3.4 influences on business decisions Flashcards
What’s a corporate timescale
Refers to strategy and the expectation of when a return will be achieved
What is short termism
A quick financial reward
E.g. the business may be focused on monthly profit figures or quarterly sales figures, productivity and the cash position
Investing less in r&d and training
Return profits to shareholders
Pursue external growth
Focus on short term returns on investment
What should businesses with a short term perspective do
Look to invest in research producers that will give the business a competitive advantage
What does short termism do
Makes businesses fail to innovate and stagnate
Eg Kodak and blockbuster
What’s long termism
A business approach that incorporates CSR ( corporate social responsibility)
Considers ethical behaviour of the business in decision making
Investing in R&D and training
Staff development is seen as a long term objective of the business to regain and develop staff
Long term technology investments secure data for the future
Pursue the interests of stakeholders
What are the long term measures of success
R&D investment
Profit quality
Employee engagement
Sustainability
What are the short term measures of success
Cash position
Revenue
Profit
Productivity
What’s evidence based decision making
Decisions based on evidence or data which is trusted and valid or using tools like break even analysis
Evidence can be financial forecasts, the outcome of scientific research, organisational facts and figures, benchmarking with competitors
Decisions should be based on a combination of critical thinking and evidence
Decisions are made using evidence from multiple sources to increase the probability of a favourable outcome
What are the 5 steps of evidence based decision making
- Ask- translate a problem into a question
- Get evidence
- Appraise the evidence
- Apply evidence to problem
- Assess outcome of decision
benefits of evidence based decision making
Data can help reduce the risk in decision making
Data can help identify the likely outcome
Data can help compare alternative options
Drawbacks of evidence based decision making
Data can be hard or expensive to collect, especially for small businesses
Sometimes data is unavailable, out of date or unreliable
What’s subjective decision making
Decisions based on experience, personal perspectives, feelings and opinions without having supporting data
Benefits of subjective decision making
Intuition might come from experienced managers which is useful when making qualitative decisions like the character of a new employee or the potential success of a new marketing campaign
Drawbacks of subjective decision making
Without evidence in the form of data decisions based on intuition will always be risky
Why are large corporations more likely to use an evidence based approach to decision making
Due to the level of financial risk involved in corporate decision making, they’re more likely to use an evidence based approach to reinforce the opinions of senior managers
They may also have specialist functions and business analysts to produce and analyse evidence whereas smaller businesses do not
What’s a corporate culture
The culture of an organisation includes the traditions, rituals, attitudes and values that make up the way the business is run and the way employees interact with each other
Charles handy described it as ‘the way we do things round here’
What are the features of a strong culture
Good communication with employees -> they understand what needs to be done -> more confident and motivated
Focus on core values which should stem from mission statement
The recruitment team try to find individuals who beat fit the culture of the business. Links to Maslow
The culture is usually based around the history,tradition and founders of the business
A sense of identity, belonging, togetherness
What are the features of a weak culture
Often leads to business failure
It will exhibit a demotivated workforce
There will be inconsistent customer service
It may be poorly managed
It will be very bureaucratic and lack flexibility to respond to a dynamic market
Examples of businesses with strong cultures and weak cultures
Strong- IKEA, Google
Weak- Amazon, Ryanair
How is a corporate culture formed
The role of the founders and owners- are key decisions still based around their ethos or influence?
Mottos
The nature of the business and what it sells
Language
The degree to which products sold have changed over time
Company song
The business environment when it started
Artefacts (uniform, badges)
Recruitment process of key staff
Rewards
Physical environment
Key personalities of leaders and employees
Ways of doing things
Symbols
What are the four organisational culture types according to handy
Power culture
Role culture
Person culture
Task culture
What is power culture (the spider web)
Very strong owner or manager at heart of the business who makes decisions eg Richard Branson, Duncan bannatyne
Few rules and procedures
Competitive attitude amongst employees to gain power
Tend to find it with small startup business but can also be found in bigger businesses
Benefits and drawbacks of a power culture
+ quick decision making
- employees might not feel empowered
What’s role culture (temple)
Decisions are made through well established rules and procedures
The power to make decisions ples from the job title
Very bureaucratic and may involve lots of paperwork
Links to a tall structure
Eg the civil service
Benefits and drawbacks of role culture
+ all employees have clear guidance on what they should do
- lacks flexibility
What’s task culture (grid)
The focus is a project that needs to be completed
The power comes from those who can accomplish the tasks and have the expertise eg car designer or oil rig engineer
Involves teamwork on a project, a team of experts working together
Eg scientific projects like cancer research or a car design
Benefits and drawbacks of task culture
+ empowering and motivational -> links to Mayo for team work. Allows workers to be more creative -> gives them responsibility
- may cause for-ordination problems -> workers coming from different departments might have different viewpoints/ objectives
What’s person culture (Petri dish)
Groups of similar skilled people to share expertise and knowledge
They all work of a client by client basis rather than on a project by project basis such as in task culture
Eg lawyers, accountants, vets, architects and doctors
What are the problems of changing an established culture
Strong cultures are hard to change because a culture consists of interlocking factors: Set of goals Roles Processes Values Communications practices Attitudes Assumptions
Changing culture is also a long process and it may require significant training of the workforce
Large organisations may have more than one culture
Culture is deep set and is not easy to change
What can a strong culture lead to
Can lead to a competitive advantage as it can lead to a creative, innovative, cohesive or highly motivated organisation
What’s an internal stakeholder
Those inside a business who may be affected by corporate decision making
Eg:
Employees
Managers
Owners
What’s an external stakeholder
Those outside the organisation who are affected by decisions made by the business
Eg: Customers Competitors Suppliers Community groups Unions
What are stakeholders
Anyone with an interest in the business or who may be affected by the activities of the business
What are the internal stakeholders interested in and what is their level of interest?
