3.4 Influences on Business decisions Flashcards
Short-termism
>Firms make decisions to increase short term financial performance often effecting the long term.
>This good looking financial performance appeals to shareholders and keeps them happy might also draw in new ones.
>Attractive to managers as their bonuses are based on short term performance.
>Used by new businesses unlikely to look at the long term until profit is made.
>Short termism might involve cutting costs, for example research but if competitors bring out a new innovative product they will struggle to maintain market share.
Long-termism
>Businesses focus on reaching long term goals.
>Concentrates on overall performance of the business.
>More likely to invest in research, staff etc; makes them more prepared for competition in the future. Profit might not be seen for a few years.
>Occasionally firms will use short termism if a new competitor comes and dominates the market they might need a quick response to this.
EVIDENCE BASED - DECISION MAKING
Positives:
+Based on facts can be justified to others
+Valid decision making tools such as CPA
+Decision is well structured and there is a record of how the decision was reached.
Negatives :
- Can take a long time to reach decision, Circumstances might change in the meantime
- People may interpret the evidence differently so a clear decision is not always easy
- Focusing to much on evidence draws away from other factors such as how ethical the decision is
SUBJECTIVE - DECISION MAKING
Positives:
+Decisions can be made quickly which might let a firm take advantage of a short lived opportunity
+Can be used when a lack of data is available or an opinion is needed
Negatives:
- People’s instincts might be wrong or biased, leading to poor decisions
- It can be difficult to justify the decision
- Can lead to managers making rational decisions without fully considering the long-term consequences
Corporate Culture
>The way that people expect and carry out things in a firm. It reflects their values and shapes attitudes and expectations
>It has an effect on planning, objectives and strategies. Also motivation and productivity.
>Culture is created and reinforced by rules, managerial attitudes and behaviour, recruitment policies should also look for people who “fit in”.
>Can be identifies by looking at its founders, history and ceremonies.
Can be Strong or Weak
>Culture is strong if employees agree with the corporate values.
>A strong culture means employees need less supervision because behaviour naturally tends to the business’ values, in result staff turnover is lower with higher motivation and productivity.
>Weak culture is when employees don’t share the firms values and they have to be forced to comply with them.
POWER CULTURE
>Have a centralised structure where authority is limited to a small number of people maybe just one person.
>May begin to struggle if the business grows and can’t be managed centrally.
>Employees more resistant to change as they don’t have a say in the changes.
>May be resistant due to minimal faith in senior managers who appear out of touch with day to day activities.
ROLE CULTURE
>Common in bureaucratic firms where authority is defined by job title. Senior managers make decisions.
>Tend to have poor communication so respond slowly to change - could result in losing out to competition in expanding markets.
>Tend to avoid risk for fear of failure, change is rare.
>Any changes brought up will meet resistance as staff are not used to this.
PERSON CULTURE
>Common in loose organisations of individual workers, usually professional partnerships - doctors, accountants.
>Objectives defines by personal ambition.
>Decisions made jointly so employees are comfortable and accepting of change.
>Decisions on change can be difficult to make - Individuals often think selfishly rather than for the organisation
TASK CULTURE
>Emphasis is places on tasks being done
>Gets small teams on projects then disbands them, conflict may arise between resources and budgets. It can become confusing with to many projects.
>Responds well to management by objectives translating into targets for each department onto targets for each individual.
>Staff likely to think change is normal as teams often alter, overall less resistant to general change.
How corporate culture is formed:
>Founders - set the tone, working tightly with employees integrates a strong culture.
>History - If started small and saw allot of growth a strong culture might arise over a struggling business with many problems.
>Nature - A hair salon might have a person culture trying to achieve the best service. A hair product seller might have power culture trying to sell the most product and employees have less say.
> Environment - external influences such as pestle analysis. If a firm had little competition it is unlikely to be a customer focused culture.
Recruitment - the attitudes of the staff promote and represent the culture.
Working conditions - can affect an employees motivation when staff feel more/less valued.
Customer service - a business valuing their custom base are likely to flourish in this aspect
Why a firm might want to change culture.
- If a business has a new manager join who has come from a role culture joining one with power culture they might start pushing the business in their direction they are used to.
- Culture might change competitively. Power culture might not see opportunities or respond to late changing to a task culture means workers are always changing around responding quickly to tasks.
Why changing can be difficult:
>Long term employees may feel the prior culture is ‘right’ therefore be reluctant to change if explained other wise this might minimise reluctance.
>It’s hard to alter attitudes and behaviours of staff rather than other strategies.
