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The Eastland Postal Services is government owned. The government requires it to provide a parcel delivery service to every home and business in Eastland at a low price which is set by the government. Express Couriers Co is a privately owned parcel delivery company that also operates in Eastland. It is not subject to government regulations and most of its deliveries are to large businesses located in Eastland’s capital city. You have been asked to assess the relative efficiency of the management of the two organisations.
Which of the following should NOT be allowed for when comparing the ROCE of the two organisations to assess the efficiency of their management?
1. Difference in objectives pursues
2. Differences in geographical areas served
3. DIfferences in workforce motivations
4. Differences in price chargesCORRECT ANSWER is 3 but I don’t understand why
Thank you very much in advance
Motivation may be a reason as to why there are different levels of efficiency.
The other three are not reasons for them being more or less efficient, but they are reason why the ROCE may be different even if they were exactly as efficient in both places,
Hi John,
I have been struggling with this question for some time as well. I have done a lot of research online trying to get a better understanding. Unsuccessful unfortunately. (I study BPP). Would you kindly explain this concept? ROCE is only mentioned in our study guide as the formula. I don’t understand the question and how ROCE relates to efficiency. Please help.
ROCE measures the profitability in relation to the size of the business.
If the managers were equally efficient, then if one business is twice as big as the other business, then you would expect it to have twice the profit.However, Eastland is required to have lower prices. On its own this would result in lower prices but it is not because the managers are less efficient – they cannot control it.
Similar, Eastland managers to not control the fact they have to deliver to every home whereas Express don’t. Similarly, Eastland managers do not control the objectives – they are set by government.
So all the above need to be allowed for if trying to measure how well the managers are doing.However, the one thing the managers have control over is the motivation of the workers – it is their job to motivate the workers, whether it is Eastland or Express. Therefore that is the one thing that does not need to be allowed for when comparing the two to see how well the managers are doing.
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