Employees- (high) want to know about job security
Managers- (high) want to know about budgets, targets and profit
Owners- (high) interested in major decisions as they want to know about strategic objectives and profit
What are the external stakeholders interested in and what is their level of interest?
Customers- (medium) want good value for money and reliable products but not interested in profits ect
Competitors- (low) more interested in whole market and their own customers
Suppliers- (high) want their products to sell
Community- (medium) want employment, investment in local area and no pollution
Unions- (high) want to make sure employees are being treated correctly
How much power do internal stakeholders have over decision making
Employees- (medium) some power as to stay motivated their ideas need to be heard and considered
Managers- (high) have more power over day to day decision making
Owners- (high) lots of power as they’re at the top of the hierarchy.
How much power do external stakeholders have over decision making
Customers- (high) their actions determine the decisions businesses make
Competitors- (low) aren’t really involved with other businesses’ decisions
Suppliers- (low) the business usually has control over them and can go elsewhere
Community- (low) can voice their opinions but they don’t usually have a lot of say in the decisions
Unions- (high) they’re representatives of the employees
How does the customers objective of product availability, low prices, promotions and quality conflict with owners’ objective of higher profit
Owners can’t make a higher profit if customers want good prices, promotions and good quality
How does suppliers objective of good credit terms, contract and profit margins conflict with owners objective of higher profit?
If owners give suppliers higher profit margins by paying them more, they owners profit will decrease
How does the governments objective of all businesses following all the rules and paying taxes conflict with the owners objective of high profit
Following the rules and paying tax costs the business more which lowers profit and they want to open more stores to gain market dominance but the CMA won’t allow it
How does the unions objective of good pay rates and rights for workers conflict with owners objective of high profit
It costs the business more which will reduce profits
How does employees objective of job security and wanting the business to make a profit conflict with owners objective of high profit
Both want profit but job security increases costs for the owner which will reduce profit
How does managers objective of wanting to know about budgets, targets, promotion, profit and bonuses conflict with owners objective of high profit
Both want a profit but if managers want promotions and bonuses it will lower profits and owners may externally recruit
How does competitors objective of market share, profit, promotions and customer loyalty conflict with owners objective of high profit
Both want higher profits and more market share but for different businesses
What are business ethics
The principles and standards that determine socially acceptable conduct in business
What’s social responsibility
The obligation a business has to maximise its positive impact and minimise its negative impact on employees, customers, society and the environment
What are pressure groups
Organisations that try to make business change their behaviour.
Many pressure groups argue a business should pursue other socially responsible goals alongside its drive for profit.
What’s ethical decision making
Following codes of practice that embody moral values. The objective is to do the right thing, acting with honesty, integrity, and taking into consideration the interests of everyone affected by the decision
Ethical decisions woukd recognise that the law may not necessarily protect the interests of all stakeholders and therefore the business must set its own standards
Business that follow this approach must be rigorous and consistent in their decision making
What 4 things are involved in ethical decision making
Environment- businesses will ensure they’re sustainable and don’t sam anger the environment
Workers- ensure employees have good working conditions, fair pay and care for their well-being and health
Corruption- will do business in a fair, honest and open way
Technology- ethical debates around the development of some new technologies
How is there a trade off between profit and ethics
Adopting an ethical stance and being socially responsible increases business costs and reduces profitability
Implementing and monitoring this behaviour can be time consuming and expensive
Often cheaper to cut corners and behave unethically
Unsustainable resources are often cheaper
BUT…
Some ethical companies are highly profitable
Ethical behaviour can increase motivation and enhance leadership
What are the advantages of behaving ethically
Favourable media attention
Improved public image-> increased sales + brand loyalty
Ethically produced products can carry a premium price without damaging sales
More motivated workforce and possible increases in productivity
Improved relationships with suppliers leading to better quality service
Can be profitable
Disadvantages of behaving ethically
Labour costs are increased as fair wages and conditions are implemented
Supplies and materials which are ethically sourced may be more expensive
Can increase costs
Changing an existing method of production and the corporate culture can be expensive
Competitors may be less ethical so have lower costs/ prices
Explain about pay and rewards
Many top managers get large salaries and also huge bonuses
Bonuses are usually associated with good performance and act as an incentive to managers to work hard but often these bonuses are paid despite poor performance due to the argument that without them, the managers would move elsewhere
Shareholders are unhappy because excessive pay reduce their return on investment
What’s corporate social responsibility
Taking decisions in a way that takes into account all stakeholder’s interests
Treating employees, customers and suppliers fairly, avoiding polluting activities and contributing positively to lives in the local community might be a part of this
What are the reasons for implementing a CSR policy
A genuine desire to behave responsibly (altruism)
A wish to show a positive public image
A positive marketing ploy
A smokescreen to hide behind
Wanting to fit in
What are some positive spin-offs from implementing a CSR policy
Can help foster a good public image and reputation
Can increase sales
It improves stakeholder relationships and reduces potential conflicts
Does a CSR policy mean a business is ethical
No
Why is behaving ethically expensive
Pay employees higher wages
Often better working conditions
Ethical sourcing is more expensive
Monitoring and taking responsibility for supply chain can be expensive -> additional staffing costs
What can behaving ethically do for motivation
Can increase motivation and brand image -> better quality employees want to work there and less staff turnover -> lower costs in long term
