3.4 Influences of Business Decisions

Question 1

How is Asset Stripping defined?

Answer 1

The practice of buying businesses and breaking them up. The profitable parts are sold for cash and the rest are closed down.

Question 2

How is Evidence-based Decision Making defined?

Answer 2

An approach to decision making that involves gathering information and using a systematic and rational approach to reach a conclusion.

Question 3

How is Long Term defined?

Answer 3

The time period where decisions have an impact on the vision, mission and objectives of a business. Typically longer than five years.

Question 4

How is Short Term defined?

Answer 4

The time period where decisions only have an impact on the operational activities of a business – typically less than five years.

Question 5

How is Strategic Decisions defined?

Answer 5

Decisions concerning policy that can have a long-term impact on a business. Can be risky.

Question 6

How is Subjective Decision Making defined?

Answer 6

An approach to decision making where the personal opinions of the key decision maker strongly influence the course of the action chosen.

Question 7

What are some influences of business decisions?

Answer 7

• Corporate Influences
• Corporate Culture
• Stakeholder Perspective
• Business Ethics

Question 8

How does Corporate Influences affect Business Decisions?

Answer 8

• Short term goals conflicting with long term objectives.
• Focus on need for immediate profit can affect long term growth
• For example - limiting pay rises
• Another Corporate influence is whether business decision are based on evidence or the subjective view of key decision makers
• Subjective decision making is likely to carry more risk

Question 9

How does Corporate Culture influence Business Decisions?

Answer 9

• The corporate culture can affect decision making.
• Open cultures will be more flexible and innovative
• More restrictive cultures can lead to being more cautious, leading to being less competitive

Question 10

How does Business Ethics influence Business Decisions?

Answer 10

• Some businesses will focus on corporate social responsibility
• Others will have less consideration for factors such as environmental or local issues

Question 11

How does Stakeholder Perspective influence Business Decisions?

Answer 11

• Businesses focused on shareholder opinions tend to leave other stakeholders marginalized.
• Others will consider a range of stakeholders, such as customers or workers, this focus may appeal to more customers

Question 12

What courses of action are Short-Termist Businesses likely to take?

Answer 12

• Maximise Short-Term Profits
• Invest Less Money in Research and Development (R&D)
• Invest less in Training
• Return Cash to Shareholders
• Engage in Asset Stripping
• Arrange more Short-Term Contracts
• Pursue External Growth rather than Organic Growth

Question 13

Why would a Short-Termist Business want to Maximise Short-Term Profits?

Answer 13

• Most companies that pursue short-term objective aim to increase shareholder value
• They are likely to do this by trying to maximise short-term profits
• For example. they might try to maximise revenue by charging higher prices, invest in advertisement, use cheaper resources etc.

Question 14

Why would a Short-Termist Business want to Invest Less Money in Research and Development (R&D)?

Answer 14

• This is because research and develop can be a big drain on cash reserves.
• A company will prefer to use this to help fund short -term objectives
• Investment in R&D is also risky, returns could be negative if R&D projects are fruitless
• Even if R&D is successful, the financial returns can take many years to reap

Question 15

Why would a Short-Termist Business want to Invest Less in Training?

Answer 15

• Training staff is also expensive and the returns are not immediate
• The returns from training are likely to be positive because workers will be better motivated, better equipped to do their job and staff turnover will be lower
• However, it will take time for the benefit to materialise

Question 16

Why would a Short-Termist Business want to Return Cash to Shareholders?

Answer 16

• A business with a large cash reserves may pay special dividends to shareholders instead of investing for the long-term

Question 17

Why would a Short-Termist Business want to Engage in Asset Stripping?

Answer 17

• Once the other business has been asset stripped, the profitable parts are sold for cash and the loss-making sections are closed down.
• This practice is often considered unethical because there is no regard for the future of the company and its stakeholders
• However, in the short term it can generate a quick cash return for shareholders of the predator

Question 18

Why would a Short-Termist Business want to Arrange more Short-Term Contracts?

Answer 18

• They may also employ more agency and temporary staff, and favour short-term leases for machinery and other essential assets.
• entering short-term contracts obviously does not really commit a business to any long-term objectives

Question 19

Why would a Short-Termist Business want to Pursue External growth rather than Organic Growth?

Answer 19

• Organic growth may be considered too slow for companies with a short-termist approach
• growth through mergers and acquisitions is much faster and may generate swifter returns, if successful

Question 20

What are the Drawbacks of Short-Termism?

Answer 20

• Long term profitability of a business could be threatened by focusing on short term goals.
• Companies can lose competitive edge, particularly in overseas markets
• Requirements of financial reporting – particularly quarterly reports – mean that too much time is spent by executives focusing on non productive activities.
• Over reliance on short term contract – can lead to inefficient use of resource in long term

Question 21

How is Long-Termism different from Short-Termism?

Answer 21

• Essentially, the benefits of long-termism is the opposite of short-termism.
• Businesses less likely to miss profitable long term products as will be willing to accept longer payback periods
• Increases in R&D spending will lead to greater chances of developing new products and other innovations
• With increased training budgets, long term will lead to more qualified, experienced staff, improving productivity

Question 22

What are the Two Types of Decision Making?

Answer 22

• Evidence-based decision making –> requires a systematic and rational approach to researching analysing all the available information before a conclusion is reached
• Subjective decision making –> is where the personal opinions of the key decision maker strongly influence the course of action chosen

Question 23

What is the process of Evidence-based Decision Making?

Answer 23

• Setting/Identifying Objectives
• Gathering Ideas and Data
• Analysing Ideas and Data
• Making a Decision
• Implementing the Decision
• Monitoring and Evaluation

Question 24

What is the Identifying objective stage in Evidence-Based Decision Making?

