible for making sure that all their employees are safe at work and are protected from Facilitates the growth and development of high potential leaders Demonstrates visible commitment to staff development and continuous learning Transfers and maintains institutional knowledge Fosters an inclusive diverse and collaborative environment Health and safety laws and regulations may impose significant compliance costs on PST However all fishing companies in the EU will have the same costs and the playing field is level International trawlers may not face the same stringent health and safety laws lowering their costs and making them more cost competitive P a g e 22 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking possible dangers to their health This includes making sure that the job and the work environment are safe and has no health risks Employees are also responsible for their own safety at work and the safety of their work colleagues It is an employer s duty to ensure so far as is reasonably practicable the health safety and welfare at work of all his or her employees Compliance 59 Certification or confirmation that the doer of an action such as the writer of an audit report or the manufacturer or supplier of a product meets the requirements of accepted practices legislation prescribed rules and regulations specified standards or the terms of a contract See also conformance A cost to doing business for PST Other fishing companies will face the same burden of compliance Efficiencies in processes of fulfilling compliance requirements will reduce costs for the firm We see that PST has automated some of these processes reducing the cost of such compliance P a g e 23 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking Regulations 59 Rule based on and meant to carry out a specific piece of legislation such as for the protection of environment Regulations are enforced usually by a regulatory agency formed or mandated to carry out the purpose or provisions of a legislation Complying with regulations is a cost to doing business for PST e g only catching a certain amount of fish with a certain time period The trawler captains have a high level of responsibility to keeping their crews safe while finding and catching as much of the most valuable fish as they can per trip More trips mean higher costs Accidents at sea will effect morale and motivation lead to lost productivity and increase costs to PST Procedures 61 A fixed step bystep sequence of activities or course of action with definite start and end points that must be followed in the same order to correctly perform a task Repetitive procedures are called routines Responsibilities 62 Duties or obligations to satisfactorily perform or complete a task assigned by someone or created by one s own promise or circumstances that one must fulfil and which has a consequent penalty for failure EU fishing regulations apply to all companies fishing in EU waters and the playing field should be level However there are unethical and illegal ways for unscrupulous fishing captains to skirt regulations Examples of this include Underreporting the size of catches1 Discarding less valuable fish species caught in nets often dead Discarding smaller fish caught in nets often dead P a g e 24 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking Command structure chain of command 62 The order in which authority and power in an organization is wielded and delegated from top management to every employee at every level of the organisation Instructions flow downward along the chain of command and accountability flows upward According to its proponent Henri Fayol 1841 1925 the clearer cut the chain of command the more effective the decisionmaking process and greater the efficiency Disciplinary matters 63 A method for dealing with an employee who causes problems or does not obey company rules for example by removing them from their job Given the dangerous nature of the work on fishing trawlers discipline is very important The captains of the trawlers are empowered to take the disciplinary action that they see fit in line with company procedures and feel confident that they have the full backing of management Empowerment is motivating and motivated trawler captains are more productive leading to lower costs at PST Salaries 64 Agreed upon and regular compensation for employment that may be paid in any frequency but in common practice is paid on monthly and not on hourly daily weekly or piece work basis A significant cost to the firm Salaries cost PST 6 million each year unchanged across the 3 years of financial excerpts shown in the appendix Salaries are expected to be half of all total revenues in 2020 as anticipated sales decrease According to Hertzberg pay and working conditions can be improved and these will help to remove dissatisfaction about work but they will not on their own provide conditions for motivation to exist Herzberg argued that it was not possible to encourage someone to do a job by paying them he called this movement However movement does not mean that someone wants to do the job that would require motivation Motivation to do the job and to do it well would only exist if motivators were in place Herzberg did not claim that pay did not matter but that it moves people to do a job and does not motivate them to do it well P a g e 25 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking Bonuses 64 Gratuity given as gift or compensation earned as reward upon achieving a goal or milestone Performance based renumeration aimed to maximise catch sizes of the most valuable fish species If successful the value of the catch per trip will be maximised and the number of trips needed to fulfil the company s quota will be minimised i e the value of fish caught in PST s quota will be maximized at minimum cost profitability is maximised Outage costs 66 Used to refer to periods when a system is unavailable and fails to provide or perform its primary function Reliability availability recovery and unavailability are related concepts Increasing the amount of times that trawlers are available to catch fish maximises the number of fish each trawler