OCR AS Business Studies (Unit F292)
Just4kids Ltd (JKL)
Summer 2011
Pre-release Case Study: Support Toolkit
OCR AS Business Studies – Unit F292 Summer 2011
Contents
JKL - Putting the Business in Context ...................................................................................................................................................................................... 3
Introduction ............................................................................................................................................................................................................................ 3
Key topics ................................................................................................................................................................................................................................ 4
Exam Overview ....................................................................................................................................................................................................................... 5
Specification map .................................................................................................................................................................................................................... 6
Application Analysis & Evaluation ........................................................................................................................................................................................ 14
Exam Technique Advice ........................................................................................................................................................................................................ 22
Case Study Terms .................................................................................................................................................................................................................. 27
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OCR AS Business Studies – Unit F292 Summer 2011
JKL - Putting the Business in Context
Introduction
Here are some key features and perspectives on JKL which you should bear in mind as you revise for Unit F292 and prepare notes on the case study, and
work through this revision toolkit.
OCR F292 is concerned with the key functional areas of a business - and the way in which they interact. Let's look at the key business issues, as they
relate to the four main functional areas (marketing, operations, people and finance):
From a marketing perspective, JKL seems a successful business. Its three childcare centres in Birmingham are all operating at full capacity, with another
to open in a few months. Having started in 2005, the business is clearly entering a second phase of its development. The business is poised to possibly
treble in size in the next five years of its life. The core product, a premium child daycare service (providing around 94%-95% of revenues) is
supplemented with a widening product range offering some scope for development and growth. JKL operate in a marketplace that has seen significant
expansion over the past twenty years, although it might be unwise to imagine growth continuing at the same pace, at least in the current economic
climate. JKL’s future expansion may need to be achieved through capturing a greater market share. Moving out of the home market area of
Birmingham also poses new marketing challenges.
The case study choice of a service sector business makes the application of ideas from operations a little tricky. It’s unlikely (though not impossible)
that you will be asked to talk about different production methods and stock control. Instead, you are guided towards thinking carefully about the
implications of running a business very close (or beyond) full capacity and the effects that this may have. The closely related concept of quality is also
centre stage. Harriet has built her business around her own high standards and expectations and she is keen to see these maintained. It will be difficult
to do this in the circumstances that she is likely to face in the near future.
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OCR AS Business Studies – Unit F292 Summer 2011
In many respects, JKL appear as model employers who have created methods of motivation and leadership that seem effective, principled and
appropriate to the circumstances. But these circumstances look set to change in the very near future, and JKL may very well need to adapt their
approach to managing people as the business pursues its ambitious growth plans. Organisation of the business may enter a period of change and
upheaval.
Finance is undoubtedly the greatest ‘grey area’ in the entire case study, with very important questions unanswered. These perhaps begin with the
overall profitability of the business, which is unknown. Despite what seems like 5 years of success, the business is still at least a couple of years away
from ‘break even’. A mysterious ‘equity partner’ owns the vast majority of the business, but we don’t know what their long term aims, goals and
expectations are. They may be getting impatient for higher returns, especially as they have helped secure what looks to be a massive overdraft facility.
Interest payments are significant. The business will have to address its cash flow problems if the situation is not to deteriorate any further. Currently, it
seems as though expansion is being financed out of revenues, but this will not be sufficient to fund the planned investment of the medium term future.
New budgets need to be put into place, with increased attention being given to finance at management level.
Key topics
We have summarised below what we believe to be the main Unit F292 topics addressed in the JKL case study. These are:

How will JKL’s approach to marketing have to change in order to profitably expand in the medium and long term?

How might JKL’s organisation, leadership and structure have to change to accommodate the planned growth?

Can JKL maintain and even improve their high level of quality?

What are some of the risks of growth for JKL, especially from operating over capacity?