Answer 24

• identify the objective a business wants to achieve
• The objective might be a corporate objective, such as growth or survival in a poor trading period –> decisions are likely to be complex and might be taken by the board of directors
• For lower-level objectives, such as filling a part-time vacancy, decisions may be taken by junior managers
• Objectives might be different at different stages in its growth
• government owned companies will have different objectives from PLCs
• The business also needs to develop criteria to measure whether it has achieved its objectives
• Quite often the objective is to solve a problem

Question 25

What is the Collecting Information and Ideas stage in Evidence-based Decisions?

Answer 25

• The amount and nature of the information needed will depend on the decision e.g. launching a new product would require alot of information compared to deciding who would be best to hire for a new position
• It could take several months to collect all this information
• Whereas some decisions can be made with the information a company already has e.g. dismissing an employee
• A business may get this information with a working party set up in the firm who could produce reports and presentation
• Alternatively, individual and departments might submit ideas and information

Question 26

What is the Analysing Information and Ideas stage of Evidence- Based Decision Making?

Answer 26

• the next stage in the process is to analyse information to look for alternative course of action
• Possible course of action may be based on previous ideas or completely new ideas
• The aim is to identify which course of action will best achieve the business’s objective or solve the problem- it may be possible to test the alternatives before the one that is chosen is carried out

Question 27

What is the Making a Decision stage of Evidence-Based Decision Making?

Answer 27

• this is the most important stage in the process
• decision makers have to commit themselves to one course of action
• It is difficult to change the decision, so getting it right is vital e.g. if a new product doesn’t sell, it can lead to a lose of money
• Some decision can be reversed e.g. if a owner of a shop decisions to close on Tuesday afternoon but the loss of sales in intolerable, the owner can easily reopen
• Sometimes the decision makers feel that they cannot reach a decision
• They may have to obtain more information and complete the previous two stages in the process again

Question 28

What is the Communication stage of Evidence-Based Decision Making?

Answer 28

• once a decision has been made, personnel are informed and the decision is carried out
• Quite often the people making the decision are not those that carry them out
• Instructions may be passed by the decision makers to someone else, probably a manager, explaining what action should be taken

Question 29

What is the Outcome stage of Evidence-Based Decision Making?

Answer 29

• Once a decision has been carried out it will take time before the results are known
• Sometimes this can be quite a long time e.g. the companies which decided to build to Channel tunnel will not know for several decades whether or not it will be a commercial success

Question 30

What is the Evaluate the Results of Evidence-Based Decision Making?

Answer 30

• Finally, decision makers need to evaluate the outcome of their decisions
• This is often present as a report
• It may be necessary to modify the course of action on the basis of the report e.g. revise the objective or collect some more information
• there may be problems in following such as approach
• Objectives may be difficult to identify or unrealistic
• Information may be limited, incorrect or misleading
• People making decisions in the process may have different views and this may lead to differences of opinion about what is the best course of action

Question 31

What is Subjective Decision Making?

Answer 31

• This method of making decisions involves “feelings” and “hunches”.
• Some might argue that subjective decision making is too risky when making strategic decision
• This is because subjective decision maybe based purely on the opinions and emotion of perhaps just one person

Question 32

Why may Subjective Decision Making be appropriate?

Answer 32

• If there is a lack of current, accurate and meaningful information relating to a decision
• Some corporations are dominated by powerful and persuasive leaders, there may be occasions where such a leader makes strategic decisions singled-handedly, without consultation. This is acceptable, particularly if he leader is experience and has a good track record with decisions
• In some industries subjective decision making may be quite normal e.g. the fashion industry
• There are times when some decision have to be made very quickly and there maybe not be enough time to follow the scientific approach outlined earlier

Question 33

How is Cultural Dimension defined?

Answer 33

A set of characteristics that form the international context of business culture.

Question 34

How is Organisational, Organisation, Corporate or Business Culture defined?

Answer 34

The values, attitudes, beliefs, meanings and norms that are shared by people and groups within an organisation.

Question 35

How is Strong Culture defined?

Answer 35

A culture where the values, beliefs and ways of working are deeply embedded within the business and its employees.

Question 36

What are the advantages of a Strong Corporate Culture?

Answer 36

• It provides a sense of identity for employees. They feel part of the business. This may lead workers to be flexible when the company needs to change or is having difficulties.
• Workers identify with other employees. This may help with aspects of the business such as teamwork.
• It increases the commitment of employees to the company. This may prevent problems such as high labour turnover or industrial relations problems.
• It motivates workers in their jobs. This may lead to increased productivity.
• It helps employees understand what is going on around them. This can prevent misunderstanding in operations or instructions passed to them.
• It helps to reinforce the values of the organisation and senior management.
• It acts as a control device for management. This can help when setting company strategy.
  In comparison to a strong culture, a weak culture exists where it is difficult to identify the factors that form the culture or where a wide range of sub-cultures exists, making the culture difficult to define. There are certain factors that are likely to determine whether a business has a strong or weak culture.

Question 37

What is Weak Culture?

Answer 37

In comparison to a strong culture, a weak culture exists where it is difficult to identify the factors that form the culture or here a wide range of sub-cultures exist making the culture difficult to define

Question 38

What Factors define whether a Business Culture is Strong or Weak?

Answer 38

• Surface Manifestations
• Core Organisation values
• Basic Assumptions

Question 39

What are the Surface Manifestations that define whether a Business Culture is Strong or Weak?

