Practice Questions (DP IB Business Management): Revision Note

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The act of developing new ideas, products or processes [1] within an existing business [1]

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$38m - $42m = -$4m [1]

-$4m ÷ $42m = -0.0952

0.095 x 100 = -9.52% [1]

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73% of construction companies in Country Z would be willing to pay a premium [1] because recycled concrete would help them reduce waste and lower the carbon impact of projects, helping them meet environmental targets and win contracts [1]

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Using job production is that it allows the company to produce customised concrete mixes for each construction project [1]. As each client requires a different concrete specification, job production enables ABC to meet specific customer needs and maintain strong B2B relationships with its 3,000 construction companies[1]

However, job production can be less efficient and more costly than standardised production methods[1]. Because each batch is different, ABC may experience higher production costs and longer production times, which could contribute to its declining profit margins [1]

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Rising raw material costs, such as the 35% increase in limestone prices [1], increase ABC’s production costs per tonne of concrete. Higher variable costs reduce ABC’s profit margin (which has already fallen from 18% to 9%), leading to lower overall profitability [1]

A second impact is that ABC may be forced to increase its selling prices to protect margins. If prices rise, some of its 3,000 construction company customers [1] may switch to competitors developing “green concrete”, which could reduce ABC’s sales volume and market share [1]

However, the impact may not be entirely negative because ABC operates highly automated, capital-intensive factories [1]. By improving efficiency and increasing output, ABC can spread fixed costs over more units, helping to offset higher raw material costs and reduce the overall financial impact [1]

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Corporate social responsibility (CSR) means acting responsibly towards stakeholders and reducing negative social and environmental impacts. Sustainability means meeting current needs without harming future generations, for example by lowering carbon emissions and reducing waste

ABC should prioritise CSR to a large extent because its concrete business has the highest carbon emissions in Country Z. If it fails to improve sustainability, it risks reputational damage and continued criticism from pressure groups, which could reduce sales and investor confidence. By investing in recycled aggregates and expanding e-waste processing, ABC supports a circular business model and may attract the 73% of construction companies willing to pay a premium for greener concrete. This could strengthen long-term competitiveness and reduce reliance on traditional concrete

However, prioritising CSR over short-term profits has risks. Building five new e-waste factories would cost $150 million and require a bank loan, increasing financial risk. Since concrete still generates 95% of revenue and profits are already falling, focusing too heavily on CSR could weaken cash flow and upset shareholders further

Overall, CSR should be prioritised, but only where it supports long-term profitability. The extent to which it should dominate decision-making depends on ABC’s financial stability and access to finance. If it can fund sustainable investments without threatening its core operations, prioritising CSR is strategically sensible; if profits continue to fall sharply, short-term financial recovery may need to come first

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Improving the concrete business means focusing on ABC’s core product, which currently generates 95% of revenue. Expanding e-waste processing represents diversification into a newer recycling market with growth potential. The decision involves choosing between strengthening a mass market strategy or expanding into a differentiated niche

Prioritising concrete improvement could allow ABC to pursue a cost leadership strategy. Rising limestone costs have reduced profit margins from 18% to 9%, so improving efficiency through automation and lean production could lower unit costs and restore profitability. As concrete is a largely standardised product, competing on cost may help ABC defend its position against rivals developing “green concrete”. However, focusing only on cost leadership risks being “stuck in the middle” if competitors successfully differentiate with lower-carbon products while ABC remains the highest emitter in the industry

Expanding e-waste processing fits a differentiation focus strategy. ABC’s room-temperature gold recovery process is innovative and has won an Environmental Innovation Award, which strengthens its brand and CSR image. Forecast revenues of $80 million with a 25% profit margin suggest strong long-term potential

However, this strategy is risky: it requires a $150 million investment funded by a bank loan and depends on securing enough e-waste, as the current factory operates at only 40% capacity

Overall, ABC should prioritise improving its concrete business in the short term while gradually expanding e-waste processing. Concrete remains the main revenue source and improving cost efficiency supports financial stability. However, long-term competitiveness depends on differentiation through sustainability, so limited expansion in e-waste should continue. The best option depends on ABC’s risk tolerance and ability to secure reliable e-waste supply; if collection systems improve, expansion becomes more attractive.