>Can be expensive might involve a new office lay out or extra training so a business might not always be able to achieve their desired culture.
>Might need to recruit new members to help integrate this culture, new staff will be brought up with this culture.
Internal Stakeholders
>The people inside a business.
>Owners are very important they profit if the business is successful then decide what happens to the business.
>In limited companies shareholders are the owners of the business. In private limited companies this is often family and friends. If a person owns over 50% of a business they have the most power in decision making.
>Employees want a decent wage and good conditions with job security. Managers get the blame if things go badly but credit if they go well.
External Stakeholders
>The people outside of a business effected by it.
>Customers want good products at low prices with good customer service and communication from the business.
>Suppliers want their income on time and return a fair price for the product they are selling.
>Members of the local community. They gain from local employment and sponsorships.
>Government want money from the business.
>Pressure groups fight for a certain cause.
Stakeholder Objectives:
>Some businesses may focus on shareholders while others consider all stakeholders.
>Shareholder focus over stakeholder tends to focus on profit objectives. Often to give a good return on shares short termism may be used.
>A business with a stakeholder approach tends to focus less on profit and more on acting ethically and socially responsible, often through long termism.
> Businesses aiming to consider all stakeholder groups must try to satisfy everyone and stay financially stable this might not always be so easy. Certain stake holders might need more prioritising (Stakeholder mapping).
Stakeholders don’t always disagree sometimes interests overlap one another.
Stakeholder and Shareholder Influences
> Stakeholder: that the business considers all of its stakeholders in its decisions / objectives.
> Shareholder: that the business should focus purely on shareholder returns (increasing share price and dividends) in its decisions / objectives.
> Firms must manage stakeholder relationships they might satisfy one group at the expense of another which could result in problems and damaging of the firm.
Stakeholders should be consulted about key decisions if they feel their opinion is valued this will benefit the business.
Good communication is vital in managing relationships. Keeping employees informed about changes will make them feel included.
Behaving Ethically:
>Ethics are principles that govern which behaviours are morally acceptable to society.
>Even firms without a strong ethical stance are likely to have an ethical code to guide decisions. Managers will often consider the ethics of strategic decisions considering how they might be viewed as morally wrong and how this might affect the business as a whole.
Some Ethical issues include:
>Location - labour costs cheaper overseas, fewer worker welfare laws.
>Suppliers - Suppliers may be exploiting workers to keep prices low. A business needs to consider this factor.
>Bribery and corruption - briberies might be used to allow corrupt behaviour which puts them in an unfair advantage.
>Selling tactics - Might promote cheap prices on contract with hidden costs.
Trade off between profit and ethics:
>Acting ethically usually means a business isn’t profitable as acting ethically increases a firms costs.
>Being more ethical means sacrificing profit, firms have to find a balance, often they must put ethics to the side to achieve desired profit.
>Some customers might be willing to pay higher prices for ethical products so market share is not lost to competition. And employees may want to work for ethical companies.
Pay and rewards is an ethical issue.
>Some people argue it is unethical that seniors receive large sums of money while shop floor workers get minimum wage.
>The issue is whether the additional skills and experience is worth the additional pay.
>People argue the high salaries are to attract the best candidates for the job in an international labour market.
>some people object to rewarding senior staff huge bonuses as they can let customers down and it is immediate staff who represent the company.
Corporate Social Responsibility
>Ethics are so big that firms often have a CSR policy.
>CSR is more then just acting ethically it is going above and beyond what is required by law to help society.
>Often include reducing negative environment impacts, community projects and treating staff right.
>The public are more aware of what businesses do now so many businesses publicise their social responsibilities.
Examples of CSR:
>Barclays have a partnership with Teach first a charity aiming to train teachers to teach in low income areas.
>Marks and Spencer’s ensure suppliers employees have good working conditions with good relations and regular visits.
>Mcdonald’s planet champion programme trains employees to find ways of reducing environmental impact. Also running daily litter picking.
Advantages of CSR:
+Can gain competitive advantage
+Improves brand loyalty and attracts new customers.
+People will choose firms with a good CSR record attracting talented applicants
+Staff morale will improve as they are more motivated to work for and stay at the firm
Negatives of CSR:
- Has costs which shareholders may see as misuse of funds, withdrawing their investments etc.
- The costs may be passed on to customers, some maybe happy to pay this for socially responsible products however in a price sensitive market sales may fall.
- Puts small businesses at a disadvantage. They are less likely to have spare funds to use or employ someone to arrange CSR activities.
