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Entering new territory.
2 Shearings has changed its organisational structure to create two separate divisions. To what extent might this new structure improve the performance of the business? [15]
3 Calculate the net profit margin in 2008. [3]
Advice for question 2:
You need to present one argument in favour of the change in structure and one argument against. Will having employees just focusing on one aspect of the business be more likely to lead to success? Why? How might the division of the business lead to a loss in business?
What is your judgement about how this might work?
Entering new territory.
Shearings Holidays Ltd (Shearings) sells holidays and travel services in a niche market. It employs 3000 people and operates a chain of hotels and eight high street travel shops and has developed an excellent reputation for selling holidays to customers aged 55 and over. Shearings plans further expansion.
Despite operating in a highly competitive market with larger rivals, including Thomas Cook, Shearings sells over 900,000 holidays and hotel breaks each year. To achieve this, the company uses advertising as an important element of its promotional mix.
Shearings’ revenue was £182 million in 2008, and its net profit was £5 million, lower than forecast due to rising costs. The company had forecast that its costs would continue to rise in 2009 and its budgets show relatively stable figures for revenue and profits. It sets profit targets for its hotel managers. Shearings’ budget for 2009 included plans to invest £10 million in 45 luxury coaches and £25 million in purchasing more hotels.
The number of hotels owned by the company has risen rapidly to 49, with further growth ahead. Shearings has taken key decisions to help its expansion. During 2009, it changed its organisational structure to create two independent divisions, one for its holiday operations and one for its hotel chain. As part of these changes, the company announced 10 redundancies, including administration managers’ jobs.
Fig. 1: Actual and forecast date on UK population aged 55 and over
Year
|
Number of people aged 55 (and over (millions)
|
Percentage of population aged 55 and over
|
2006
|
16.84
|
27.95
|
2011
|
17.83
|
28.41
|
2016
|
19.29
|
29.69
|
Source: Based on data Social Trends (2008)
Shearings is moving away from its niche market of older consumers to target the mass market for holiday services. The company initially established an annual advertising budget of £2 million to assist this move. Shearings has a diverse range of products, many of which are suitable for a younger market. It has successfully launched its ‘Coast and Country Hotels’ aimed at wider age groups and plans further new brands for the mass market.
1 Analyse two benefits that Shearings might receive from its use of budgets. [10]
2 Shearings has changed its organisational structure to create two separate divisions. To what extent might this new structure improve the performance of the business? [15]
3 Calculate the net profit margin in 2008. [3]
Advice for question 2:
You need to present one argument in favour of the change in structure and one argument against. Will having employees just focusing on one aspect of the business be more likely to lead to success? Why? How might the division of the business lead to a loss in business?
What is your judgement about how this might work?
