3.4 - influences on business decisions

Question 1

What are corporate timescales?

Answer 1

Corporate timescales refer to when a busienss expects to gain returns on investments, as well as how far into the future they set strategies for.

The corporate timescales used by a business affect the relative importance that managers place on short term and long term strategic decisions.

Question 2

What are the 2 approaches a business can have in relation to timescales?

Answer 2

A business can either take a ‘short-termism’ or a ‘long-termism’ approach.

Question 3

What is a short-termism approach?

Answer 3

Short-termism is where firms make decisions to increase financial performance over short time periods, often at the expense of long-term performance.

Short-termism is often used to keep shareholders happy since many shareholders only look at the short term performance of the business.

Short-termism may also be used by new businesses since they are unlikely to focus on long term goals.

Question 4

What is a long-termism approach?

Answer 4

Long-termism is where businesses concentrate on reaching long term goals rather than prioritisng short term financial gains.

Long-termism allows a firm to concentrate on the overall performance of the business rather than the short term financial state.

Question 5

What are the different approaches firms can use to making decisions?

Answer 5

Firms can make tactical (short term) and strategic (long term) decisions.

Decisions can be made using an evidence based approach or a subjective approach.

Question 6

What is an evidence based approach?

Answer 6

An evidence based approach is a structured approach to decision making - its where managers use data that has been gathered and analysed to help them make their decisions.

Quantative sales forecasts, investment appraisals, decisions trees, critical path analysis are examples of techniques a firm might use as part of an evidence based approach to decision making.

Question 7

What are the advantages of evidence based approach?

Answer 7

• It is based on facts that can be verified making it easier to justify a deicision to others
• It uses validated decision making tools such as critical path analysis
• the decision is well structured and there is a record of how the decision was reached

Question 8

What are the disadvantages of evidence based approach?

Answer 8

• It can take a long time to reach a decision
• Different interpretations are possible from the evidence, so the best decision may not be clear

Question 9

What is a subjective approach to decision making?

Answer 9

A subjective approach to decision making is much less structured, its where decisions are based on the opinions, experience and instinct of the main individuals within the firm.

Question 10

What are the advantages of subjective decision making?

Answer 10

• decisions can be made quickly
• it can be used where there’s a lack of data to base the decision on or when an opinion is needed

Question 11

What are the disadvantages of subjective decision making?

Answer 11

• people’s instincts may be wrong or biased, leading to poor decisions being made
• it can be difficult to justify the decision
• it can lead to managers making snap decisions, without fully considering the long term consequences of the decision

Question 12

What are some examples of different situations where a business will have different approaches to decision making?

Answer 12

• a start up business may be more likely to use subjective decision making since the owners have a lack of experience
• a firm might use evidence based approach when making a big decision that are expensive and hard to reverse

Question 13

What is corporate culture?

Answer 13

Corporate culture is the way that people do things in a firm, and the way that they expect things to be done.

It reflects the firms values and is an important way to shape the expectations and attitudes of staff and managers.

Question 14

What can corporate culture affect?

Answer 14

Corporate culture affects staff behaviour and how they make decisions, so it also has an effect on planning, objective setting and strategy, motivation and productivity.

Question 15

What are the 2 things that corporate culture be?

Answer 15

Corporate culture can be strong or weak.

• corporate culture is strong when employees agree with the corporate values of the business
• weak corporate culture is where the employees of a firm don’t share the firms values, and have to be forced to comply with them

Question 16

Why is having a strong corporate culture important?

Answer 16

Having a strong corporate culture has the advantage that employees need less supervision, because their behaviour will naturally tend to fit in with the business’s values.

Staff also tend to be more loyal to the business, so staff turnover is lower, and it increases employees motivation, so they can work more productively.

Question 17

What are the main 4 types of corporate culture?

Answer 17

• power culture
• role culture
• person culture
• task culture

Question 18

What is power culture?

Answer 18

Power cultures have a centralised structure where decision making authority is limited to a small number of people.

Power cultures may begin to struggle if the business grows and cannot be run from the centre.

Employees are likely to be more resistant to change because they don’t have the opportunity to give their opinions on what changes should and shouldn’t be made.

Question 19

What is role culture?

