The Impact of Innovation on the Functional Areas (AQA A Level Business): Revision Note

EcoRide Ltd is a mid-sized UK manufacturer of electric bicycles based in the West Midlands

In 2024 the firm launched two big innovations at the same time:

1. Product innovation: an “AI-Assist” e-bike that adjusts power output to the rider’s habits and road gradients

2. Process innovation: a semi-automated frame-welding line using collaborative robots (“cobots”)

Why EcoRide chose to innovate

• Sales growth had slowed to 4% a year as rivals copied its earlier models.

• Rising labour costs threatened profit margins

• A government grant covering 25% of capital spending on green technology made automation more affordable

Impacts on the main functional areas

1. Marketing

   • Positive: The AI-Assist bike grabbed media attention and won a “Best Commuter Tech” award, lifting website traffic by 60 % in four weeks

   • Negative: Some buyers found the companion app tricky to set up

   • Outcome: Step-by-step video guides were added to the app, and a live chat helpline was opened

2. Finance

   • Positive: The automated line cut welding labour cost per frame by 35 %, raising the gross margin on every bike by £42 once full output was reached

   • Negative: Up-front spending was heavy: £3.2 million on cobots and £1.1 million on software. Cash flow turned negative for two quarters, forcing EcoRide to extend an overdraft at 7% interest

   • Outcome: Management negotiated a £1.5 million, five-year green-technology loan at 3% to replace the costly overdraft

3. Human resources

   • Positive: Introducing “innovation days” (staff can spend Friday afternoons on their own improvement ideas) boosted employee-engagement scores from 68 % to 82%

   • Negative: The firm needed software engineers and data analysts to maintain the AI system. Average recruitment cost per specialist hire was £9,500, three times higher than for production staff, putting pressure on the wage bill

   • Outcome: A partnership with a local college launched a two-year software apprenticeship scheme, securing a future talent pipeline at lower cost

4. Operations

   • Positive: The cobot line increased maximum output from 1,200 to 1,800 frames per week and reduced defect rates from 3.5% to 1.2%

   • Negative: During the first month of installation, unplanned downtime ran to 42 hours while technicians adjusted sensor settings, delaying some deliveries to dealers

   • Outcome: A spare-parts trolley and rapid-response maintenance team were stationed next to the cobot cell to cut any future downtime

Outcome after one year

• Revenue grew by 18%, reversing the earlier slowdown

• Net profit margin rose from 8% to 10% despite higher interest charges

• The AI-Assist model now makes up 35% of unit sales, with customer satisfaction at 4.6 / 5 after app improvements

• Staff turnover fell from 12% to 8% thanks to the innovation day scheme and clearer career paths in software roles

• The payback period on the automation project is on track at 2.8 years, slightly better than the original three-year forecast