can catch in the fishing season increasing returns to the company The opportunity cost of having a trawler out for repairs is the value of the fish that trawler could have caught had it been operating as normal Operating costs 66 Cost per unit of a product or service or the annual cost incurred on a continuous process These costs do not include capital outlays or the costs incurred in design and implementation phases of a new process The lower the operating cost the higher the contribution per unit and the higher company profitability will be Scheduling 69 Determining when an activity should start or end depending on its 1 duration 2 predecessor activity or activities 3 predecessor Successful scheduling is important in increasing efficiency and productivity Maximising the number of trawlers out fishing at any given time will minimise the opportunity costs associated with any downtime when salaries and wages still need to be paid but no fish are being bought to market P a g e 26 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking relationships 4 resource availability and 5 target completion date of the project Repair 71 Restoration of a broken damaged or failed device equipment part or property to an acceptable operating or usable condition or state Repairs are an important consideration for PST The firm will need to balance three factors cost quality and time Lost time fishing is a real cost to the firm No fish are being caught and bought to market when a trawler is out of action because it needs a replacement part Newer bigger trawlers would presumably need less repairs spending more time out fishing Replacement 73 Substitution of an item with a similar or different inferior or superior item Delivered 74 Bring and hand over a letter parcel or goods to the proper recipient or address Diversity 76 Feature of a mixed workforce that provides a wide range of abilities experience knowledge and strengths due to its heterogeneity in age background ethnicity physical abilities political and religious beliefs sex and other attributes Lower cost lower quality more repairs more lost time from fishing Higher cost higher quality less repairs less lost time from fishing The company has significant experience and operational knowledge so it s assumed that they have achieved thee best cost benefit ratio from their repair processes and procedures Latest research finds that companies in the top quartile for gender or racial and ethnic diversity are more likely to have financial returns above their national industry medians Companies in the bottom quartile in these dimensions are statistically less likely to achieve above average returns And diversity is probably a competitive differentiator that shifts market share toward more diverse companies over time 2 PST may benefit from being at the forefront of increasing diversity in its fishing crews especially by hiring more women and making their trawlers a friendly welcoming place for women P a g e 27 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking European Union 78 A group of 27 countries that operates as a cohesive economic and political block Nineteen of the countries use the euro as their official currency It is the largest international single market in the world which has led to There is a conflict here for PST Having a low labour turnover is a good thing for the business see information on labour turnover above However with relatively few trawler staff leaving there is limited opportunity for PST to increase the number of female trawler staff The company may find itself faced with an unenviable choice of falling foul of EU employment laws or making significant changes to its existing workforce at significant expense the cost of redundancy payments the cost of lower morale and motivation of its current trawler staff Equal opportunities legislation 81 Laws aimed at promoting everyone s right to equal opportunities eliminate as far as possible discrimination and sexual harassment and provide redress for people whose rights have been breached Low labour turnover 82 Occurs when a business has a relatively small number of employees leave during a given period relative to the employees hired or employed at the start of that period Office 85 A location usually a building or portion of a building where a company Greater competition in services which is good for businesses and consumers Better regulation of industry e g fishing quotas to protect fish stocks in EU waters Removal of trade barriers PST can export its product to more countries at lower cost Reduction of business costs Greater business efficiency Elimination of anti competitive practices such as monopolies and cartels Office rent is a significant item of expenditure for the firm P a g e 28 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking conducts its business Delegates tasks delegation 86 Sharing or transfer of authority and the associated responsibility from an employer or superior who has the right to delegate to an employee or subordinate Indicates PST having a relatively flat less hierarchical organisational structure which has few levels of hierarchy and a wider span of control where managers will be responsible for many subordinates and many management functions will be delegated This has the following advantages and seems to fit in well with the corporate culture of PST Job rotation 87 A job design technique in which employees are moved between two or more jobs in a planned manner The objective is to expose the employees to different experiences and wider variety of skills to enhance job satisfaction and to cross train them Delegation becomes a relatively important part of managing an organisation extra responsibilities for subordinates and therefore faster career development Communication may be improved it should be faster overall since there are fewer layers in the hierarchy It is cheaper to operate a wider span of control because there are fewer levels of management management functions will be eliminated or delegated Smaller psychological distance between those at the top and those at the bottom of an organisation perhaps reducing an us and them