How can JKL overcome their cash flow problems?
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OCR AS Business Studies – Unit F292 Summer 2011
Exam Overview
Unit F292 - Business Functions
Pre-Release Case Study Toolkit– Just4Kids Ltd (JKL)
Exam Structure:
Module
Length
Raw Marks
UMS
F292
2 hours
90
120
You will be issued with a clean copy of the case study in the exam. The paper is broken up into two sections, A and B.
Section A
This will consist of a number of short-answer questions (totalling 18 marks) on any topics from the F292 specification. These
questions will not relate to the pre-released case study on JKL.
Section B
This will consist of one ‘calculation/numbers’ question likely to be worth 4 marks and then four essay questions (likely to be worth 1620 marks each). These four questions will test the four ‘functional areas’ of business set out in the F292 specification and will be
specific to the case study and JKL
 Operations Management
 Marketing
 Accounting and Finance
 People in Organisations
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Specification map
The JKL case study can be broadly mapped with the Unit F292 specification as follows:
Specification Topic
Case Study Topic
Marketing
Marketing
Objectives
JKL have a range of marketing objectives (some of them rather vaguely defined) expressed in different timescales:
A short term target of opening a new, fourth child care centre in Birmingham in September 2011.
A medium term objective of opening ten new centres within 100 miles of Birmingham over the next five years.
A long term objective to continue growth and expansion from there. Both the medium and long term objectives were not originally
part of the business plan and it’s evident that JKL’s management need to spend more time clarifying how these growth plans might
be realised. Franchising is one option, to be discussed in more detail later.
From the outset, Harriet has been determined to raise standards in child care and that is clearly a part of the whole marketing
package that JKL provides. There seems to be an implicit marketing goal of creating a premium service. As Harriet stresses she is a
mother first and businesswoman second, her focus is on making JKL the best childcare centre on the market.
Market Analysis
including
segmentation,
share and
growth
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The childcare market is estimated to be worth £4.3bn annually, a tenfold increase since the late 1980s. Adjusted for inflation, that
would mean the childcare market was worth about £900m twenty years ago. Growth has been significant in the intervening
decades. During that time local authority provision has been scaled back and the numbers of young women entering the labour
market has increased significantly.
It would perhaps be unwise for JKL to assume that rapid growth in the market will continue. The labour market is not growing
strongly at the moment (although local government cutbacks may continue). More significantly, the demographic growth trends for
babies and young children do not favour JKL, but there may be some evidence that birth rates are again picking up after long term
decline.
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Specification Topic
Case Study Topic
In terms of the Boston Matrix, JKL is probably about to enter a new sector. Having traded as a Problem Child with a low share of a
rapidly growing market, the firm is now poised to gain share in a slowing market as a potential Cash Cow.
The market is heavily fragmented – there are a wide range of providers – and whilst the number of childcare places is growing, the
number of providers is not. These means that the average size of nursery is increasing.
The growth that does occur tends to be ‘organic’ meaning that it is through a process of steadily increasing expansion as centres
expand their intakes, rather than through series of mergers and takeovers. In fact, only 11% of childcare places are provided by
‘major providers’ (defined as those operators with three or more nurseries). JKL meets that description and so is already ‘big’ by
industry standards.
The market segment might be defined as working parents (or even working mothers). It might be further specified in terms of
lifestyle, culture, aspirations and certainly income, as fees could easily stretch to £1000 a month. Families with more children under
5 would face even larger bills. The socio-economic groups targeted might be identified as ABC1.
Product
The product is clearly presented as a premium brand, given the considerable investment made in sophisticated premises, age
specific activities, staff training and high staff/child ratios. The service itself has certainly entered the maturity stage of the product
lifecycle, with limited potential for dramatic overall future growth. Expanding the business is likely to draw customers away from
other providers. JKL have made progress on widening their product portfolio in order to expand into adjacent markets, such as
children’s parties and evening classes (although we don’t know quite how big is their contribution to profits).
Price
JKL’s pricing supports their premium position in the marketplace. Market research evidence suggests that their prices are, on
average, approximately 10% higher than their local competitor TotsAtPlay (with exceptions, such as children’s parties). Even those
competitor prices are perhaps 10% higher than the national average, putting JKL’s prices in a higher bracket than the norm.
(including price
and income
elasticity)
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JKL will be alert to the threat of changing market conditions on the demand for their services. Price elasticity of demand measures
the sensitivity of customers to price changes (which might grow in a post recession environment, and in which competition may
become more intense). Income elasticity of demand is a similar concept, measuring demand changes in relation to income changes.
With the recession over, JKL might hope that demand will stabilise, or even pick up a little.
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Specification Topic
Place
Case Study Topic
JKL are clearly well established in Birmingham and are using it as their base for future expansion. As the business grows outside its
home territory it may experience consumer differences that mean its marketing mix needs adaptation to local circumstances.
For example, expansion into a less prosperous area may mean that pricing needs adjustment. Operating in a more rural community
might influence the product range and types of care requested.
Promotion
The case study doesn’t include a lot of detail on the promotional techniques used by JKL, but it’s reasonable to assume that the
business will operate a website to provide basic information (at least) and flyers that are circulated in the local community.
For this type of service, it is very likely that promotion is dominated by word-of-mouth recommendations, which may have served
the business very well up until now. However, this method of promotion will be far less effective if the business expands outside its
current area and new promotional techniques will be needed.
Accounts and Finance
Budgeting
The firm lacks the budgetary arrangements to manage both its finances in the medium and long term. Over the next 12 months the
firm faces significant cash flow problems (see below), indicating that current budgeting has caused problems.
JKL needs to establish clearer targets and budgets at managerial level to assist in decision making (and to guarantee survival) in the
months and years ahead. It may be that some ‘belt tightening’ is in order, even if new sources of finance can be tapped. Further
down the hierarchy budgeting arrangements are clearly quite ‘loose’ – ‘if you haven’t got what you need, you are empowered to
purchase it yourself without asking permission and JKL will pay you back immediately’ (lines 73-74). Whilst this indicates a style of
decentralised decision making that may suit the business, it may also be partially responsible for some of the firm’s current cash flow
problems. Greater discipline may be needed.
Cash Flow
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Cash flow issues are clearly highlighted as an area for the business to focus attention. There are short term cash flow difficulties for
JKL to address – the business forecasts a net cash outflow over the next 10 months of £247,000. Their closing bank balance in March
2011 should be overdrawn by £24,000 but this threatens to rise to £271,000 by December of 2011. In the main, the bulk of this cash
flow problem can be accounted for by the planned opening of the fourth child care centre in September. This incurs capital outlays
(fittings and equipment for the new centre) of £300,000 and higher general revenue expenditure (day-to-day running costs) across
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Specification Topic
Case Study Topic
the larger business.
The long term cash flow problem might more accurately be seen in terms of raising the necessary finance for the significant
expansions planned for the medium and long term. It’s highly improbable that enough cash will be generated in the short term
(with two years to go before the business breaks even – see below) to finance the firm’s ambitious medium and long term growth
targets. This extra source of finance is a theme that requires further consideration. Will extra finance come from equity, debt or by
the development of some form of franchising arrangement?
The cash flow forecast contains at least one other clue to the manageability of the level of debt owed by JKL. Over just ten months,
they face an interest bill of £110,000. As their government guaranteed loan is at most £250,000 in total, the huge interest bill shows
how expensive their overdraft is proving to be.
Costing
The case study provides very little of the detail necessary to make meaningful costings. For instance, whilst we are told that the firm
spent £5m in start up costs for the three centres in Birmingham, there is no split into fixed or variable costs. Even the marginal costs
of business expansion are vague, with the plans having a suggested price tag of anywhere between £4 and £20m.
No direct or variable cost information is available for the services that JKL provides.
Break-Even
Analysis
Although some information is available about pricing for day care, after school clubs, baby sitting, parties and evening classes, there
is little in the case study to show variable costs and hence calculate contribution earned from JKL’s various services. Although some
fixed and variable cost data can be implied from the cash flow forecast, it wouldn’t be sufficient to calculate break –even points. (An
example of a fixed cost not included in the cash flow figures could be depreciation).
Investment
Appraisal
The figures included in the case study also make detailed appraisal very difficult. Although we know that the initial £5m investment
has earned returns, they are not spelt out (with the equity partner no doubt anxious to achieve payback at some point in the near
future, having invested so much five years ago). Similarly, there are no projected returns for the vague investment plans.
As information is provided on the cost of the ‘Quality Counts’ award (£980 plus £210 per annum for 3 years = £1610 per centre)
there is a hint that JKL might regard this as an ‘investment’ worthy of appraisal. After all, this sum might be expected to earn a
return in the form of extra demand for services it generates, if the award is valued by customers.
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Specification Topic
Case Study Topic
Profit and Loss
Accounts
There are no figures, although revenues can be estimated and we know that the business has not yet made enough profit to cover
its costs so far (‘we are still at least two years away from achieving break-even” – line 38)
Balance Sheets
Again, there is little balance sheet data to comment upon. However, it may be worth noting that JKL’s equity partner has provided
80% of the firm’s start up capital and so utterly dominates overall ownership of the business. The equity partner has also been vital
for JKL to get access to its large overdraft facility. And although JKL appears to have very little long term debt, reference to
overdrafts and looming cash flow problems certainly points to a firm with significant liquidity issues.
People in Organisations
Labour Turnover
The case study makes little reference to this issue, but it’s clear that JKL will have considered the implications of high rates of labour
turnover and taken steps to address it. JKL pay 90% of the child care qualification costs incurred by staff and there is therefore an
incentive for them to stay with the company for at least 12 months after attaining those qualifications. Staff leaving before then
have to repay the discount they were given.
Motivation
JKL have deployed a wide range of techniques in order to motivate staff. Direct and indirect financial rewards (of the sort that are
associated with the scientific management practices promoted by Taylor) include:

Pay rates above the industry norm.

Discounted access to childcare qualifications (and pay levels related to those qualifications), paid study leave and training
time.

Bonus schemes, based on quality reviews.

Discounts for childcare and from many High Street stores.
Other motivators have obviously been given detailed consideration. Academics such as Mayo and Maslow emphasised the nonfinancial aspects to motivation and would have identified clearly with attempts to motivate through providing social opportunities
(staff room and gardens). Further up Maslow’s hierarchy of needs would come the opportunities for greater esteem through
achieving qualifications, recognition and promotion. Harriet’s philosophy towards child care might even indicate that she believes
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Specification Topic
Case Study Topic
staff can achieve ‘self actualisation’ through their employment in high status, rewarding child care roles.
Similarly, the work by McGregor on motivation is relevant in the JKL setting. It seems that Harriet has endeavoured to create an
environment in which ‘hygiene factors’ – sources of workplace dissatisfaction – are attended to effectively. These would include the
rate of pay, the working environment and job flexibility in the form of flexible rotas and working arrangements. McGregor saw real
motivation arising from the work itself, relationships with managers and recognition (here, in the form of promotion and the quality
related bonus scheme).
Leadership styles (see below) can strongly influence motivation. In McGregor’s model, it seems that the empowered staff (with
authority to make minor budgeting decisions, for instance), focus on training and investment and scope for influence on company
policy point firmly to a Theory Y view of the workforce. JKL must view their staff as self motivated, to a great extent.
More recent decades have seen motivation theories, presented by writers like Drucker and Peters, move even closer to the policies
implemented by JKL. These theories stress the importance of targets and performance measurement linked to pay and promotion
(Drucker especially) and excellent communication, worker engagement in all aspects of the business and recognised ‘champions’.
Perhaps even the rather insipid sounding ‘employee of the month’ might be inspired by Tom Peters.
Leadership
The fact that staff are described as ‘empowered’ (evidenced through the decentralised method of making purchasing decisions – see
below), and Harriet’s consultative approach, shown in her regular meetings with staff in which she allows them a direct influence on
company policy suggests a democratic style of leadership.
Of course, it’s not readily obvious if Harriet’s style is truly democratic, since we don’t know the extent to which discussions with staff
actually influence the decision making process in the firm.
Organisational
Structure
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The organisational structure of JKL is not illustrated. There must be at least two levels of hierarchy (a Board of Directors and centre
staff) and the fact that rumours readily spread from the Board to the centre staff suggests that organisation is not especially
hierarchical, as information has leaked from one level to the other. The ongoing discussion and debate in JKL about increasing
numbers of children in each centre points to a de-layered or ‘flat’ organisation in which power is relatively decentralised. As in the
discussion about leadership styles (see above), a final judgement on the degree of decentralisation will not be clear until evidence
emerges of the Board accepting and responding to concerns raised by staff.
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Specification Topic
Case Study Topic
Production
Operational
Efficiency,
Capacity
Utilisation
A key issue for JKL is the question of size, scale and the desire to build growth in the short term through operating over capacity.
On the face of it, there seems little to commend this approach. We are told that the issue has already been a source of concern
amongst the staff, who have made clear the potential for a negative impact on motivation and perhaps quality. This is in possible
conflict with both JKL’s leadership style and objective to provide a first rate service. Furthermore, the business operates in purpose
built premises designed for the maximum numbers currently on roll. However, there may be some limited flexibility, given that
staff/child ratios are higher than the legally required minimum.
The problem has been discussed at length by the Board of Directors and operating over capacity is just ‘one of a number of
suggestions made to deal with the current demand for places at JKL’.
Production
Methods
The interesting choice of a service sector business for this study makes the usual discussion about job, batch and flow production
seem redundant. Although it’s hard to see how flow production could be relevant in the study, the trade-offs that exist between job
and batch production may have some application. After all, dealing with children and providing for their individual needs is a form
of job production. Dealing with larger groups and conducting whole group activities (parties, classes, clubs) are less personalised
and occur as one off ‘batches’.
Approaches to
Production
Again, the nature of the business makes it a little more challenging to think about ‘approaches to production’. However, lean
production ideas (reducing waste – especially by operating so close to full capacity) are relevant. The concepts of cell production
and total quality management (TQM) can also be applied (see below).
Quality
The issue of quality comes through the case study very strongly. The drive to achieve the ‘Quality Counts’ standard is part of a desire
to attain the ‘next level of quality’. Harriet has a clearly stated aim to raise standards in child care and is actively investigating a
range of initiatives JKL could implement to improve quality. It is very clear that JKL have a quality assurance philosophy in place –
attention to standards is built into the way in which the firm operates.
Stock Control
This is likely to be a relatively minor issue for a firm such as JKL.
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OCR AS Business Studies – Unit F292 Summer 2011
Further details of the specification can be found on the OCR website at:
http://www.ocr.org.uk/Data/publications/key_documents/AS_ALevel_GCE_Business_Studies_Specification.pdf
You should remember that even if a topic may not come up specifically in the pre-issued case study, it could still be tested in Section A of the exam.
There is no substitute for learning and understanding the entire syllabus.
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Application Analysis & Evaluation
We have developed the key issues raised in the specification map in the pages below. The following analysis is not intended to be an exhaustive list of
all the potential issues – everyone reading the case study will identify their own points about issues they believe are important.
The key point to remember: an effective exam answer in part B of F292
(1) addresses the specific question asked (you must answer the question)
(2) is directed to evidence in the case study (application) rather than making general points or lists
(3) develops a small number of well-argued points in sufficient detail (analysis)
