3.4.1 corporate influences

Question 1

corporate influences definition

Answer 1

internal factors affecting business decision

Question 2

corporate timescales definition

Answer 2

short-termism versus long-termism

refer to when a business expects to gain returns on investments, as well as how far into the future they set strategies for. the corporate timescale used by a business affect the relative importance that managers place on short-term and long-term strategic decisions.

Question 3

short-termism definition

Answer 3

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

Question 4

reasons why businesses with a short-term outlook exist

Answer 4

• city investors own more shares in plcs than private investors– encourages them to look for companies who are performing well now
• there is greater concern for short-term performance measures e.g. cash position, revenue & profit
• boosting short-term profit tends to push a companies share price higher, dissuading investors from bidding and therefore reducing the threat of a takeover

Question 5

effects of short-termism

Answer 5

• less investment in technology, training, research and development–risky as returns could be negative if certain projects are fruitless.
• Training staff is also expensive and the returns are not immediate– it will take time for the benefits to materialise.

+ reduces costs and increases profits in the short term BUT…
- could mean a firm is unprepared for changes that might happen in the long term. This could reduce its competitiveness and potential future profit.

Question 6

short-termism can cause (negatives):

Answer 6

• accounting adjustments that inflate current earning
• Paying extra dividends to shareholders, rather than investing extra money into the business.
• Cutting staff numbers to reduce costs, often losing skilled and experienced staff.
• Using inorganic rather than organic growth methods in order to grow more quickly

Question 7

evidence based decision making definition

Answer 7

an approach to decision making that involves gathering information and using a systematic and rational approach to reach a conclusion

Question 8

subjective decision making definition

Answer 8

an approach to decision making where the personal opinions of the key decision maker strongly influences the course of action chosen

Question 9

+ & - of evidence based

Answer 9

• data can be hard or expensive to collect. It can be unavailable, out of date or unavailable
• may be slower with the need to gather and analyse evidence
• relies on the future being similar to the past
  + reduces the risk of mistakes and helps to identify likely outcomes

Question 10

+ & - of subjective decision making

Answer 10

• based on experience and “gut feeling” instead of having supporting data
• unsuitable for business decisions that involve a higher degree of risk
  + intuition may come from experienced managers, which is useful when making qualitative decisions
  + allows for quick decisions- not wasting time.