culture where workers feel alienated from senior management There are many reasons for job rotation programmes in a small business Management at PST will have weighed the advantages and disadvantages P a g e 29 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking Local fish market 88 Clients and customers who will buy a product in the region or area in which it is produced For marketing purposes it is important to know who will buy the product where they are located and how far they will travel to obtain the product The local market includes customers located within the region the product or service is produced or made available Premium prices may be obtained by PST in the local market for fish because Directly direct sales 89 Selling products without the use of an intermediary Supermarket 89 A large store that sells a variety of food and household items to customers There is a growing trend for consumers to want locally sourced produce and are prepared to pay a premium for it over imported produce or produce that has travelled large distances The fish will be fresher less transport time and less likely to need freezing both factors lead to a higher quality of fish being sold commanding a premium over lesser quality fish The advantage to PST to selling product to Finland s biggest supermarket chain is that they can presumably sell a guaranteed volume of their catch this way and at a guaranteed price This is a secure source of cash flow for the company However this needs to be weighed against the lower prices PST must accept for its fish and that the supermarket chain has the power in this relationship The supermarket industry is well P a g e 30 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking known for squeezing their suppliers on price It is assumed that this is a low margin high volume contract for PST Agents 90 These are individuals or companies that act as an extension of the producer Their main job is to represent the producer to the final user in selling a product Thus while they do not own the product directly they take possession of the product in the distribution process Overseas markets 90 Markets which are outside the home country of an organisation Quality 91 The standard of something as measured against other things of a similar kind the degree of excellence of something Premium price high price 91 A higher than standard price for a good which is perceived to be of higher quality than standard Agents are an intermediary in the chain of distribution They will typically have good local knowledge and established relationships with the retailers in the markets they represent It is unlikely that PST could export much of their product without such agents The downside for PST is that agents will take a percentage cut of the sales they make on behalf of PST placing further pressure on the per unit profit margins of the company For example take an overseas EU market such as Spain Spanish fishing companies may receive 9 00 a kilogram from the fish retailers they are selling their catches to PST on the other hand would likely still receive 9 00 kg but the agent may take a ten percent cut of this and the effective price PST receives would be 8 10 kg This is further compounded by higher transport and export compliance costs leaving PST with much lower per unit profits on fish sold in its overseas markets This is likely to be PST s unique selling point the case study makes no mention of PST catching species of fish that are more desired by consumers which is perhaps in itself an opportunity for PST The USP is the differentiating factor that makes a company s product unique designed to motivate customers to buy Unless PST can pinpoint what makes its product unique in a world of homogeneous competitors its sales efforts will not be targeted effectively Customers are often attracted towards goods or services that offer a distinctive image service feature or performance Establishing a USP is about differentiating PST from its competitors Without being able to do this PST will be supplying the market with a commodity product undifferentiated from its competitors and having limited pricing power within its marketing mix PST will aim to catch those fish species that are preferred by consumers and that can command that premium price For example john dory sells at a premium over red cod because P a g e 31 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking its perceived as being a better quality fish PST will also aim to bring the catch in quickly and gently and getting it quickly into ice to maximise the quality of the catch before speeding it back to shore into its warehouse and off to retail markets as fast as possible each is a step in the production process that will maximise quality and increase the price PST can receive The price point will drop as soon as PST s fish needs to be frozen All things being equal PST s fish will need to be frozen the further out to sea fish are caught because it takes longer to get back to shore the longer fish are held in the warehouse and the further it has to be transported to markets Price fluctuations 92 Are upward or downward swings in the prices of products in an economy A common phenomenon particularly among producers of agricultural products With volatile market prices and consequential unreliable flows of earnings it is difficult to put aside funds for investment for diversification so the problems associated with being a highly specialised firm are compounded PST does not have a diversified product portfolio If the price of fish is low they must accept the market price Notwithstanding that frozen fish sells at a discount over fresh fish the company does not seem to have larger storage facilities freezing their fish and bringing it to market when prices rise The company does have a diversity of customers and in different markets providing a natural hedge for when prices drop in a particular market For example if fish prices drop in the Finnish market sales in overseas markets can smooth the company s cash flows Season fishing season seasonal quotas 92 The time period during which it is legal to catch fish according