3.4.1 Corporate influences Flashcards
Corporate timescales
refers to strategy and the expectation of when a return on investment will be achieved
Short termism
is where a business prioritises short-term rather than long term performance
Why might businesses be concerned with short term performance?
- stock market (investors) focus on latest financial performance
- reliance on bonuses based on short-term performance
- frequent changes in leadership (takeovers)
Long termism
a whole business approach
the ability of a business to invest in projects over a long term
Indicators of short termism
- pressure for high dividends
- focus on unit costs
- focus on productivity
- pressure for sales maximisation
- low investment into R+D
- monthly commission on rewards sales targets
- pressure for profit maximisation
- bonus culture
- over use of takeovers
- pressure of high ROCE
- pressure for rising share value
Indicators of long termism
- gradual ROCE and emphasis on competitive advantage
- R+D has long term goals
- focus on staff retention
- investment in workforce
- considers ethics in decision making
- embraces CSR
- brand reputation is key
- technology investments for the future
- focus on quality and innovation
When is short termism important? When there is…
- pressure from shareholders for dividends or share price rises
- frequent changes in leadership means leaders have a short space of time to prove themselves
- if you’re in a dynamic or volatile market
- a bonus culture based on a annual or quarterly individual performance
- cash flow or profitability is under threat
When is long-termism important? When there is…
- brand reputation and role model thought leadership is considered important
- sustainable competitive advantage and market share are a priority
- research and development and innovation are important
- the business is financially secure
evidence based decision making
decision making based on data and adapting a systematic approach, rather than gut feel or intuition
-Decision trees, APR, CPA, payback
subjective decision making
decision making based on intuition, opinion or gut feel
-word of mouth information, experience
Advantages of evidence based decision making
- data-driven and good quality decisions without emotion
- can improve staff morale as decisions are not personal
- less risk if evidence based
- makes it easier to justify to others
Advantages of subjective decision making
- speed - quick decisions can be made which may be important in a crisis or if an opportunity arises
- personal experience can lead to better decision-making
- data doesn’t always tell the full picture, future not always the same as past
When is it ok to trust gut feel on a decision?
- high risk, high impact decisions
- draws on both objective and subjective information
- useful in highly uncertain circumstances
