3.4 Influences On Business Decisions Flashcards
What is short termism?
Business prioritises short term rather than long term performance
What is long termism?
Business prioritises long term rather than short term performance
What are the short termism measures?
- share price
- revenue growth
- gross and operating profit
- unit costs and productivity
- return on capital employed
What are the long termism measures?
- market share
- quality
- innovation
- brand reputation
- employee skills and experience
- social responsibility and sustainability
Why might businesses be concerned with short term performance?
- stock market (investor) focus on latest financial performance
- reliance on bonuses based on short term performance
- frequent changes in leadership and strategy (e.g through takeover)
What are the possible indicators of short termism?
- bonuses based on short term objectives
- low investment into R&D
- high dividend payments rather then reinvesting profits
- overuse of takeovers rather than internal growth
What are the subjective based approaches to decision making?
- Based on intuition
- quick
- hard to justify for decisions involving significant risk
What are the evidence based approaches to decision making?
- based on data and analysis
- time consuming and costly no guarantee of correct decision
- increasingly common and automated supported by big data and data analysis
What is evidence based decision making?
Decisions based on analysis and evaluation of evidence and adopting a systematic approach rather than intuition
What is big data?
Process of collecting and analysing large data sets from the traditional and digital sources to identify trends and patterns that can be used in decision making
What are the key business applications of big data?
- generating market insights
- security of business systems is improved
- more efficient management of capacity
- better decision making
Reasons for exponential growth for big data?
- logistics → transportation systems etc
- retail e-commerce data bases
- user interaction with websites and mobile apps
- social media apps
What is data mining?
Process of analysing data from different perspectives and summarising it into useful information
Benefits of effective data mining?
- identify previously unseen relationships between data sets
- better predict future trends and behaviours
- extract value from big data sets
- generate business actions built on data insights
How does data mining improve competitiveness?
- sales forecasting
- database marketing
- market segmentation
- e commerce basket analysis
What is company culture?
The norms and values of a business
Charles handy describes it as the way we do things around here
What factors affect culture?
- influence of the leader
- size and development stage of the business
- leadership and management style
- organisational structure, policies and practices
- external environment
- working environment
- attitude of organisation to risk taking and innovation
- employee reward structures
Features of weak culture?
- little alignment with business values
- inconsistent behaviour
- a need for existence bureaucracy and procedures
- demotivated workforce
- poorly managed
Features of strong culture?
- source of competitive advantage
- clear set of values mission and goals
- performance orientated
- encourages suitable risk taking
- strong internal communication
- engaged employees
- better connection between depts and divisions
What are handys 4 classes of culture?
- power
- tasks
- role
- person
What is power culture?
- control radiates from the centre
- power is concentrated among few
- few rules and little bureaucracy
- swift decisions are possible
- flat hierarchy
What is role culture?
- delegated authorities within a defined structure
- hierarchical bureaucracy
- power derives from a persons position
- little scope for expert power
- tall hierarchy
- can’t take as many risks and many layers of senior leadership
What is task culture?
- teams are formed to solve particular problems
- power derives from expertise as long as a team requires expertise
- each team sets own objectives (risky)
- matrix organisational
- no single power source
- effectiveness depends on group dynamic
- can increase productivity
What is persons culture?
People believe themselves to be superior to the business
- business full of people with similar training background
- common in firms of professionals
- power lies in each group
Reasons to change culture to improve performance?
- declining profits and sales
- inadequate returns on investment
- low quality or standards of customer service
Reasons to change culture to respond to change?
- market changes
- political and legal environment
- change in societal views
- change in ownership
- change of management
- economics conditions
Signs that a changing culture is needed?
- internal conflicts
- high levels of voluntary staff turnover and hard to retain skilled workers
- greater absenteeism
- processes become more bureaucratic
- innovation is no longer valued
- evidence of declining customer service
- ## leadership show double standards or decision making is incnsistnet
Why is it difficult to change an established culture?
They consist of:
- set of goals
- roles
- processes
- values
- communications practices
- attitudes
- assumptions
who are the internal stakeholders?
- owners
- employees
- shareholders
who are the external stakeholders?
- suppliers
- customers
- local community
- government
- pressure groups
- creditors
what are the approaches a business can take to influence decision making?
- stakeholder approach
- shareholder approach
why might stakeholder objectives conflict?
the objectives of shareholders in particular conflict with other stakeholders
what is a shareholder approach?
- profit based objectives
- increasing share price
- higher dividend payments
why might a shareholder approach be problematic?
short termism thinking - conflicts with some other stakeholder objectives
what is a stakeholder approach?
- considers all stakeholder objectives on business decisions
- may be more ethical - wider ranging objectives
- communicates with stakeholder groups
why might a stakeholder approach be problematic?
more long-termism - may ignore profitability and shareholders reducing possible investment
what might an owners/shareholders objective be?
- profit and dividends
- return on investment
- growth
- proper running of the business
what might an employees objective be?
- fair wages
- job security
- safe working environment
- promotion opportunities/motivational factors
what might a customers objective be?
- product quality
- value for money
- customer service
what might a suppliers objective be?
- financial stability
- long term profitable trade with business
what might a local commuunities objective be?
- jobs
- environmentally friendly - laws and regulation (noise and pollution)
what might a govt objective be?
- collection and payment of taxes
- create jobs
- compliance with legislation
what might a banks/creditors objective be?
- on time repayments of loans and investment
- profitability and cash flows of the business
- growth and profits and value of business
what is ethics?
moral guidelines which govern acceptable behaviour
what is ethical behaviour?
doing what is morally right
benefits of being ethical?
- higher revenues
- improved brand recognition and awareness
- better employee motivation
- new sources of finance eg ethical investors
what are the drawbacks of being ethical?
- higher costs sourcing from fair trade suppliers rather than lowest price
- higher overheads e.g training and communication of ethical policy
- a danger of building up false
what are ethical issues a business may have to face?
- location (cheap labour but exploited)
- ethical suppliers
- bribery and corruption
- selling tactics (persuading customers to buy)
why is there a trade off between ethics and profit?
- labour may be more costly
- ethical raw materials
- eliminate corruption=paying tax
- higher prices = loss of sales
- damages growth which may make people less likely to invest
how is reward and pay an ethical issue?
- are the additional skills of senior managers worth the extra pay?
- pay motivates employees
- pay attracts new employees
- pay can maximise productivity
what are some current ethical concerns?
- the gender pay gap
- minimum wages
- executive bonuses
what is CSR?
corporate social responsibility -> involves conducting business activity in an ethical way and balancing the interests of shareholders with those of the wider community
what are examples of CSR?
- protecting the environment
- sustainable resources
- responsible marketing
- responsible customer service
what are the advantages of CSR?
- gain a comp advantage
- improves brand loyalty/ image and reputation
- attracts investors
- attracts customers through positive publicity
- improves employee motivation
- attracts skilled workers
- adds value
what are the disadvantages of CSR?
- high costs = concerned shareholders
- stifles innovation
- cost passed onto customer is forms of a high price
- puts smaller businesses at a disadvantage