to the terms and condition of the fishing quota Seasonal fishing has consequences for the company s cash flows If PST has bought an annual quota for a particular fish species such as herring the company may catch its allocated quota within a three month period and have net positive cashflow for three months of the year and net negative cashflow for the remaining nine months PST has experience with variable cashflow and will have found systems and procedures to smooth cashflow across the year Competitors 92 Any person or entity which is a rival against another In business a company in the same industry or a similar industry which offers a The presence of one or more competitors can reduce the prices of goods and services as the companies attempt to gain a larger market share Not only is PST competing against other EU fishing companies to sell its product it is also competing against the same firms to obtain fishing quotas Any fishing company can purchase a fishing quota Fishing quotas are allocated in a tendering process For example the Finnish government may allocate an annual quota for 100 tonnes of herring to the highest bidder Only the most efficient fishing firms can afford to P a g e 32 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking similar product or service purchase these quotas and large fishing companies running big efficient boats can outbid smaller less efficient companies and still make a profit PST is a smaller fishing company operating smaller trawlers If the company calculates that it will cost the firm 200 000 to catch process and distribute 100 tonnes of herring and that that herring will on average sell for 300 000 then PST can only afford to bid 100 000 for that particular quota to break even Whereas a bigger more efficient fishing company could catch the same quota for only 150 000 then it could afford to bid any extra 50 000 for the same quota And this is all assuming a level playing field We have information in the case study that foreign trawlers are behaving illegally or at least unethically These companies may obtain more value from their particular quota and therefore afford to bid more for a quota Sales Fixed contract 93 93 A transaction between two or more parties in which the buyer receives goods either tangible or intangible services in exchange for money Regardless of the context a sale is essentially a contract between the buyer and seller of the particular good or service in question A contract between a buyer and seller in which the purchase price of a product or service will not change no matter how long it The advantage to PST to selling product to Finland s biggest supermarket chain is that they can presumably sell a guaranteed volume of their catch this way and at a guaranteed price This is a secure source of cash flow for the company However this needs to be weighed against the lower prices PST must accept for its fish and that the supermarket chain has the power in this relationship The supermarket industry is well known for squeezing their suppliers on price It is assumed that this is a low margin high volume contract for PST There is a degree of risk associated with this fixed price contract for PST to consider PST is in effect guaranteeing the large supermarket chain a particular quantity of fish at a given price If PST fails to deliver the agreed quantity of product to the retailer then it may have a penalty clause in the contract that increases the cost of supplying the retailer and or losing the contract entirely Further if it costs PST more than it has forecast to provide the quantity of fish stipulated in the contract then the contract may cost the firm more than the revenue such a contract brings in overall profitability will decrease P a g e 33 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking takes the seller to provide the product or service and no matter how much the materials cost Competition 94 Any person or entity which is a rival against another In business a company in the same industry or a similar industry which offers a similar product or service Customers 95 An individual or business that purchases another company s goods or services Marketing strategy 98 A long term forward looking approach to planning with the fundamental goal of achieving a sustainable competitive advantage Competition both depresses prices and increases costs Presumably there are not too many fish retailers PST and its competitors to which they can sell their product Price needs to be competitive within the company s marketing mix If its not PST will find it difficult to sell its catch and the product will quickly spoil In terms of cost extra time of management and salesforce and company resources will need to be devoted to chasing sales across a multitude of different retailers Customer relationship management will be a priority in such a competitive environment Customers are important because they drive revenues without them businesses have nothing to offer PST as a public facing business competes with other companies to attract customers either by aggressively marketing their products or by lowering prices to expand their customer bases To understand how to better meet the needs of its customers PST will closely monitor its customer relationships to identify ways to improve service and products The way the company treats its customers can give it a competitive edge An effective marketing strategy is building and planning a long term and forward looking approach with a well defined plan to attain the desired goals and objectives of accomplishing higher sales increased revenue generation for PST retaining the loyal base of customers attracting the new set of customers and gaining a competitive advantage in the market amongst others It is really important that PST addresses this issue It is vital for the management of PST to have a well defined and aligned marketing strategy in place and to have a team of expert professionals and talented in house staff to attain the overall aims and objectives plus enhance the brand value Importance of Marketing Strategy 1 Helps to gain a competitive advantage P a g e 34 