Answer 39

• Artefacts
• Ceremonials
• Courses
• Heroes of the Business
• Language (used in a business-specific way)
• Mottoes
• Stories
• Myths
• Norms
• Physical Layout (of the premises)
• Rituals

Question 40

What is Artefacts as part of Surface Manifestations?

Answer 40

Such as furniture, clothes or tools- wearing a uniform would be an example.

Question 41

What is Ceremonials as part of Surface Manifestations?

Answer 41

Such as award-giving ceremonies or the singing of the company song at the start of work.

Question 42

What is Courses as part of Surface Manifestations?

Answer 42

Such as induction courses, or ongoing training courses for workers used to instil the organisational culture.

Question 43

What is Language (used in a business-specific way) as a part of Surface Manifestations?

Answer 43

Referring to workers as ‘colleagues’ or calling workers ‘crew members’.

Question 44

What is Mottoes as a part of Surface Manifestations?

Answer 44

Which are short statements that never change, expressing the values of an organisation.

Question 45

What is Stories as part of Surface Manifestations?

Answer 45

Which tell of some important even that exemplifies the values of the business, such as the history and role of the founders.

Question 46

What is Myths as part of Surface Manifestations?

Answer 46

Which are frequently told stories within a business about itself, but are not necessarily literally true.

Question 47

What is Norms as part of Surface Manifestations?

Answer 47

Which are the ways in which most workers behave, such as worrying if you turn up for work late, always being prepared to cover for workers who are off sick, or not using the company’s telephone to make personal calls.

Question 48

What is Physical Layout (of the premises) as part of Surface Manifestations?

Answer 48

Such as open plan offices, ‘hot desking’, or allocating the size of an office according to a manger’s place in the hierarchy.

Question 49

What is Rituals as part of Surface Manifestations?

Answer 49

Which are regular events that reinforce the culture of an organisation, such as always supporting Red Nose Day (we are a caring organisation), having a weekly ‘dress down day’ (we are a relaxed organisation), or holding an annual Christmas party (we are a sociable organisation).

Question 50

What is Heroes of Business as part of Surface Manifestations?

Answer 50

Living or dead, such as Bill Gates, Richard Branson or Walt Disney, whose way of working provides a role model within the business.

Question 51

What are Core Organisation Values that define whether a Business Culture is Strong or Weak?

Answer 51

• Core values are located below the surface manifestations of organisational culture.
• They are consciously thought-out and expressed in words and policies.
• The values expressed in a mission statement would be am example.
• Often these are the values that have come from the top of an organisation.
• They may have come from the original founders of the business, or the current senior management, which has attempted to impose a culture on the business.
• Core organisational values can reflect the actual culture of a business, but, equally, they might not.
• Workers at the bottom of the hierarchy might have very different values from the ones that senior management want them to possess.
• For example, workers who face a very difficult environment where customers often complain might not share the views of the CEO that the customer is always right and at the heart of the business.

Question 52

What are Basic Assumption that defined whether a Business Culture is Strong or Weak?

Answer 52

• Basic assumptions are the unsaid beliefs and ways of working; they form the general attitude of the workforce and represent the totality of individuals’ beliefs and how they then behave. – - They are ‘invisible’ and below the surface, and therefore often difficult to see, understand and change.

Question 53

What are the Classifications of Company Cultures?

Answer 53

There are many ways of classifying organisational culture. One attempt was made by Charles Handy in Understanding Organisations (1993). He argued that there were four main types of organisational culture.

• Power Culture
• Role Culture
• Task Culture
• Person Culture

Question 54

What is Power Culture?

Answer 54

• A power culture is one where there is a central source of power responsible for decision making.
• There are few rules and procedures within the business and these are overridden by the individuals who wold power when it suits them.
• There is a competitive atmosphere amongst employees.
• Among other things, they compete to gain power because this allows them to achieve their own objectives. - This creates a political atmosphere within the business.
• Relatively young, small-to medium-sized businesses, where a single owner founded the firm and is still very much in control, could typically have power cultures.

Question 55

What is Role Culture?

Answer 55

• In a role culture, decisions are made through well-established rules and procedures.
• Power is associated with a role, such as marketing director or supervisor, rather than with individuals.
• In contrast to a power culture, influence and control lies with the roles that individuals play rather than with the individuals themselves.
• An organisation with a role culture will have a tall- or flat- hierarchy with a long chain of command.
• Role cultures could be described as bureaucratic cultures.
• The Civil Service is an example of a role culture.

Question 56

What is Task Culture?

Answer 56

In a task culture, power is given to those who can accomplish tasks.

• Power therefore lies with those with expertise rather than a particular role, as in a role culture. In a task culture, team working is common, with teams made up of the experts needed to get a job done.
• Teams are created and then dissolved as the work changes.
• Adaptability and dynamism are important in this culture

Question 57

What is Person Culture?

Answer 57

• A person culture is one where there are a number of individuals in the business who have expertise, but who don’t necessarily work together particularly closely. - - The purpose of the organisation is to support those individuals.
• The business will be full of people with a similar background, skills set and training.
• Examples of person cultures could be firms of accountants, lawyers, doctors or architects.

Question 58

What factors do Organisation Culture affect?

Answer 58

• Motivation
• Organisational Structures
• New Management
• Mergers and Takeovers

Question 59

How does Organisation Culture affect Motivation?

Answer 59

• Organisational culture affects the motivation of staff. - It can have a direct effect because the way in which treat each other impacts on motivation.
• For example, motivation is likely to be greater if the culture of organisation respects individual workers and their achievements.
• A highly competitive culture might motivate some workers and demotivate others.
• Organisational culture can also indirectly affect motivation.
• An organisational culture which leads to a successful business is likely in itself to motivate staff because they feel part of the successful business.

