3.6.1 Causes And Effects Of Change

Question 1

what are internal causes of change

Answer 1

• businesses resizing/changing structure
• new ownership
• poor performance
• transformational leadership

Question 2

how does a change in size or structure affect a business

Answer 2

• competitiveness, a business can benefit from being larger (EOS, brand recognition etc.) but also have drawbacks (DEOS, hard communication, decision making and management)
• productivity, growth can increase productivity but it must be managed properly
• financial performance, growth is expensive and will likely require investment from borrowing making the business highly geared
• stakeholders, growth bring opportunities for employees customers etc.

Question 3

how does poor business performance bring about change

Answer 3

• quick and extensive changes may be made (reducing costs, improving quality, improving marketing, increasing investment)
• changes could be made to corporate objectives or strategies
• changing CEO to have a transformational leader

Question 4

what is a transformational leader and how does it impact the business

Answer 4

• a leader who makes large innovative change
  + may motivate employees and change objectives and strategies to improve performance
• transformation will affect stakeholders, they may be resistant to these change

Question 5

how will changes to business performance affect a business

Answer 5

• competitiveness, poor performance goes hand in hand with a loss of competitiveness
• productivity, a fall in sales productivity and profitability will result in low capacity utilisation
• financial performance, poor performing businesses’ are likely to struggle with liquidity and cash flow
• stakeholders, poor performance brings about uncertainty, low morale and motivation is likely

Question 6

how does a change in ownership affect a business

Answer 6

• competitiveness, depends on how well the new owners integrate within the business, if lots of disruption is caused then it could cause DEOS, but positive innovative change could increase productivity
• productivity, may eventually rise but the change may cause disruption at first
• financial performance, depends on whether the change causes EOS or DEOS, better performance may lead to more investment (higher share prices)
• stakeholders, clash in the corporate culture may affect employees, customers may experience changes to marketing mix

Question 7

why might a business experience a change in ownership

Answer 7

• sole trader entering a partnership
• a sole trader or partnership n becoming a limited company
• owners retiring
• management buyouts- when a businesses managers buy a majority if shares to take control of the business
• a merger or takeover

Question 8

what are the external factors that may bring about change

Answer 8

PESTLE + THE MARKET
political
economic
social
technological
legal
environment

Question 9

explain how each factor of PESTLE would cause business change

Answer 9

political- government policies and legislation can change pricing and employee pay etc.

economic- recession may limit disposable income and a firm may have to reduce prices

social- changes in social trends, reducing fat in products with the growing demand for healthier products

Technology- better tech allows for changes in production processes to be more efficient, this may allow them to reduce costs

Legal- changes in legislation may force a business to change its practises

Environmental- With a growing concern for the environment a firm may have to change its activities to be more environmentally friendly

Question 10

how is the market an external factor that may bring about change

Answer 10

• Porter’s 5 forces explain how the market and competitive forces have an influence on a business
• these 5 factors can bring about change in a business
• barriers to entry, new entries may cause a loss in market share and competitiveness
• buyer power,
• supplier power,
• threat of substitutes, removal of a competitor can increase market share
• rivalry

Question 11

what are the effects of change caused by external factors

Answer 11

• competitiveness, if the business can respond quickly to the change then they may gain a competitive advantage over competitors
• productivity, as productivity rises and falls a business must adapt to cope with different levels of capacity utilisation
• financial performance, most external factors are going to cause an increase in costs whether it’s changing packaging to meet legislation or buying new tech HOWEVER it will most likely affect the whole industry not just one firm
• stakeholders, will be impacted, retraining due to legislation, rising costs and prices etc.