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking It helps the firm gain a competitive advantage in the market amidst the tough competition with an edge over the existing players and the new entrants who are trying to establish their brand presence in the market A well defined marketing strategy builds on the unique selling propositions of the brand along with the features and benefits of the products and services offered by the firm in a creative strategic and planned manner highlighting that how the brand and its offerings are better than the ones of the competitor The consistent and continuous messaging and communication strategy helps the brand to curate a distinctive identity in the volatile and competitive market 2 Brand Recognition Along with the promotion of the goods offered by PST having a powerful marketing strategy helps the brand and the company itself to grow its market share in the target market The fundamental importance of a coherent marketing strategy is to highlight and promote the attributes legacy and USP s of the brand to start with followed by its offerings 3 Attract a new set of customers The promotional tools and techniques that are an integral part of the marketing strategy are planned and selected considering the taste lifestyle income levels and other such parameters of the targeted customers that works as a pull factor for them and helps the sales department to convert the fence sitters to quality prospects and to the customers of the brand 4 Plan the nature of products and services Market research and study is a significant part of marketing strategy and this aspect helps management of RDM to plan the features and unique selling propositions of the products and services that are in pipeline or are in the launch planning phase There should be thorough research on the current market scenarios what competitors offer government policies the factor of profitability and other such changing dynamics that can affect the sales and operations of the products and services Hence it is crucial for the company and its promoters to pay due attention to the Importance of Marketing Strategy 5 Plan the marketing budgets P a g e 35 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking Every department of the company is given an annual budget by the management that needs to be spent to benefit of the company Having a planned and aligned marketing strategy makes sure that the allocated budgets produce the best return on investment PST will want to avoid spending on promotional activities that have la ow return on the investments while ensuring that there is optimal use and allocation of the marketing budgets on the marketing tools and promotional tactics that helps attaining not only marketing goals but the overall business goals and objectives too 6 Creative edge The brand overall marketing and promotional activities must gain an edge of creativity as the brand cynosures and the marketing departments liaise with the design agencies media planners PR agencies and other such vendors that dedicatedly understand the nature of the brand and its offerings and come up with the unique out of the box and exclusive ideas that give the brand a creative edge and helps curating a distinguished personality in the market If you can do this for fish 7 Effective distribution plan Once the management understands and grasps the essence and importance of marketing strategy it can have an effective distribution plan in place This is especially important to PST as its distribution model are probably not price competitive outside of other Scandinavian neighbours let alone outside of the EU 8 Optimal pricing With the competitive research and in depth study of the market dynamics along with the spending capacity of the target market the marketing strategy helps the company to arrive at an optimal pricing plan for its products that is competitive in nature and helps the company to generate higher sales and profits 9 The overall growth of the firm Marketing strategy facilitates enhanced brand value increased market share competitive advantage higher sales and elevated profits that result in the overall growth of the firm drawing a larger picture It helps the company to carve a niche in the market with a distinguished brand identity and the P a g e 36 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking offerings of the products and services that are planned with unique attributes and features Financial performance Accounts Projection 99 99 100 Measuring the results of a firm s policies and operations in monetary terms These results are reflected in the firm s net profitability EBIT return on investment return on assets value added etc Set of summarised accounting data balance sheet cash flow and income statement prepared and presented usually every month fortnight or week specifically for a firm s management and owners The objective of which is to provide timely and key financial and statistical information required by managers to make day to day and short term decisions Process of moving forward in time through imagining of future events or This is what we know across the three years Sales revenue appears volatile for whatever reason We know that prices are volatile so the year to variation may reflect this but it could be other factors such as the ability of PST to purchase quotas difficulty in fulfilling their quota i e catching enough fish variations in the value of the type of fish caught e g less herring and more cod etc Net profit margins move more or less in tandem with sales revenues indicating that PST has a tight rein on its expenditures Salaries are flat indicating that PST staff are due a significant pay increase in the future or that PST has reduced the number of employees and or the number of hours worked per employee on average The value of fixed assets is stable or increasing Fixed assets such as trawlers and computer systems depreciate over time dragging down their book value The data show that PST continues to invest to offset such depreciation and to increase their capital stock The fact that the value of PST s intangible assets brand value goodwill etc increases