Question 60

How does Organisation Culture affect Organisational Structure?

Answer 60

• Organisational culture can affect the organisational structure of a business.
• Differences can occur because a number of key workers share the senior management roles an example could be a Doctors’ Practice.
• In contrast there are likely to more layers of management in a large multinational business that might require regional and divisional managers and multiple product teams
• The larger the business, the more layers in the hierarchy there are likely to be as specialist role are assigned

Question 61

How does Organisation Culture affect New Management?

Answer 61

• One way for a business to change for new management to be appointed.
• The greater the change needed, the more likely it is that the new management will have to confront the existing organisational culture.
• The organisational culture is likely to be part of the problem that needs addressing if the business is to be turned around.

Question 62

How does Organisation Culture affect Mergers and Takeovers?

Answer 62

• The process of creating a single business out of the two organisations will involve changing organisational culture
• In a takeover, one simple way of making that change quickly is for the senior management in the company being taken over to be made redundant.
• Without powerful advocates at the top of the organisation, those lower down will find it difficult to resist the change that will be imposed upon them.
• However, motivation and morale is often low in a company that has been taken over for the first year or so because they are being forced to change

Question 63

How can Business Culture be considered a Competitive Advantage?

Answer 63

• In the same way that you might identify a patent on an invention or an established brand as an asset, culture too can be a distinctive and sustainable competitive advantage.
• Unit 45 discussed distinctive capabilities as a route to achieving competitive advantage for a business.
• John Kay (1993) referred to ‘architecture as one of the types of distinctive capability that could lead to competitive advantage.
• Architecture refers to the relationships and networks within an organisation and those that it develops with its external stakeholder’s corporate culture would fall into this category.
• Whenever discussing corporate culture, it is worth considering it in terms of an asset that can be used to add value and compete in the market.
• However, it is also worth remembering that culture is very difficult to manipulate and shape in order to meet the changing needs of the business.

Question 64

How is Corporate Culture formed?

Answer 64

• Many factors contribute to the formation of organisational culture.
• These include the role of the founding members of the organisation, their personalities and beliefs. often a strong leader’s attitudes will permeate the organisation.
• For example, Jan Koum, the CEO of WhatsApp, has refused to let advertisers buy space on the WhatsApp application.
• His belief has influenced the strategy and values of the company.
• Other factors that are likely to have a significant impact on the formation a firm’s culture are the environmental factors that the business was born into.
• For example, the history or heritage of a business may determine certain values and norms because they form part of what employees buy into.
• However, such a factor may not play a part in a new company such as Pinterest, which was set up in 2010.
• Similarly, the success of a company will play a big part in setting the values and expectations of staff.
• Pinterest was the most rapidly growing social network site in 2012 and 2013, and was named one of the most innovative companies, all of which will contribute to the motivation and belief of its workforce.
• The type of product is another factor in creating culture.
• For example, the technological complexity of a product may determine the skill and expertise of the workforce (perhaps contributing to a role culture) and the pace of change or need for innovation.

Question 65

What are the Difficulties in change an Established Culture?

Answer 65

• From time to time it might be desirable for a business to change its culture to one that is stronger and more productive.
• A firm’s culture can provide with a competitive advantage over its rivals. The problem with organisational culture that although it may be easy to describe, identifying the factors that contribute towards that culture and their significance is very difficult.
• Even changing one of these factors may not have significant influence on shifting the culture.
• Furthermore, most organisations have sub-cultures within specific teams or functions.
• Some aspects of organisational culture might also be easier to change than others.
• For example, it might be easy to change the policies, rules and working practices within a firm these are tangible factors.
• However, it is much harder to manipulate people’s attitudes and beliefs.
• Overall, culture can be changed if the right factors are influenced and the leaders within the organisation are strong. but changing culture is not easy and can be a long process
• Many factors contribute to the formation of corporate culture. is important for the directors of a company to understand these factors and the role they play before they can hope to manage cultural change.

Question 66

How is External Stakeholders defined?

Answer 66

Groups outside a business with an interest in its activities.

Question 67

How is Internal Stakeholders defined?

Answer 67

Groups inside a business with an interest in its activities.

Question 68

How is Shareholder Value defined?

Answer 68

A measure of company performance that combines the size of dividends with the share price.

Question 69

How is Stakeholders defined?

Answer 69

Groups or individuals who can affect or be affected by the actions of a business.

Question 70

What are some examples of Internal Stakeholders?

Answer 70

• Business Owners
• Employees
• Managers and Directors

Question 71

Why may a Business Owner be an Internal Stakeholder?

Answer 71

• A business is the property of the owner
• Owners are stakeholders because they stand to gain or lose, financially from the performance of the business
• They will benefit if the value of the business increases
• However if the business fails the owners may lose the money that invested in the business
• Most large plcs some of the senior managers and members of the board are likely to own shares
• One reason for this is because part of their remuneration often consist of shares
• Finally, in some companies employees may own a small number of shares

Question 72

Why may a Employees be an Internal Stakeholders?

Answer 72

• Employees depend on businesses for their livelihood
• Most employees have no other sources of income and rely on wage to live on
• Some employees are represented at work by trade inions
• If this is the case, then trade unions also become stakeholders,
• The needs of employees are often in conflict with those of other stakeholders, such as owners and managers

Question 73

Why may Managers and Directors be an Internal Stakeholders?

