The Independent Institute of Education 2015

MODULE NAME: MODULE CODE:

BUSINESS MANAGEMENT 3B BMNG7312
BUSINESS MANAGEMENT 3B BMNG7312e
BUSINESS MANAGEMENT 3B BMNG7312f
BUSINESS MANAGEMENT 3B BMNG7312p
BUSINESS MANAGEMENT 3B BMNG7312w

ASSESSMENT TYPE: EXAMINATION (PAPER ONLY)

TOTAL MARK ALLOCATION: 120 MARKS
TOTAL HOURS: 2 HOURS (+15 minutes reading time)
STUDENT NAME:
STUDENT NUMBER:
INSTRUCTIONS:
1. Please adhere to all instructions in the assessment booklet.
2. Independent work is required.
3. Five (5) minutes per hour of the assessment to a maximum of 15 minutes is dedicated to
reading time before the start of the assessment. You may make notes on your question paper,
but not in your answer sheet. Calculators may not be used during reading time.
4. You may not leave the assessment venue during reading time, or during the first hour or during
the last 15 minutes of the assessment.
5. Ensure that your name is on all pieces of paper or books that you will be submitting. Submit all
the pages of this assessment’s question paper as well as your answer script.
6. Answer all the questions on the answer sheets or in answer booklets provided. The phrase ‘END
OF PAPER’ will appear after the final set question of this assessment.
7. Remember to work at a steady pace so that you are able to complete the assessment within the
allocated time. Use the mark allocation as a guideline as to how much time to spend on each
section.
Additional instructions:
1. This is a CLOSED BOOK assessment.
2. Calculators are not allowed
3. Answer All Questions.

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Question 1 (Marks: 40)

Read the case study below and then answer questions Q.1.1 and Q.1.2

KULULA AIRLINE

According to Kulula, flying is no longer the exclusive domain of high-income groups. This is largely
due to the emergence of low-cost airlines which have provided healthy competition in the market
and driven down prices for air fares. Low-cost airlines may typically offer lower air fares through
lowering their operating costs relative to competitors. They may achieve this by directing customers
to purchase tickets online in order to avoid commission fees to agents; making use of electronic
tickets; making use of less congested airfields in order to reduce turnaround times and take
advantage of lower landing fees; not providing 'free' meals/ beverages on board; not making use of
flyer lounges and frequent flyer programmes; offering a single class as well as a single type of aircraft
(to lower maintenance costs); offering short-haul flights in order to maximise aircraft utilisation);
and empowering staff to perform dual roles (e.g. cabin crew to clean the plane as well as serve the
customers). Traditional major airlines, offering full-service features, have a higher operating cost
structure compared to low-cost airlines and can therefore not compete effectively on price alone
with their low-cost counterparts. The problem is that, in certain regions, the major airlines are
realising that they need to become more cost-effective, as their customers are becoming more
value-conscious and can easily go without the extra services and frills offered on short-haul flights.

Low-cost airlines have been operating since 1949, when Pacific South West Airlines, a United States-
based carrier, took to the skies (Wikipedia). In 1966, another successful low-cost airline, Laker
Airways, became the world's first long-haul, low-cost, no-frills airline carrier (Wikipedia). Today there
are many low-cost airlines in operation (easy Jet, Ryanair, JetBlue, South West Airlines, etc.), some
successful, and some not very successful. Only time will tell whether their business strategy is truly
sustainable.

While many propositions may be raised, it is broadly contended that a sound business strategy is at
the very heart of attaining a sustainable competitive advantage and consequently an above-
industry-average bottom-line performance (Thompson, Strickland & Gamble, 2007). It is thus the
purpose of this Working Paper to explore aspects of the low-cost airline industry in South Africa (SA)
and the business strategy employed by the most recent entrant to this highly competitive market,
namely Mango.