in the face of lower forecasted sales in 2020 is intriguing Could it be that the firm is confident in securing new customers and contracts soon Securing additional quotas Investing in the brand The firm has burnt through its cash reserves in 2019 staving off a liquidity crisis by securing a bank overdraft The company forecasts that this cash outflow is stemmed in 2020 with the amount of the bank overdraft stabilising PST has a worrying current ratio of 0 75 it should be between 1 5 2 0 and an even worse acid test ratio of 0 375 These ratios assess the ability of a firm to pay its short term debts They are not concerned with profit but with the working capital of the business There is too little working capital and PST could suffer a liquidity crisis and be unable to pay its short term debts The firm could become insolvent and if long term financing is not found then the firm could face bankruptcy proceedings It is an issue that needs to be urgently addressed Analysing data and factoring in qualitative information to make projections very useful for businesses as it allows them to P a g e 37 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking estimates based on certain assumptions or past trends plan production financing and so on However there are three problems with relying on forecasts The data is always going to be old Historical data is all we have to go on and there is no guarantee that the conditions in the past will continue in the future It is impossible to factor in unique or unexpected events or externalities Assumptions are dangerous and black swan events have become more common as the dependence on forecasts has grown Forecasts cannot integrate their own impact By having forecasts accurate or inaccurate the actions of businesses are influenced by a factor that cannot be included as a variable This is a conceptual knot In a worstcase scenario management becomes a slave to historical data and trends rather than worrying about what the business is doing now The bottom line forecasting can be a dangerous art because the forecasts become a focus for companies mentally limiting their range of actions by presenting the short to long term future as already being determined Moreover forecasts can easily break down due to random elements that cannot be incorporated into a model or they can be just plain wrong from the start Appropriately used forecasting allows businesses to plan ahead of their needs raising their chances of staying healthy through all markets That is one function of business forecasting that all stakeholders can appreciate It is positive to see PST engaging in projected financial performance Expenditure 100 Payment of cash or cash equivalent for goods or services or a charge against available funds in settlement of an obligation as evidenced by an invoice receipt voucher or other such document Typically separated into revenue expenditure and The case study identifies three significant sources of expenditure for PST all being revenue expenditures Salaries and rents are a fixed cost for the firm and won t vary no matter the level of output Fuel is a variable cost for PST and typically expenditure on it increases with the amount of fish caught However there is an exception to this good fishing captains can maximise the catch per trip undertaken thus saving PST on fuel expenditure per unit of production i e per tonne of fish Fuel and salaries appear as debit items on the balance sheet current liabilities because the firm accumulates the debt over the course of a month and then pays these off in full at the end of the month The opposite is true of rent as it is credit P a g e 38 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking capital expenditure item in the balance sheet current asset as the full month s rent is paid for in advance Note Salaries that are paid monthly are a bit unusual it causes budgeting issues for employees While a monthly payroll has advantages for PST there are drawbacks to it It can put a financial strain on employees as they only get paid once per month Salaried employees typically prefer to be paid more often such as bi weekly In fact new tech like Instant Financial is helping companies boost retention with their workers employees don t have to wait until the end of the week fortnight month before accessing the pay that they have so far accumulated 3 Salaries Rents Credit 101 101 104 A fixed regular payment typically paid on a monthly basis but often expressed as an annual sum made by an employer to an employee especially a professional or white collar worker A fixed cost A payment made periodically by a tenant to a landlord in return for the use of land a building an apartment an office or other property A fixed cost The ability of a customer to obtain goods or services before payment based on the trust that payment will be One month s credit to the fish retailers and restaurants cafes would be industry standard The financial data indicates that salaries are unchanged across three years of records indicating that PST staff are due a significant pay increase in the future or that PST has reduced the number of employees and or the number of hours worked per employee on average Trawler captains and office staff are the likely recipients of salaries Deckhands may be paid salaries but it is also common in the industry to pay them a wage plus a percentage of the value of the fish caught on each trip a variable cost This has been identified as a major source of expenditure for PST It will include rent on the office administration sales and management and the cold store warehouse Three month s credit for the supermarket chain is a lengthy period to forgo payment and may cause cashflow issues for PST especially considering that the supermarket is likely to account for a large proportion of the firm s revenues P a g e 39 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking made in the future However if this credit arrangement is well managed by PST after the first initially three months without payment the supermarket begins to provide PST with monthly cash flow For example sales made in January result in PST receiving