Answer 73

• In small businesses managerial tasks, such as organising, decision making, planning and control are undertaken by the entrepreneur themselves
• However, in large businesses the key decisions relating to company policy and strategy are made by the board of directors
• It is then the responsibility of managers to ensure that the policies and strategies are implemented
• Large businesses employ specialists in managerial position
• Managers have to show leadership, solve problems make decisions etc.
• Managers are likely to help plan the direction of the business with owners
• they also have to control resources such as finance equipment, time and people
• Manager are also accountable, this means they are responsible for their actions and the actions of their subordinates
• Managers are accountable to senior manager in the managerial hierarchy.
• The board of directors is accountable to the shareholders

Question 74

What are some Examples of External Stakeholders?

Answer 74

• Shareholders
• Customers
• Creditors
• Suppliers
• The Local Community
• The Government
• The Environment

Question 75

Why are Shareholders a External Stakeholder?

Answer 75

• Most Shareholders in large companies are not involved in the day-to-day running of the business
• They are investors and have a purely financial interest
• External shareholders, who might be individual, or more likely , financial institutions, invest their money to get a financial return
• Shareholders are also entitle to a vote at the AGM of a PLC
• They can vote to re-elect or dismiss the current board of directors
• However, many external shareholders do not take up these entitlement, If they are not happy with the way the company is being rub, or the return they get is inadequate, external shareholder can sell their shares and invest their money elsewhere

Question 76

Why are Customers a External Stakeholder?

Answer 76

• Customers buy the goods and services that businesses sell
• Through their purchases they provide the revenue and profit that businesses need to survive
• However, customers need businesses because they provide the goods and services they require and want
• Most customers are consumers (individuals and families) who use or ‘consume products
• However, some may be other businesses
• For example, JCB manufactures a range of construction machinery that it sells to other businesses

Question 77

Why are Creditors a External Stakeholder?

Answer 77

• Creditors lend money to a business
• They may be banks, but could also be individuals, such as family members, or private investors, such as venture capitalists
• Clearly, these stakeholders have a financial interest in a business and will be keen for it to do well
• Creditors will expect their interest payments to be met and their money returned at the end of the loan period
• They will also want clear communication links with the business

Question 78

Why are Suppliers a External Stakeholder?

Answer 78

• Businesses that provide raw materials, components, commercial services and utilities to other businesses are called suppliers
• Relations between businesses and their suppliers need to be good because they rely on each other
• Businesses want good-quality resources at reasonable prices.
• They also want prompt delivery, trade credit (buy now pay later) and flexibility.
• In return suppliers require prompt payment and regular orders
• As with customers and businesses, there is a mutual dependence between suppliers and businesses

Question 79

What are the Positive reasons The Local Community is an External Stakeholder?

Answer 79

• A business may employee people locally and if the business foes well the community may prosper.
• there may be more jobs, more overtime and possibly higher pay
• This will have a knock-on effect in the community e.g. shops, restaurants and cinemas may benefit form extra spending

Question 80

What are the Negative reasons The Local Community is an External Stakeholder?

Answer 80

• A business may be criticised by the local community
• For example, if a factory is noisy, polluting or works at nigh t there may be complaints form local residents
• If a business that employed a lot of local people closes down, the impact on the community can be devastating
• In the 1980s when many coal mines were closed in the UK, the mining communities suffered badly due to very high unemployment

Question 81

Why are the Government an External Stakeholder?

Answer 81

• The government has an interest in all businesses
• Generally the government will want businesses to be successful
• They provide employment ,generate wealth and pay taxes
• Taxes form businesses and their employees are used to fund government expenditure
• It helps to pay for benefits, the NHS, schools and other services
• If businesses fail, the government loses tax revenue and has to by benefits to the unemployed
• However, the government will also require businesses to comply with the law
• A significant amount of legislation exists to protect those who might be exploited by businesses if they were too powerful

Question 82

Why is The Environment an External Stakeholder?

Answer 82

• Business activity can have an impact on the environment
• For example, if a business releases toxic waste into the waterway system, wildlife and its habitats could be destroyed
• Thus, representatives of the environment have an interest in business activity
• These representative may be individuals or environmental groups, such has Friends of Earth and Greenpeace
• An increasing number of people are concerned about environmental issues; consequently environmental groups are becoming more influential in business decision making

Question 83

What are the Objectives of Shareholders interested in a Business?

Answer 83

• The majority of shareholders ill want the business to maximise shareholder value
• This is a measure of a company performance that takes into account the size of dividends (share in profits) and the share price
• Over time shareholders want this to grow
• if the growth in shareholder value is not to the satisfaction of external investors they may sell their shares
• This could result in a fall in the share price which might make the company vulnerable to a takeover

Question 84

What are the Objectives of Employees interested in a Business?

Answer 84

• Employees want the business that they work for to prosper.
• If a business is growing and profitable, employees are likely to get higher wages, more perks and perhaps a bonus
• They will also feel more secure in their jobs
• It could be argued that, according to Herzberg, employees expect good pay and comfortable working conditions
• However, they will also want responsibility, interactions with colleagues, to be valued, personal development, fair and honest treatment, and opportunities for promotion
• Safety at work is also important as are issues to do with equal opportunities
• Generally, employees will want to maximise there financial rewards and welfare

Question 85

What are the Objectives of Managers interested in a Business?

Answer 85

• Managers and Directors are likely to have similar needs to those of employees
• Many managers (and employees) have part of their remunerations linked to the performance of the business and will therefore want the business to perform well
• Mangers may also press for other benefits, for instance bonus payments if they perform well, expense allowance when travelling on company business, and benefits such as a company, free health insurance and more flexibility
• Some senior executives may see power as an objective; they like ‘empire building’ As a result , the shareholder may lose the ability to influence key decisions in the organisation

Question 86

What are the Objectives of Customers interested in Business?