(4) expresses an opinion on the question posed, supported by a balanced appraisal of the analysis
Issue: How will JKL’s approach to marketing have to change in order to profitably expand in the medium and long term?
Application
Analysis
Evaluation
The firm has
ambitious growth
plans in the
short, medium
and long term.
It appears that there is sufficient demand to grow the business, at least locally in the near future.
Plans for national growth and even international expansion are optimistic, and mostly unplanned
at this stage. However much growth is planned, marketing will need to adapt. The existing
marketing mix appears on the surface to be successful, but JKL has yet to breakeven.
The firm seems to lack the
necessary finance for all but the
most limited growth. It’s
difficult to discuss this topic
without relating it to raising
finance or franchising. (A note
of caution here: neither of
these topics features on the
F292 specification).
The firm is still
planned and
organised around
its initial business
plan – this needs
to change.
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Profitability is poor, marketing needs to be adapted regardless of growth.
There has been significant growth in the market over the last 20 years, but this may not continue.
Using the Boston Matrix as an analytical tool, it may be better to seek to grow the business
through taking market share, rather than relying on continued expansion.
If JKL want to build market share, they may need to target clients outside their current market
segment. They could for instance, tender for contracts with local authorities to manage children
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currently in the care of Social Services.
Should JKL channel more marketing effort into attracting customers to their non-childcare
service, which currently account for a very low share of overall revenues?
JKL’s prices are currently pitched at the top end of the market and may well need to be reduced if
the business begins operation in less urban, prosperous areas. The problem of price discounting
however is its effects on total revenue and ultimately, profits. JKL struggle in this area already.
They need to achieve higher level of profitability and boost cash flow.
Might another policy be to increase prices? Clearly, demand currently outstrips supply. Might
higher prices actually have the effect of moderating demand to more manageable levels whilst
boosting profits and cash inflows?
Promotion strategies need to be adapted as the business moves beyond its traditional areas of
operation. It’s likely that more will need to be spent on advertising as word-of-mouth will be less
effective.
Changing place – i.e. operating in different areas - is certain to mean change across the marketing
mix for JKL. This must be supported by further market research.
This move could open up a way
to make more efficient use of
capacity, such as using the
centres at weekends for parties
and in the evenings for classes.
This is an opportunity for you
to use price elasticity of
demand and talk about the
impact on demand from higher
prices. Crucially, this depends
on customers’ incomes and the
degree of competition.
This is the key evaluative
conclusion – adaptation is
necessary for change and
growth.
Potential exam-style questions on this issue:
Discuss the extent to which further market research evidence could help JKL plan for the future.
How could JKL adjust their marketing mix in order to achieve greater success?
Explain how the concept of price elasticity of demand could be relevant if JKL decided to raise their prices.
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Issue: How might JKL’s organisation, leadership and structure have to change to accommodate the planned growth?
Application
Analysis
Evaluation
JKL’s leadership style
seems to be
democratic and
power is
decentralised within
the organisation.
The firm clearly benefits from its excellent relationships with staff and these may be
threatened by growth. In the first place, extra staff will need to be recruited and trained
which will add to the already significant capital costs associated with expansion.
A larger firm will probably find
it easy to maintain current
methods of motivation by
reward. Non-financial methods
of motivation arising from
recognition, effective
communication and good
relationships may suffer in a
bigger firm however.
Careful attention is
paid to maximising
motivation and
reducing labour
turnover.
In the short run, some of the extra growth may come through running the existing daycare
centres above full capacity. There are already clues that this is a potential source of
dissatisfaction for staff, which may ultimately erode motivation. There is also the risk of demotivating staff if the democratic style of consultative decision making in JKL is seen to be an
illusion – with the board disregarding the opinions of staff and pressing ahead with this plan
despite their opposition.
It’s perhaps as well that the firm manages to decentralise authority and empower the staff to
make decisions, as expansion may well force the firm further in this direction. One of the
effects of expansion may well be to move the firm into slightly different marketplaces where
marketing will need adaptation to local circumstances (see above). Organisations that are
tightly controlled from the centre (or top, if you prefer) are often more rigid and lack the
flexibility to adapt in the ways that may be necessary. It’s very likely that local managers will
have to shape JKL’s offering to local wants and needs (especially if they expand abroad).
Harriet and JKL seem to have a Theory Y view of their workforce and have invested heavily in
order to raise professional standards. This should create a climate in which senior
management may feel they can be more laisser faire in their approach, going even further in
decentralising decision making to trusted managers on the ground.
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The long term aim of staff
empowerment may be entirely
appropriate, but in the short
term it may be necessary to
control budgeting more
centrally in order to get a grip
on cash outflows.
Allowing centres to operate
independently does offer big
advantages, but some functions
may be more efficiently
controlled from the centre,
such as purchasing materials.
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However, it would be surprising if significant growth did not have the effect of slightly
increasing levels of hierarchy within the organisation. Additional levels of management may
be necessary to handle the larger organisation, if the spans of control of the existing
management team are not to be stretched beyond reasonable limits.
Extra levels of hierarchy may
make the business less flexible
and serve as an obstacle to
communication.
Potential exam-style questions on this issue:
Evaluate the effectiveness of Harriet’s leadership and management styles at JKL.
Explain the key methods by which JKL motivate their staff.
Evaluate the most significant human resource issues arising from JKL’s proposed expansion.
Issue: Can JKL maintain and even improve their high level of quality?
Application
Analysis
The business is
committed to
maintaining a very
high standard of
quality.
The high quality of child care provision at JKL is mainly driven by:
JKL may try to
secure the NDNA
‘Quality Counts’
accreditation award.