cash at the end of April February result in PST receiving cash at the end of May March result in PST receiving cash at the end of June April result in PST receiving cash at the end of July A possible cash flow forecasting question Materials 109 The matter from which a thing is or can be made Improved materials would be classified as being process innovation New and better net technology would be adopted by the firm as existing nets reached the end of their useful life nets would be subject to annual depreciation before being sold residual value Improved net materials would make repairs less common reducing the costs associated with having trawlers out for repairs Equipment 110 Tangible property other than land or buildings that is used in the operations of a business Examples of equipment include devices machines tools and vehicles Fishing is evolving There are many recent technological developments Such technologies can be collaborative i e involving more than one stakeholder groups along the value chain or noncollaborative which are set up by governments to monitor the fisheries sector These include the increased computing power of handheld devices the proliferation of user friendly Global Positioning System GPS and Global Navigation Satellites Systems GNSS applications increased capacity for big data storage sharing and analysis variety and improved durability of drones and low maintenance radar stations accessibility and accuracy of satellite imagery continuous improvements in on board digital cameras and recorders expanded use of Automatic Identification Systems AIS and Vessel Monitoring Systems VMS and the internet at sea Only the largest fishing companies are able to adopt such new technologies and rap the benefits and spread this cost across their expanded fishing fleets defraying the average cost economies of scale Thus providing the biggest fishing operators with an even better ability to outbid rivals for fishing quotas Grow 111 A stage where the business reaches Both Tapio and Pekka believe that the business needs to grow Large businesses P a g e 40 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking the point for expansion and seeks additional options to generate more profit This can be a function of the business lifecycle industry growth trends and the owners desire for equity value creation Can afford to employ specialist managers Benefit from cost reductions associated with large scale production May be able to set prices that other firms have to follow Have access to several different sources of finance May be diversified in several markets and products so risks are spread More likely to be able to afford research and development into new products and processes Tapio wants to pursue a strategy of diversification Diversification is a corporate strategy to enter into a new market or industry in which the business doesn t currently operate while also creating a new product for that new market Opening fish shops and offering services and facilities to other fishing businesses is a strategy of vertical integration the combination in one firm of two or more stages of production normally operated by separate firms Pekka s strategy is to focus on growing PST s core business fishing Growth would be achieved by purchasing bigger more efficient trawlers that have better technology on board This is a strategy designed to achieve economies of scale reductions in a firm s unit average costs of production that result in an increase in the scale of operations This makes sense in terms of being competitive in the quota tendering process Not only is PST competing against other EU fishing companies to sell its product it is also competing against the same firms to obtain fishing quotas Any fishing company can purchase a fishing quota Fishing quotas are allocated in a tendering process For example the Finnish government may allocate an annual quota for 100 tonnes of herring to the highest bidder Only the most efficient fishing firms can afford to purchase these quotas and large fishing companies running big efficient boats can outbid smaller less efficient companies and still make a profit PST is a smaller fishing company operating smaller trawlers If the company calculates that it will cost the firm 200 000 to catch process and distribute 100 tonnes of herring and that that herring will on average sell for 300 000 then PST can only afford to bid 100 000 for that particular quota to break even Whereas a bigger more efficient fishing company could P a g e 41 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking catch the same quota for only 150 000 then it could afford to bid any extra 50 000 for the same quota And this is all assuming a level playing field We have information in the case study that foreign trawlers are behaving illegally or at least unethically These companies may obtain more value from their particular quota and therefore afford to bid more for a quota Diversify 111 A corporate strategy to enter into a new market or industry in which the business doesn t currently operate while also creating a new product for that new market The firm can market to other consumer segments diversify into new products and diversify into new markets Fish is typically targeted at households The fact that PST s fish are of high quality and are locally and sustainably caught may mean that it could be successfully targeted at new consumer segments that PST could successfully target for example targeting consumers who are keen to reduce their red meat consumption New products can be developed such as servicing the fishing fleets of other companies mentioned late in the case study or perhaps using the boats for a tourism product This is a good opportunity to the firm however market research must be undertaken to find the right product or products that fit with the firm s corporate strategy It s assumed that the distribution reach of PST is tightly restricted due to high distribution costs refrigerated transportation being comparatively expensive If this distribution disadvantage can be overcome increased scale perhaps then new geographic markets can be opened up to the