Answer 86

• Customers want good-quality products at a fair price
• They also want clear and accurate information about products and high-quality customer service
• they may also want choice, innovative products and flexibility
• For some products, such as machinery, electrical goods and children’s products, safety is an important issue
• If these needs are not met, customer will spend their money elsewhere
• Customers have a powerful influence on businesses
• They are also more aware today about the range of products available and about their rights as consumers
• In competitive markets only those businesses that meet customers needs are likely to survive

Question 87

What are the Objectives of Suppliers interested in Business?

Answer 87

• Suppliers want to be treated fairly by businesses
• They will also want a fair price for their goods and service and to be paid in reasonable time
• In 2013/14 it will suggested in the media that some businesses might ‘bully’ suppliers
• For example, some stores might put pressure on suppliers and demand price cuts because of the fall in commodity prices
• They might threaten to withdraw products if suppliers refuse to comply
• IN cases such as these, an investigation might take place by the Groceries Code Adjudicator, for example

Question 88

What are the Objectives of the Government interested in Business?

Answer 88

• The government will want businesses to grow and make more profit
• They will also want them to comply with legislation and not exploit vulnerable groups

Question 89

What are the Environmental Objectives with those interested in Business?

Answer 89

• Environmental groups will want businesses to avoid having any negative impact on the environment
• For example, they will demand that business activity does not damage wildlife and its habitats, pollute the atmosphere or waste resources

Question 90

What are the Objectives of the Local Community with those interested in Business?

Answer 90

• Local communities will want businesses to contribute to the prosperity of the community and be good corporate citizens
• Communities would probably want businesses to create employment and, depending on their size, nature of business and capabilities, build links with schools and charities, maintain open communications, and avoid or minimise congestion and pollution in the area

Question 91

How can Corporations take into account the Objective of Stakeholders when making Business Decisions?

Answer 91

• Recognise the interests of other stakeholders and take their views into account when running the business and making decisions
• Maintain open communication channels with other stakeholders and consult with other stakeholders and consult with then before making radical changes
• Recognise the interdependence that exists between different stakeholders, ensuring that the benefits of enterprise are distributed fairly after taking into account the level of effort and risk each group contributes
• Minimise or eliminate the adverse effects of business activity, Id such effect cannot be avoided then those affected should be adequately compensated

Question 92

Why may Business take into account the Objective of Stakeholders when making Business Decisions?

Answer 92

• Some Businesses might claim to have adopted this stakeholder approach
• Part of the reason for this is that corporations are coming under increasing pressure form stakeholders, the media and the wider public to be more socially responsible
• It might be argued that some businesses like to give the impression that they consider the needs of wider range of stakeholders but in reality they are still more focused on shareholders needs
• For example, a business might claim to adopt an ethical stance purely to increase sales, revenue and profit

Question 93

Why may business focus more on the Shareholders Objectives than Other Stakeholders when making Business Decisions?

Answer 93

• Traditionally, many corporations have focused on growth or profit when making important business decisions
• The objective of shareholders have had more influence on decision making than those of their stakeholders
• This approach was based on the ideas that directors and mangers are employed by shareholders and should therefore serve their interests
• this meant that they should make as much money as possible for the owners of the business provided they comply with the law
• Some businesses still adopt this approach and their main objective is to maximise shareholders returns by raising both dividends paid to shareholders and the share price

Question 94

What are the potential conflicts that could happen between Shareholders and Employees?

Answer 94

• offering higher wages, better conditions, more perks and bonuses training and improving welfare comes at a cost
• If the needs of employees are met in full there is likely to be negative impact on profit and dividends
• Conflict will arise if shareholders insist tat the rewards to employees should not come at the expense of dividends
• Employees may try to put pressure on the business to ensure their objectives are met by threatening industrial action
• However, i f this action is too disruptive it may jeopardise the survival of the businesses
• Employees have to be careful not to push their claims too far

Question 95

What are the potential conflicts that could happen between Shareholders and Customers?

Answer 95

• Most likely to arise if a business charges prices that are too high
• Higher prices will help boost shareholders return but reduce the purchasing powers of customers e.g. in 2014 Gas prices rose even though the cost of gas paid by suppliers fell
• Customers might also come into conflict with businesses if levels of customer service are poor or if businesses fail to invest in R&D and bring out new products
• however, if businesses can cut back on R&D expenditure they can pay shareholders higher dividends

Question 96

What are the potential conflicts that could happen between Shareholders and Directors and Managers?

Answer 96

• Senior Managers and Directors are employed to further the interests of shareholders
• however, conflict may arise if they start to prioritise their own objectives, such as maximising remuneration, expenses, perks and other beneits
• If these are too high, profit and dividends may suffer
• This is most likely to happen if shareholders lose some of their control over the business –> there may be a ‘divorce of ownership and control’
• This can happen if shares are held by a very large number of different shareholders where no single shareholder has any significant control
• A common conflict between shareholders and directors is the balance between paying dividends and retaining profits for investments

Question 97

What are the potential conflicts that could happen between Shareholders and the Environment?

Answer 97

• in an effort to maximise profit, a business might neglect its responsibilities towards the Environment e.g. in 2011 some UK Water companies were draining rivers that were at risk of completely drying up which led to the death of some wildlife and a build up of chemicals
• The report suggested that companies were extracting water from theses sources as they were the cheapest
• Activities such as these may attract the attention of the media and environmental groups, resulting in conflicts between the company and environmentalists

Question 98

What are the potential conflicts that could happen between Shareholders and the Government?

