3.4 Influences of Business Decisions Flashcards
How is Asset Stripping defined?
The practice of buying businesses and breaking them up. The profitable parts are sold for cash and the rest are closed down.
How is Evidence-based Decision Making defined?
An approach to decision making that involves gathering information and using a systematic and rational approach to reach a conclusion.
How is Long Term defined?
The time period where decisions have an impact on the vision, mission and objectives of a business. Typically longer than five years.
How is Short Term defined?
The time period where decisions only have an impact on the operational activities of a business – typically less than five years.
How is Strategic Decisions defined?
Decisions concerning policy that can have a long-term impact on a business. Can be risky.
How is Subjective Decision Making defined?
An approach to decision making where the personal opinions of the key decision maker strongly influence the course of the action chosen.
What are some influences of business decisions?
- Corporate Influences
- Corporate Culture
- Stakeholder Perspective
- Business Ethics
How does Corporate Influences affect Business Decisions?
- 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
How does Corporate Culture influence Business Decisions?
- 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
How does Business Ethics influence Business Decisions?
- Some businesses will focus on corporate social responsibility
- Others will have less consideration for factors such as environmental or local issues
How does Stakeholder Perspective influence Business Decisions?
- 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
What courses of action are Short-Termist Businesses likely to take?
- 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
Why would a Short-Termist Business want to Maximise Short-Term Profits?
- 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.
Why would a Short-Termist Business want to Invest Less Money in Research and Development (R&D)?
- 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
Why would a Short-Termist Business want to Invest Less in Training?
- 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
Why would a Short-Termist Business want to Return Cash to Shareholders?
- A business with a large cash reserves may pay special dividends to shareholders instead of investing for the long-term
Why would a Short-Termist Business want to Engage in Asset Stripping?
- 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
Why would a Short-Termist Business want to Arrange more Short-Term Contracts?
- 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
Why would a Short-Termist Business want to Pursue External growth rather than Organic Growth?
- 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
What are the Drawbacks of Short-Termism?
- 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
How is Long-Termism different from Short-Termism?
- 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
What are the Two Types of Decision Making?
- 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
What is the process of Evidence-based Decision Making?
-Setting/Identifying Objectives
- Gathering Ideas and Data
- Analysing Ideas and Data
- Making a Decision
- Implementing the Decision
- Monitoring and Evaluation
What is the Identifying objective stage in Evidence-Based Decision Making?
- 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
What is the Collecting Information and Ideas stage in Evidence-based Decisions?
- 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
What is the Analysing Information and Ideas stage of Evidence- Based Decision Making?
- 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
What is the Making a Decision stage of Evidence-Based Decision Making?
- 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
What is the Communication stage of Evidence-Based Decision Making?
- 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
What is the Outcome stage of Evidence-Based Decision Making?
- 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
What is the Evaluate the Results of Evidence-Based Decision Making?
- 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
What is Subjective Decision Making?
- 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
Why may Subjective Decision Making be appropriate?
- 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
How is Cultural Dimension defined?
A set of characteristics that form the international context of business culture.
How is Organisational, Organisation, Corporate or Business Culture defined?
The values, attitudes, beliefs, meanings and norms that are shared by people and groups within an organisation.
How is Strong Culture defined?
A culture where the values, beliefs and ways of working are deeply embedded within the business and its employees.
What are the advantages of a Strong Corporate Culture?
- 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.
What is Weak Culture?
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
What Factors define whether a Business Culture is Strong or Weak?
- Surface Manifestations
- Core Organisation values
- Basic Assumptions
What are the Surface Manifestations that define whether a Business Culture is Strong or Weak?
- Artefacts
- Ceremonials
- Courses
- Heroes of the Business
- Language (used in a business-specific way)
- Mottoes
- Stories
- Myths
- Norms
- Physical Layout (of the premises)
- Rituals
What is Artefacts as part of Surface Manifestations?
Such as furniture, clothes or tools- wearing a uniform would be an example.
What is Ceremonials as part of Surface Manifestations?
Such as award-giving ceremonies or the singing of the company song at the start of work.
What is Courses as part of Surface Manifestations?
Such as induction courses, or ongoing training courses for workers used to instil the organisational culture.
What is Language (used in a business-specific way) as a part of Surface Manifestations?
Referring to workers as ‘colleagues’ or calling workers ‘crew members’.
What is Mottoes as a part of Surface Manifestations?
Which are short statements that never change, expressing the values of an organisation.
What is Stories as part of Surface Manifestations?
Which tell of some important even that exemplifies the values of the business, such as the history and role of the founders.
What is Myths as part of Surface Manifestations?
Which are frequently told stories within a business about itself, but are not necessarily literally true.
What is Norms as part of Surface Manifestations?
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.
What is Physical Layout (of the premises) as part of Surface Manifestations?
Such as open plan offices, ‘hot desking’, or allocating the size of an office according to a manger’s place in the hierarchy.
What is Rituals as part of Surface Manifestations?
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).
What is Heroes of Business as part of Surface Manifestations?
Living or dead, such as Bill Gates, Richard Branson or Walt Disney, whose way of working provides a role model within the business.
What are Core Organisation Values that define whether a Business Culture is Strong or Weak?
- 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.