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With the low-cost airline industry in South Africa and the launch of Mango before deregulation of
the airline industry took place in 1991, South African Airways (SM) enjoyed a monopoly unheard of
today (95% market share). This meant that SM did not need to put as much emphasis on customer
care and satisfaction. On the back of the deregulation in 1991, Trek Airways (already operating
overseas as Luxavia) took up the challenge on 16 October 1991, to become the first airline directly to
challenge SM, by launching Flite Star (Dubois). Its strategy was aimed at customer care and superior
on-board performance, and, soon after the entry, Flite Star took 25% of the domestic airline market
and was carrying loads of 63% (load factor refers to the percentage of seats occupied on a flight)
(Dubois). Flite Star was not operating your typical budget airline business model, but it was certainly
less expensive in respect of prices. In South Africa, over the past five years, the domestic airline
market has grown by more than 50% and future growth is expected to remain in double-digit figures
of 10 — 15% through to 2010 (Sobie, 2006).

This is largely attributed to the growth in the South African economy and, secondly, to the
appearance of low-cost airlines which has led to an increase in the number of people who are 'new
fliers' (Hogg, 2006). More people are choosing to fly to their destinations than in the past. Air
transport used to be the primary domain of business travellers, but more South African holiday
travellers are opting to fly. Also, with the rise of the black middle class, more people are shifting to
air travel (Maposa, 2007). The South African airline market is far from saturated and has huge
potential for growth, particularly in the low-cost airline market (Mtshali, 2007). The total market
value of the airline industry in SA is approximately R10 billion, and, according to statistics shown in
2006, the low-cost airlines have managed to take approximately 30% (R3 billion) of this market
(Flight, 2006).

Source: Louw, L., Venter, P., (Editors) (2013). Strategic Management, developing sustainability in
Southern Africa. Oxford Press. Southern Africa. 3rd edition.

Q.1.1 Strategy of an enterprise is defined by answering two (2) questions, namely where (6)
does the firm compete and how does it compete?

With regards to the above statement, briefly describe the three (3) business level
strategies to the Kulula management team.

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Q.1.2 Identify and describe the business level strategy implemented in the case study. (8)

Q.1.3 “According to Michael Porter, Kulula which is a low cost airline operator should like (6)
its competitors Mango and Flysafair always follow a cost leadership strategy?”
Do you agree with the statement? Justify your answer.

Q.1.4 Cultures are unique to organisations, and are colloquially defined as the 'way things (12)
are done around here'. An organisation's culture finds expression through a variety
of manifestations.

By making use of examples, discuss the six (6) elements through which Kulula can
manifest its organisational culture.

Q.1.5 Although many definitions of organisational architecture exist several key (8)
characteristics of a sound organisational architecture are distinct.

Explain to the Kulula management the key characteristics of a sound organisational

architecture.

Question 2 (Marks: 5)
De Toqueville stated: “… in proportion as the principle of division of labour is more extensively
applied, the workman becomes weak, more narrow minded and more dependent.”

Explain how the division of labour could address the above statement.

Question 3 (Marks: 30)

Q.3.1 Similar to the argument outlined for a combination of transactional and (16)
transformational leadership, Rowe argued that strategic leadership synergistically
combines both managerial leadership and visionary leadership.

With regards to the above statement, distinguish between visionary and managerial
leadership.

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Q.3.2 Top-level executives are responsible for changing and implementing strategy. They (6)
usually seek input from other managers in the formulation of strategy, and require
managers and staff at all levels to implement the strategy.

Explain the six (6) tasks that strategic leaders need to consider when implementing
strategy.

Q.3.3 Effective leaders are alike in one crucial way: they all have a high degree of (8)
emotional intelligence.

Critically analyse the concept of emotional intelligence.

Question 4 (Marks: 30)

Q.4.1 Two (2) major factors have continued to enhance the trend toward greater
globalisation in recent decades namely, the ongoing phasing out of barriers to
international trade and investment and an unprecedented technological progress.

Q.4.1.1 Explain how these two (2) factors influence globalisation. (10)
Q.4.1.2 Describe any other four (4) factors promoting globalisation. (4)

Q.4.2 Explain why managing international business is much more demanding and difficult (10)
than domestic business.

Q.4.3 When competing internationally, organisations can choose between four (4) specific (6)
competitive strategies for international business.

Identify and discuss any two (2) strategies for international business.

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Question 5 (Marks: 15)

Q.5.1 Defensive strategies apply to organisations or business units that have potential, but (8)
have suffered setbacks in recent times. Divestiture strategy is to focus on healthier
divisions or raising cash rapidly.

By making use of examples, explain the four (4) divestiture strategies available to
management.

Q.5.2 Explain the importance of value innovation. (7)

END OF PAPER

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