Evaluation
A ‘quality assurance’ focus, placing quality at the heart of how the business
operates.

A purpose built environment, designed to meet precise needs.

Commitment to staff training and professionalism.

Worker involvement in quality: a consultative style, with trusted, empowered and
well motivated staff working to high standards. Staffing is also generous, and exceeds
the legal minimum.
These standards could be threatened by the proposed business expansion. Growth will require
extensive recruitment (and subsequent training to the necessary standard) that will be difficult,
expensive and time consuming.
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Attaining these standards has
required significant
investment, both at the start,
and as an on-going expense.
Here there’s a potential short
run effect (difficulty in
maintaining standards) that
should ease in the long run.
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The proposals for short run expansion may involve running the centres above capacity. The
staff have warned against this, as it will strain both human resources (the staff) and the physical
resources (rooms built to match precise upper limits on group size). Staff may even become demotivated and less committed to high standards.
Raising quality through a benchmarking process like the ‘Quality Counts’ award could act as a
useful focus for the firm and discipline the business into maintaining standards. A formal
framework for measuring quality could be especially helpful as the business grows to the next
size and Harriet’s personal attention to detail won’t be able to monitor every centre. Local
managers will need to take more individual responsibility for quality standards. A
benchmarking process could be valuable across the business.
Quality is about effectively meeting the needs and expectations of customers. Harriet is
personally dedicated to maintaining excellent standards. These standards of professionalism
probably help create the impression of a premium service and support the current pricing
structure, which is higher than either the local or national average.
The future growth and expansion of the business may well depend upon a reputation for quality
and excellence (and the formal recognition of quality standards), especially as the business
extends outside its home territory.
Short term expansion could
come through evening classes
and weekend parties that
have no impact on regular
day-to-day childcare.
The award may be just be a
‘bureaucratic form-filling’
exercise that costs money and
achieves very little.
It’s possible that JKL have
placed the issue too high on
their agenda – they are
already struggling to meet
demand. A focus on high
standards is all very laudable:
but not if costs are pushed to
a level where the business
cannot make a profit – and
ultimately fails.
Potential exam-style questions on this issue:
How important is quality for a firm operating in JKL’s marketplace?
To what extent do you believe that the ‘Quality Counts’ award will help JKL improve quality?
Describe the methods employed by JKL to maintain a high standard of quality
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Issue: What are some of the risks of growth for JKL, especially from operating over capacity?
Application
Analysis
Evaluation
The business is a
local success
(although not a
terrific financial
success, as yet).
Successful business models do not always scale up from a small size
to much larger, nor is it easy for firms who have become
accustomed to operating in one geographical area to match that
degree of success somewhere else.
A list of points (bullet pointed here, to avoid repetition) includes
issues such as:
There is nothing in the case study (beyond vague
proposals) to indicate that planning for growth has really
begun at JKL. Even the short run plans for expansion pose
significant risks and long term proposals look simply
unfeasible (sadly, the point about franchising is unlikely to
be explored in the exam as it is part of Unit F291).
Might the vague
proposals for
dramatic growth risk
ruining the
business?

