3.6.1 - Causes and Effects of Change

Question 1

Causes of Change in Business

Answer 1

• There are lots of causes of change in a business, many of them are industry specific (e.g. rain in agribusiness) the main ones your exam board would like you to know about are:
1. changes in organisational size
2. poor business performance
3. new ownership
4. transformational leadership
5. the market and other external factors (PESTLE)

Question 2

1.) Cause of change: changes in organisational size

Answer 2

• The business may grow in size for example if it expands internationally
• Issues the business will face as a result are
• Maintaining the company culture
• Motivating staff during the expansion
• Increased labour costs with hiring of new staff
• Training of new staff

Question 3

2.) Cause of change: poor business performance

Answer 3

• This may happen if the business experiences poor sales, low profits or slow expansion
• Issues the business will face as a result;
• The business will need new objectives and a new direction
• The business will need some new strategies to compete (Ansoff’s)
• The business will need to look at what is necessary to improve performance this may mean delayering or redundancies

Question 4

3.) Cause of change: new ownership

Answer 4

• This may happen if the business has been bought or merged with another business or there has been a management buyout
• Issues the business will face as a result;
• There may be significant role duplication (two marketing managers for example) so there may need to be redundancies
• There may be a clash of cultures
• There may be issues of communication between the two businesses as they change and merge

Question 5

4.) Cause of change: transformational leadership

Answer 5

• This may happen if new leadership is brought into the organisation that seeks to change it
• Issues the business will face as a result;
• The business will need to reinvent itself to achieve competitive advantage
• A new business culture which challenges managers to develop new ways of thinking
• The business encourages the development of new ideas

Question 6

5.) Cause of change: the market and other external factors (PESTLE)

Answer 6

• This may happen if there have been new entrants to the market (Porter’s 5 forces) or due to EU expansion, or changes in the market (e.g. energy market deregulation)
• Issues the business will face as a result;
• The business may need to respond by increasing their research and development budget to introduce more innovative products to their portfolio
• They may need to change the corporate objectives

Question 7

Possible effects of change on a business

Answer 7

All these changes can cause effects on a business, they depend on the type, size and industry, but the general effects your exam board would like you to know about are:

1. competitiveness
2. productivity
3. financial performance 4. stakeholders

Question 8

1.) Effect of change on competitiveness

Answer 8

• A business that is undergoing change may need to;
▪ Be aware of competitors actions and be prepared to react to them
▪ Benchmark with similar businesses to make sure they are keeping up
▪ Invest in R&D (research and development) to keep innovating and bringing new products to market
▪ Investigate new and emerging markets e.g. BRIC economies, (Brazil, Russia, India and China) or the expanding EU

Question 9

2.) Effect of change on productivity

Answer 9

A business that is undergoing change may need to;

▪ Change production methods
▪ Invest in new equipment and machinery
▪ Change quality management methods
▪ Retrain managers so their skills meet the new technologies used

Question 10

3.) Effect of change on financial performance

Answer 10

• A business that is undergoing change may need to;
▪ Compare sales estimate with available production capacity
▪ Budget for necessary increases in staff and capacity
▪ Produce new cash flow forecasts
▪ Discuss how to raise any extra capital

Question 11

4.) Effect of change on stakeholders (internal)

Answer 11

• Stakeholders may be effected by change:
▪ Employees may feel unsure about their future
▪ Managers may be worried about duplicate roles and redundancies, or possibly see the change as positive with new opportunities

Question 12

4.) Effect of change on stakeholders (external)

Answer 12

• Stakeholders may be effected by change:

▪ Shareholders may be reluctant to invest while there is a period of change happening, until circumstances are more settled within the business
▪ Customers may be delighted with the new range of products and improved quality
▪ Suppliers may see the change as an opportunity to renegotiate old contracts with more favourable terms