Answer 98

• Conflicts between shareholders, and the government is likely if businesses break the law
• However, the judicial system should resolve such conflicts
• in 2013/14 there was evidence that some big corporations were avoiding the payment of tax in the UK e.g. Amazon only paid £4.2 mil of tax on a revenue of £4.3 bn
• If corporations can reduce the amount of tax they pay then the shareholders will enjoy bigger profits
• However, if businesses are able to avoid paying taxes the government if likely to be criticised
• In the future, governments might have to pursue such businesses for the payment of taxes or risk losing their political support

Question 99

How is Corporate Social Responsibility (CSR) defined ?

Answer 99

a business assessing and taking responsibility for its effects on the environment and its impact on social welfare. It involves the idea that businesses bear a responsibility that stretches beyond their shareholders

Question 100

How is Ethical Codes of Practice defined?

Answer 100

statements about how employees in a business should behave in particular circumstances where ethical issues arise

Question 101

How is Ethics defined?

Answer 101

in the context of business ethics, considerations of the moral ‘rights and wrongs’ of a decision at an often strategic level, in accordance with the law, and a businesses’s code of conduct in relationship to Corporate Social Responsibility

Question 102

How is Living Wage defined?

Answer 102

an hourly rate of pay based on the basic cost of living, set independently of government and updated annually

Question 103

How is National Minimum Wage defined?

Answer 103

the minimum pay per hour all workers are entitled to by law

Question 104

How is Remuneration defined?

Answer 104

the reward for work in the form of pay, salary or wages, including allowances and benefits, such as company cars, health insurance, pension, bonuses and non-cash incentives

Question 105

How is Sanctions or Trade Embargoes defined?

Answer 105

Sanctions are Restrictions imposed on trade or investment with the aim of influencing a policy change in another country
- Trade embargoes can be included on sanctions, where commercial shipments are banned in and out of a particular country, or where an embargo is placed on a particular product

Question 106

What are Ethics?

Answer 106

• Ethics in the context of business ethics considers the moral rights and wrongs of a decision, focusing more on a strategic level rather than decision made by, as an example, individual employees.
• All businesses have to make ethical decisions. Some of these will be governed by the law, but many decisions have to be made without the help of the law – should a worker be allowed a paid day off to look after their sick child?
• Every business should have a stated code of conduct within which employees operate in respect of ethical business decisions, although employees at different levels might have different opinions, for example:
• Some employees may argue about whether it is okay to manufacture violent video games or toy guns.
• Some employees may have religious concerns about selling meats or alcohol in restaurants.

Question 107

What are some Ethics of Strategic Decisions?

Answer 107

- Ethics of strategic decisions
Strategic decisions are those that impact how a business operates in the long term. All businesses have to make some sort of ethical decision as part of their corporate strategy and these are usually the responsibility of management.
- Over the past 20 years, a number of issues have arisen for large corporations that require strategic decisions based on ethics:
- The Environment
-  Animal Rights
- Workers in Developing Countries
- Corruption
- New Technology
- Product Availability
- Trading Issues

Question 108

How does the Environment influence a strategic decisions based on Ethics?

Answer 108

• in countries like the UK or the USA, the law limits the amount of pollution or damage a business can do. However, businesses must decide whether to adopt an even more stringent measure to protect the environment. Should they still recycle if it lowers profits?
• Multinational businesses often face lower environmental standards in developing countries. Should they lower their own environmental standards in such locations to take advantage of this?

Question 109

How does Animal Rights influence strategic decisions based on Ethics?

Answer 109

some companies, like pharmaceutical companies or make up manufacturers might use animals to test products. Some people see this as impractical. Other businesses may play a part in ruining environments. Wildlife conservation groups argue against farming activities that destroy forests or other habitats.

Question 110

How does Workers in Developing countries influence decisions based on Ethics?

Answer 110

a number of companies have been criticised for exploiting workers in developing countries. Companies manufacture in countries with emerging economies because production costs are much cheaper. However, there is an ethical question about the extent to which low costs should be at the expense of workers.

Question 111

How does Corruption influence decisions based on Ethics?

Answer 111

in some industries bribes might be used to persuade customers to sign contracts. It has been suggested that this takes place in certain emerging economies. The ethical question is whether it is right to use bribes or even if a business knows that competitors do this.

Question 112

How does New technology influence decisions based on Ethics?

Answer 112

most new products, such as mobile phones or a new chocolate bar, do not cause ethical issues, but some technological advancements do seem to cause controversy. Examples of this are nuclear power generation and GM crops.

Question 113

How does Product availability influence decisions based on Ethics?

Answer 113

if a person cannot afford an expensive car or some other luxury goods, most would not see this as an ethical issue. But if someone is HIV positive in South Africa and they cannot afford drugs for treatment because of the price, many would argue it is an ethical issue. The direction of research is also important. Companies may choose to investigate something that only affects a few people in the industrialised world, or they may choose to look into malaria, that kills millions of people each year.

Question 114

How does Trading Issues influence decisions based on Ethics?

Answer 114

some countries have been condemned internationally for the policies their governments have. They may have sanctions or embargoes and companies will have to decide whether to invest.

Question 115

What is Code of Practice?

Answer 115

Ethical codes of practice may develop from ethical objectives of businesses. For example, a large business may have its states objectives as:

• It will not test products on animals
• It will deal with suppliers fairly
• It will not accept bribes from customers

Explicit objectives will have been carefully thought out. Partly this is because the business could get bad publicity if it went against statements. A business may also have implicit rules about how they deal with customers – they are not written down but they become part of corporate cultures.

Question 116

What is Corporate Social Responsibility?

Answer 116

Some large businesses have responded to concerns about CSR, their responsibility not just to their shareholders, but to all stakeholders, by auditing relevant activities.