The existing marketing mix will need to be significantly
adapted as the business grows/spreads.

Staffing, organisation, leadership and management will
all need to be reviewed if the firm is still to function
effectively.


Quality may well suffer as a result of expansion.
The business is already experiencing serious cash flow
problems and may find that expansion pushes it towards
insolvency. The lack of overall profitability is also a problem
and may lead to difficulties in finding new sources of finance.
However, growth should not be ruled out. As the
business expands it may be able to find cost efficiencies
and ‘leaner’ ways of operating that help to lift profits.
Slowing market growth also points to the long term
advisability of trying to capture market share.
JKL is already big by the standards of this fragmented
industry.
Finance is the key hurdle to overcome if JKL is to grow.
Potential exam-style questions on this issue:
Which department – or business function – will be most affected by JKL’s expansion plans?
Evaluate the benefits of JKL’s proposed expansion plans
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Issue: How can JKL overcome their cash flow problems?
Application
Analysis
JKL have a substantial
overdraft which is both a
worry and a considerable
expense, in terms of large
interest payments.
Cash flow problems are – at least superficially – very easy to fix. JKL
need to find ways of speeding up cash inflows whilst also looking to
reduce the rate at which cash is flowing out of the business.
Over the next 10 months
cash outflows are forecast to
be much higher than inflows.
Ambitious expansion is
planned - and current
expansion is already a huge
drain on cash.
Improving cash inflow could be achieved through:

Either coping with more customers and/or charging higher
prices for daycare.

Either boosting demand for their other services and/or
charging higher prices.

Securing a large cash injection in the form of new
borrowing, or equity investment.
Dealing with more children looks likely to put
a huge strain on the business, though raising
prices may be feasible (see references to
elasticity of demand). Expanding revenue
from other services looks much more
promising. Sadly, the option of extra
financing is unlikely to be explored in the
exam as it is part of Unit F291).
Slowing cash outflows might be addressed by:



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Evaluation
Staffing is much the biggest item of
expenditure, but so crucial in achieving JKL’s
Cutting back on staffing levels, perhaps closer to the
objectives.
statutory minimum.
Staff empowerment is also a critical
Tightening up on budgeting and showing more restraint in
component of people management at JKL, but
expenditure on materials – a huge bill that sometimes reaches
the budgeting freedoms are coming at a very
25% of staffing costs. This seems excessive.
high price.
Putting a brake on current expansion plans until
It’s hard to see how expansion is currently
profitability is assured and the business is on firmer financial
affordable.
foundations for expansion. The £300,000 forecast expenditure
for the 4th Birmingham centre accounts for much of the negative 2-3 years of positive cash flow and a cut-back
on some costs could help the business reduce
cash flow in the months ahead.
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its overdraft, cut interest payments and move
JKL towards profitability.
Potential exam-style questions on this issue:
Describe the main sources of JKL’s cash flow problems.
Evaluate the approaches JKL could take in order to reduce their cash flow problems.
Describe the extent to which JKL’s cash flow situation has a relevance to their expansion plans?
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Exam Technique Advice
The Case Study
Read it, read it and read it again. Then read it again. Learn it as much as you can – better knowledge of the case study will save you time in the exam
and allow you to have a better discussion and understanding of the key topics.
Use the Case Study
The examiner spent a long time writing this case study – so it must be used effectively. Do NOT just give the ‘text-book’ answer, everything you write
should be applied and put into the context of JKL.
React to the question set
As an examiner, it is a great pity when we have to write NAQ (not answering question) on a pupil’s work. Make sure you read the question carefully and
answer it!
Essay Plans
It is a good idea to make a brief plan – but plans should be brief – allocate a couple of minutes to organise your thoughts.
Timing
Timing is crucially important and this is one of the most common failings of students in the exam hall. Quality not quantity is what counts – it is not a
race to fill the answer booklet and any supplementary pages!
Practice
There is no substitute for writing timed answers to practice essay questions and then having them marked your teachers. Knowing what you can
realistically achieve for each question in a timed essay is hugely important before you step into the exam hall
Mark schemes:
Well before the exam you should become familiar with the marking schemes of the module. Although F292 is a relatively new module, (and therefore
has limited ‘past papers’) it replaced the old module 2873. These past papers (also case study based) are available from the OCR website:
http://www.ocr.org.uk/qualifications/as_alevelgce/business_studies/documents.html
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This is a ‘levels of response’ paper – in essays you must evaluate, with reasoned judgment, effectively for the top marks.
Writing
Get a nice pen (splash out!), this will avoid the dreaded writer’s cramp – particularly with long essays as examiners hate illegible work! If possible
practice a two-hour mock practice paper, your teachers can help you with this and it will benefit you in the long run.
Levels of Response
Some reminders now about how you are assessed in the F292 exam.
According to OCR, candidates are expected to demonstrate the following in the context of the content described:
AO1 Demonstrate knowledge
and understanding
Demonstrate knowledge and understanding of the specified content;
AO2 Apply knowledge and
understanding
Apply knowledge and understanding to problems and issues arising from both familiar and unfamiliar
situations;
AO3 Analyse
Analyse problems, issues and situations;
AO4 Evaluate
Evaluate: distinguish between, and assess appropriateness of, fact and opinion, and judge information
from a variety of sources.
A typical F292 will allocate the 90 marks on offer as follows:
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From this you can see that marks for AO3 (analysis) and AO4 (evaluation) are only available for the four questions in section two of the F292 paper.
Each of the longer questions in section 2 has substantial marks available if you can effectively demonstrate analysis (22 marks) and evaluation (21
marks).
More on AO3 - Analysis
Analysis involves making well-reasoned, step-by-step arguments using appropriate business studies tools & concepts.
To get your marks for analysis, you will need to:

Make a point

Explain why the point is important

Explain the significance of this to ….
Your examiner will see that you are analysing when you are doing any of the following:

The causes are….the possible consequences are…..
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
The advantages for JKL are….the disadvantages for JKL are…..

On the one hand JKL may……on the other hand, they may…….

The data for JKL shows that…..on the other had, it may suggest……

This is likely to lead to……..but it may lead to………

In this case…..is an advantage because……

The likelihood of this happening is……Consequently the business must….

The trend in this case is…….shown by…… data
Analysis is about how you consider the ‘ifs and buts” as well as the “however and maybe”. You should view your written answers as your conversation
with the examiner. Imagine how it would sound if you read a list of bullet points aloud - is this what you want your examiner to hear?
More on AO4 - Evaluation
Evaluation is the hardest skill of all. Very few candidates develop their skills of evaluation which is why it is awarded the highest grade when examiners
see it.
Evaluation means giving your final judgements after dismissing all other arguments and saying why the judgement you have made is superior to all
others. To do this, you must be knowledgeable about all the other arguments over which you are claiming superiority.
It is not enough to use a trigger phrase and to expect the examiner to award the highest mark – the examiner wants to see a robust, developed
argument that weighs up the critical points and then come to a conclusion as to which is likely to be most significant – given the circumstances of the
case study.
You can demonstrate the skill of evaluation when, in the context of the case study, you:

Make a small number of points pointing out the options and/or the issues

Justify which of several arguments are more persuasive and why

Comment on the reliability of data or information given

Support your judgement with evidence and draw conclusions from the evidence
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
Consider limiting factors e.g. feasibility, impact and internal and external constraints