Answer 19

Role cultures are common in firms where authority is defined by job title.

Decisions come from senior managers, so employees don’t have the opportunity to get involved in the decision making process.

Organisations with role cultures tend to have poor communication between departments and they respond slowly to change.

Question 20

What is person culture?

Answer 20

Person culture is common in loose organisations of individual workers, usually professional partnerships such as solicitors, accountants, doctors.

The objectives of these firms will be defined by the personal ambitions of the individuals involved.

Decisions are made jointly, so all employees are likely to be comfortable and accepting of any changes that are made because they have agreed to them.

Question 21

What is task culture?

Answer 21

Organisations with a task culture place an emphasis on getting specific tasks done.

Task culture gets small teams together to work on a project, then disbands them.

There may be conflict between teams for resources and budgets.

Question 22

What factors affect how a corporate culture is formed?

Answer 22

• a businesses founders
• the history of the business
• the nature of the business and its products
• the business environment
• the recruitment and promotion of staff
• working conditions and rewards
• attitude to customer service

Question 23

What are the 2 main reasons why the managers of a business might want to change the corporate culture?

Answer 23

• the corporate culture of a business depends on the preferences of its leaders, so when a new manager joins the business they may change the corporate culture
• a business might change its culture in order to be more competitive

Question 24

Why can changing the corporate culture be difficult?

Answer 24

• employees usually resist any kind of change
• changing corporate culture means changing the attitudes and behaviour of staff which is complicated
• it can be difficult to make changes if the business already has a strong culture
• changing the culture can be expensive

Question 25

What is a stakeholder?

Answer 25

A stakeholder is everyone who is affected by a business.

Each group of stakeholders has their own objectives, things they want to achieve.

Businesses consider stakeholder objectives when making decisions and setting business objectives

Question 26

What are the 2 types of stakeholders?

Answer 26

• internal stakeholders
• external stakeholders

Question 27

What are internal stakeholders?

Answer 27

Internal stakeholders are the people inside a business.

The owners are the most important stakeholders.

Employees are also internal stakeholders.

Question 28

What are external stakeholders?

Answer 28

External stakeholders are the people outside of a business who are affected by it.

This includes customers, supplies, and members of the local community

Question 29

Why are relationships with stakeholders important?

Answer 29

Firms need to manage their relationships with stakeholders. If they focus on satisfying one stakeholder at the expense of another, it could result in problems which will damage the firm.

Managing these relationships can prevents this from happening

Question 30

What is stakeholder mapping?

Answer 30

Stakeholder mapping helps identify how much interest in and power over the business different stakeholders have.

Stakeholder mapping connsiders power and interest.

Managers consider which staekholders are most important to them when setting objectives.

Question 31

What are ethics?

Answer 31

Ethics are principles that govern which behaviours are morally acceptable to society, individuals, or groups.

Question 32

What are some ethical issues a business may have to think about?

Answer 32

• Location
• Suppliers
• Bribery and corruption
• Selling tactics

Question 33

What is a potential trade off with ethics?

Answer 33

There can be a trade off between ethics and profit, since acting ethically usually means a business isn’t as profitable as it could be.

This is often because being ethical increases a firm’s cost.

Question 34

What is a corporate social responsibility policy (CSR)?

Answer 34

CSR is more than just acting ethically, it is the idea that a business should go above and beyond what is reuqired by law to help society as a whole

Question 35

What are some examples of CSR initiatives?

Answer 35

• Barclays have a partnership with a charity aiming to recruit and train high quality teachers to teach in low income areas
• Marks and spencer work to ensure their suppliers’ employees have good working conditions
• McDonalds planet champion programme trains employees to find ways of reducing the environmental impact of the economy

Question 36

What are the advantages of a business implementing CSR?

Answer 36

• Businesses implementing CSR can gain a competitive advantage
• It improves brand loyalty and attracts new customers through positive publicity
• Staff morale will improve and they will be more motivated to work for the firm

Question 37

What are the disadvantages of CSR?

Answer 37

• CSR has costs, which shareholders may view as a misuse of funds
• The costs may be passed on to customers, since they may have to pay more
• The expectiation of CSR puts small businesses at a disadvantage, since they are less likely to have funds for CSR projects