business and its products A diversification strategy is a practice where a firm enters an industry or market that is different from its core business Reasons for diversification include 1 reducing risk of relying on only one or few income sources 2 avoiding cyclical or seasonal fluctuations by producing goods or services with different demand cycles 3 achieving a higher growth rate and 4 countering a competitor by invading the competitor s core industry or market Net profit margin APX Net profit Sales revenue x 100 Expressed as a A good net profit margin will vary considerably by industry but as a general rule of thumb a 10 net profit margin is P a g e 42 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking percentage this shows how much of each dollar collected by a company as revenue translates into profit considered average a 20 margin is considered high or good and a 5 margin is low Gross and net profit margins of EU fishing fleets is shown in the figure below The data shows that PST is performing below average in terms of net profitability of the EU fishing fleet However it is performing above average in terms of the Finnish fishing fleet Four countries generate net losses Germany Finland and Malta in addition to Lithuania Fixed assets APX Assets which are purchased for long term use and are not likely to be converted quickly into cash such as land buildings and equipment The value of fixed assets is stable or increasing Fixed assets such as trawlers and computer systems depreciate over time dragging down their book value The data show that PST continues to invest to offset such depreciation and to increase their capital stock Intangible assets APX An asset that is not physical in nature Goodwill brand recognition and intellectual property such as patents trademarks and copyrights are all examples The fact that the value of PST s intangible assets brand value goodwill etc increases in the face of lower forecasted sales in 2020 is intriguing Could it be that the firm is confident in securing new customers and contracts soon Securing additional quotas Investing in the brand Current assets APX Cash and other assets such as stocks and debtors that are The firm has burnt through its cash reserves in 2019 staving off a liquidity crisis by securing a bank overdraft The company forecasts that this cash outflow is stemmed in 2020 with the amount of the bank overdraft stabilising PST has a worrying P a g e 43 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking expected to be converted to cash within a year Stocks APX The goods and materials that a business holds for the ultimate goal of resale or repair Cash APX Also known as money in physical form It also includes bank accounts and marketable securities such as government bonds Current liabilities APX Amounts due to be paid to creditors within twelve months Creditors APX A party e g person organisation company or government that has a claim on the services of a second party It is a person or institution to whom money is owed The first party in general has provided some property or service to the second party under the assumption usually enforced by contract that current ratio of 0 75 it should be between 1 5 2 0 and an even worse acid test ratio of 0 375 These ratios assess the ability of a firm to pay its short term debts They are not concerned with profit but with the working capital of the business There is too little working capital and PST could suffer a liquidity crisis and be unable to pay its short term debts The firm could become insolvent and if long term financing is not found then the firm could face bankruptcy proceedings It is an issue that needs to be urgently addressed A decline in current assets across the three years shown in the financial snapshot provided in the appendix is matched by an increase in current liabilities PST has forecast that it will not have enough working capital in 2020 Working capital is the capital of a business which is used in its day to day trading operations calculated as the current assets minus the current liabilities Cash is often referred to as the lifeblood of a business All businesses need finance to pay for everyday expenses such as wages and the purchase of stock Without sufficient cash flow or working capital a business will be illiquid unable to pay its immediate or short term debts Either the business raises finance quickly such as a bank loan or it may be forced into liquidation by its creditors the firms it owes money to Some of the ways that working capital can be increased include Earning additional profits PST has forecasted that profits will fall in 2020 exacerbating the liquidity crisis Issuing shares for cash PST could find an investor for the company The investor would inject cash into the business and PST would relinquish some control of the company and reduced dividends for the current four owners P a g e 44 45

IB Business Management Pre Released Case Study May 2020 Critical Thinking the second party will return an equivalent property and service Overdraft APX A deficit in a bank account caused by drawing more money than the account holds Borrowing money on a long term basis PST could secure a long term loan offering their trawlers as collateral This would relieve the firm s immediate liquidity pressures but interest and principal repayments will be a further drain on the PST s net cashflow Replacing short term debt with long term debt As a general rule of thumb it is not advisable to borrow longterm for short term needs Selling long term assets for cash The value of PST s fixed assets is likely tied up in its fishing trawlers If PST sells off these assets the firm will catch less fish and sales will fall Less sales revenues will worsen the firm s net cashflow position PST could consider the sale and leaseback of its fishing fleet The main advantages of sale and leaseback are that it enables businesses to release cash from existing items of value such as equipment plant and machinery The cash gained can be used for many purposes including business acquisitions or simply providing extra working capital Source BusinessManagementIB com P a g e 45 45