Consider long term and short term issues

Discuss how objectives, internal and external constraints constrain decision making
Examples of trigger phrases demonstrating evaluation include:
•
Overall, the greatest effect this will have on JKL is……because…
•
The extent of the impact will depend upon ….
•
Whether this happens depends upon ….
•
In the short run… but in the long run…
•
The most important issue/factor is… because… so…
•
In addition, JKL needs to consider …. and ….
Remember evaluation means weighing up options and making a recommendation.
There is no ‘one best option’. It all depends on the circumstances of the business in the case study.
Analysis and Evaluation Compared
Candidates often ask what the difference is between Analysis (AO3) and Evaluation (AO4):
•
Analysis assesses the causes and consequences of an issue and explains the likely impact and reaction of the firm.
•
Evaluation builds on analysis and involves candidates weighing up options and coming to a view on what the firm should do.
For example – the question asks you to “discuss a strategy”:
•
Weighing up the evidence upon which a strategy would depend – AO3
•
Recommending one strategy based on analysis – AO4
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Case Study Terms
This section highlights and defines the key business terms and phrases used in the case. Remember you can demonstrate your knowledge by making
effective use of definitions.
Accreditation scheme
(‘Quality Counts’)
Awards, issued by a nationally recognised body, to organisations that meet a set of agreed criteria or standards. The awards
can be helpful for marketing and promotional purposes. A logo or ‘kitemark’ can often be seen on the stationery and
materials issued by an organisation that has successfully attained the award. An example would include the Investors in
People award administered by UK Commission for Employment and Skills and supported by the Department for Business,
Innovation and Skills (BIS). Supporters of such schemes also point to the beneficial effects they can have, if the process of
claiming the award forces organisations to make real and sustained improvements to their business practices.
The National Day Nurseries Association (NDNA) operates a ‘Quality Counts’ scheme which investigates 16 different aspects of
childcare ranging from accurate record keeping to health and safety, partnerships with parents to trips and outings. An
accreditation panel of inspectors visits to make a judgement and give feedback on the centre’s success in meeting the
standards.
The e-Quality Counts is NDNA’s online quality improvement scheme created specifically for the nursery sector and is designed
to meet their needs.
The Quality Counts scheme itself is accredited by another organisation, the Continuing Personal or Professional Development
(CPD) Certification Service.
Biometric entry system
Entrances are secured with a ‘key’ that identifies individuals by personal physical characteristics, such as finger prints.
Break even
The point at which the total revenue a business earns exceeds the firm’s total costs. If a firm manages to reach and exceed
this level of sales it’s possible to make a profit.
Business Plan
This is a document primarily used by a business to secure finance. Before a firm starts up, entrepreneurs are often keen to
either borrow money or to sell shares to willing investors (see ‘equity partner’ below). It’s unlikely that anyone will provide
finance without, at the very least, an outline description of the firm’s trading plans. This may include a basic marketing,
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production and personnel plan, supported by a cash flow forecast and even an estimate of when break-even may occur.
JKL have clearly outgrown their initial business plan, which secured the support of their equity partner and the Small Firms
Loan. This document now needs updating as the firm moves into the next phase of development.
Capacity
The total amount (in this case study, expressed as the number of day care places) that a business can provide over a period of
time. Capacity is usually measured in terms of units per period of time (e.g. each childcare centre has a maximum of 100
places at any one time).
Capacity utilisation
The proportion of capacity that is used. A half used childcare centre would be operating at 50% capacity.
Cash flow, cash flow
problems
Even growing, successful and profitable firms can run out of cash. Cash is needed for both day-to-day revenue expenditure
and for larger, occasional capital items. Firms will experience cash flow, or ‘liquidity’ problems if cash is leaving the business
faster than it is being generated. Under these circumstances firms will eventually be forced to act. If it’s not possible to
sufficiently speed up cash inflows, or slow down cash outflows extra finance will be needed. That might typically be raised
through either fresh borrowing, or selling (liquidating) some fixed assets.
Empowered workforce
Where employees are given authority (power) to make decisions about their work.
Equity partner
A partner who provides equity i.e. buys shares in a business. Their control of the company and share of dividends is
proportionate to the amount of equity they have provided.
Financial partner
More broadly speaking, a financial partner has some financial stake – and say –in a business.
Fragmented
This describes a situation in which a market is divided into a large number of suppliers. In this case study, the structure of the
nursery market is described as fragmented because of the wide variety of providers of childcare. They are diverse in terms of
size and type of ownership.
Franchising, overseas
franchise
Franchising allows more rapid business growth as finance is drawn in by external groups who have expressed willingness to
trade under the firm’s name. As franchisees, these individuals invest on behalf of the company and usually operate to an
agreed set of criteria. In return for the initial investment and ongoing fees (or ‘royalties’) the franchisee adopts a proven
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brand and business model in the hope of earning high returns.
The original business – the franchisor – can achieve rapid growth and scale economies. In the case of an overseas franchise,
the franchisor may also find that local knowledge and experience is especially helpful.
Growth strategy
A long term plan, typically organised around a series of short- and medium- term targets or objectives that is usually needed
for a business to achieve a growth aim.
Legislative and
regulatory
requirements
The laws and regulations that a firm must abide by to avoid the risk of prosecution.
Market structure
A description of the degree of competition in an industry. Where market structure is described as a monopoly, the market
place is dominated by a single provider. More competitive market structures see market share divided out amongst a larger
group of competing businesses.
Medium term target
A goal or objective that a firm might hope to achieve in the ‘medium term’. This is an elastic timeframe that might mean
anything from perhaps 12 months to 3-5 years.
Minority stake
This term would apply to an investor who bought fewer than half of the shares available in a company. Harriet and her family
are minority shareholders in their ‘own’ business, owning just 15.8% of the equity (they put in £750,000 out of the £4.75m of
total equity).
Nominal terms
Nominal figures have not been adjusted to take account of inflation (whereas ‘real’ figures have been).
Organic growth
This is the process of businesses expansion due to increasing overall customer base or new sales, rather than through mergers
and takeovers.
Overdraft
A source of finance where the borrower is allowed to run a negative bank balance, although within agreed limits (and often at
relatively great expense).
Preliminary data
Initial market research findings, subject to updates and further investigation.
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Small firms loan
guarantee scheme
The DTI's Small Firms Loan Guarantee Scheme provides a government guarantee for loans by approved lenders. Loans are
made to firms or individuals unable to obtain conventional finance because of a lack of track record or security. The guarantee
generally covers 70% of the outstanding loan. (This rises to 85% for established businesses trading for two years or more.
Loans can be for amounts between £5,000 and £100,000 (£250,000 for established businesses) and over a period of two to
ten years.
Stakeholders
People, groups or organisations which have an interest in the activities of a business
Start-up capital
The finance raised at the start of a firm’s trading operations. This is typically in some combination of equity (shareholder
investment) and debt (borrowing).
Target market
A group of people (often a particular ‘market segment’, which describes a group if consumers who share the same buying
habits) who form the majority of a firm’s customers. They can then be ‘targeted’ through a marketing strategy that creates
products at prices they are willing to play.
Venture capitalist
A wealthy individual - like one of the BBC’s ‘Dragons’ from the Den - who may provide finance, contacts and expertise in
return for a share in a business.
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