• These audits may then be made available to the public in a Corporate Responsibility Report.
• Auditing involves inspecting evidence against established standards. Social and environmental audits are voluntary and there are no rules as to how they should be done.
• Many businesses choose not to look into this at all.

Question 117

What can be included in an environmental audit?

Answer 117

• Employment indicators
• Human rights indicators
• The communities in which the business operates
• Business integrity and ethucs
• Product Responsibility
• The environment

Question 118

What are some employment indicators in an environmental audit?

Answer 118

how well does the business treat its staff? This might include looking at pensions, healthcare, training, accidents, payment, equality.

Question 119

What are some Human Right indicators in an environmental audit?

Answer 119

how well does the company perform on human rights issues? Does it encourage workers to join trade unions, does it have work councils, does it use child labour, does it discriminate?

Question 120

What are some areas looked at in the local community during a environmental audit?

Answer 120

what impact does the business have on the life of the communities in which it operates? How much does it give to charity, how much is spent locally?

Question 121

What are some areas considered in Business Integrity and Ethics during a environmental audit?

Answer 121

how ethical is the business? Have they traded against legislation, do they make political contributions, have they been involved with unfair competition?

Question 122

What are some areas considered in Product Responsibility during an environmental audit?

Answer 122

what was the social impact of the products sold? Were there safety issues, was the after-sales service adequate, was advertising accurate?

Question 123

What are some areas considered in the environmental during and environmental audit?

Answer 123

these factors can form a separate audit. Indicators may include:

• the amount of energy or raw materials,
• how much waste was produced,
• levels of gas and pollution,
• the damage it caused.
• Some of these measures are financial, but some are not.
• Due to the fact that sociaql and environmental audits are qualitative, it can be harder to compare performances over the years

Question 124

Why do businesses offer pay and rewards?

Answer 124

• To attract employees with the right skills, experience and knowledge. Where jobs are less skilled the available number of workers is high, meaning pay can be low. Where skills are high, pay needs to be high.
• To reward and motivate staff. The ultimate aim of businesses is to make profit. Rather than pay the lowest rates of pay ensure that staff are motivated to work to the best of their ability.
• Maximise productivity levels. Pay is an important motivator are highly motivated staff are more productive.

Question 125

What are some Trade-offs between Profit and Ethics?

Answer 125

• It can raise costs – for example, paying higher wages to workers overseas may increase costs.
  Finding ways to test products that doesn’t include animals may be more expensive. Adopting an ethical code of conduct can be expensive, as all staff have to be aware of it. It takes management time to prepare.
• It can reduce revenues – a business might lose a contract if it refuses to give a bribe. Selling medicines at lower prices to emerging economies may increase sales but reduce profits.
  Acting ethically can result in the destruction of a company; for example, if a cigarette manufacturer took full account of the costs it causes to customers it would probably cease trading.

Question 126

How can adopting an ethical stance produce benefit for a business?

Answer 126

• Some companies have used their ethical stance for marketing purposes, but having an ethical stance is no guarantee of sales.
• For most companies that have taken Corporate Social Responsibility seriously, informed by ethics, it can also act as the equivalent of an insurance policy. In 2002, Enron, a US energy trading company collapsed after it was found to have manipulated accounts to look more profitable.

Question 127

What are the ‘good’ factors a business may weigh up during the decision-making process?

Answer 127

• business have responsibilities to a wide range of shareholders not just shareholders, while profit may satisfy shareholders, employees may be less happy if they are paid low wages
• A business that treats its workers well be it with pay or opportunities in the workplace is more likely to retain its employees. This is important when recruitment is costly
• Being good actually increases the chance of being profitable. an ethical stance can bring reputation benefits

Question 128

What are the profitable factors a business may weigh up during the decision-making process?

Answer 128

• UNprofitable business do not survive - ethical stance is a luxury that can be indulged when the business is established and successful
• A trade-off can exist between being ethical and profitable e.g. paying the living wage will increase costs of business that would otherwise have paid them the minimum wage
• Profitable businesses are more able to invest and innovate products that improve society e.g. new medicines. these development and advancements wouldnt happen without profits

Question 129

What is Business Ethics ?

Give 3 examples ?

Answer 129

the moral principles that underpin business decision making

Dealing fairly and honestly with customers and suppliers
Protecting the natural environment
Dealing effectively with bullying/harassments/discriminations in the workplace
Anti competitive actions
not testing on animals
whistleblowing on unethical actions by members of staff

Question 130

Give an example to illustrate a trade off between ethics and profit

Answer 130

Spending money on workers conditions without expecting any financial return

Paying a little more onw ages or making a little less on a business transaction

Question 131

What is CSR and give 3 advantage’s of it for a business

Answer 131

Corporate Social responsibility = the desire to run a business in a morally correct way attempting to balance the needs of all stakeholder groups

ADVS
Marketing advantages - consumers may pay a premium for buying a product from a business that has behaved in a socially responsible way
CSR can be a point of differentiation for some businesses
Positive effects on the workforce - staff motivation high working for a socially responsible business and may help with recruitment

Question 132

What are the key influences on decision making within organizations ?

Answer 132

Timescales - short versus long term

Whether decisions are evidence based or intuitive or subjective

Question 133

What’s the difference between strategic and routine decision making ?

Answer 133

Strategic - tends to involve more subjectivity

Routine - better suited to evidence based

NOTE - PLC’s are more likely to consider the short term effects of decisions while long term thinking is more likely to be found in private limited companies

Question 134

What are the key influences on corporate culture ?

Answer 134

Ownership Type
The founders personal philosophy
Recruitment procedures

NOT - Corporate culture is hard to change