chapter 4 Flashcards
Business change
is the alteration of behaviours, policies and practices of a business.
Key performance indicators (KPIs)
are criteria that measure how efficient and effective a business is at achieving different objectives
Percentage of market share
measures a business’s proportion of total sales in a specific industry, expressed as a percentage.
Woolworths share price is around 10% lower now (June) than it was at the start of 2022
Net profit figures
are calculated by deducting total expenses incurred from total revenues earned over a period of time.
Net profit figure = Total revenue – Total expenses
Number of sales
is the amount of goods and services sold by a business within a specific time period.
Number of customer complaints
is the amount of customers who have notified the business of their dissatisfaction.
Rates of staff absenteeism
is the average number of days employees are not present when
scheduled to be at work, for a specific period of time.
Level of staff turnover
is the percentage of employees that leave a business in a year and have to be replaced
Number of workplace accidents
measures the amount of injuries and unsafe incidents that occur at a work location over a period of time.
Level of wastage
is the amount of inputs and outputs that are discarded during the production process
reduce wastage from plastic bags
Rate of productivity growth
is the increase in outputs produced from a given level of inputs over time.
Force field analysis theory
is a model that determines if businesses should proceed with a proposed change. This model identifies and examines factors which promote or hinder the change from being successful.
Lewin’s force field analysis theory helps businesses identify factors which influence change. The model has two key principles: driving forces and restraining forces.
Lewin’s force field analysis process
- Identify the need for change
- Identify driving forces
- Identify restraining forces
- Assign scores to forces
- Analyse situation and apply
Advantages and disadvantages - Force field analysis
ADVANTAGES
• Businesses can examine if a proposed the change will be successful.
• Businesses can potentially save time by promoting the main driving forces and limiting the main restraining forces.
• Businesses can potentially save money by only implementing change where success is likely.
DISADVANTAGES
• Employees may be unhappy if driving forces exceed restraining forces and change still occurs.
• Can be time-consuming, especially if a business must go ahead with a change
Driving forces
are the factors within or outside the business environment which
promote change.
Managers as a driving force
The primary focus of a manager is to ensure that the business is achieving its objectives.
Employees as a driving force
Employees help achieve business objectives by completing work tasks to meet the needs of the business. In return for their contribution to the business, employees have their own expectations. These include competitive wages, supportive working conditions, and training. As such, any proposed change that can improve the working conditions of employees will see them become a driving force.
Pursuit of profit as a driving force
Opportunities to improve financial performance will often encourage a business to change. Additionally, this will make a business better able to fulfil its obligations, such as providing a return to shareholders.
Reduction of costs as a driving force
Strategies that reduce wastage or improve productivity can reduce a business’s costs and improve its profitability as often this will lead to an increase in a business’s net profit margin. A business may be able to source materials from a cheaper supplier or move their locations to benefit from cheaper rent as a means of reducing costs and improving profits
Competitors as a driving force
Competitors changing prices, using new technology or running advertising campaigns can affect the performance of other businesses in the market. This makes competitors a driving force for change as a business must always adapt to remain competitive
Technology as a driving force
Using technology, businesses can increase the efficiency of their operations and improve overall productivity. If a business fails to adopt suitable technology, it may impact their ability to compete and survive. Some forms of technology include automated production lines, computer-aided design, computer-aided manufacturing and website development. As technology is constantly progressing, it will always act as a driving force for change.
Societal attitudes as a driving force
Society is more aware of how businesses are operating because of the internet. As a result, businesses need to align their operations with societal attitudes and behaviours. The rise of online shopping has required many businesses to develop an online presence. Additionally, the increasing trend of individuals becoming health conscious has driven many businesses to create new healthy product ranges. Increased societal concerns about being eco-friendly have also caused businesses to reduce their impact on the environment. Constantly evolving, societal attitudes will always be a driving force for business change.
Legislation as a driving force
All businesses are required to comply with laws and regulations to avoid fines, suspensions or even closure. A business may be forced to change if new legislation is introduced. If current operations breach the new legislation, a business will have no choice but to change the way they operate. Businesses will always need to comply with legislation, making it a constant driving force for change
Innovation as a driving force
With constant pressure from competitors, businesses are always improving existing products and services or introducing new ones. Many businesses will continuously innovate their products or procedures in order to maintain sales and market share. Since
businesses are always looking for ways to improve their products, innovation will always be a driving force.
Globalisation as a driving force
The trend of globalisation means that more businesses are operating on a global scale due to trade barriers being removed. Businesses are now operating in a single global market, which means that all businesses face the pressure of international competition. Increased international competition means that businesses need to find more efficient ways to operate.
Restraining forces
Restraining forces are internal and external factors that resist a business change or actively try to stop it.
If restraining forces exceed driving forces, a business change is unlikely to be successful. For a business change to be successful, businesses have to implement strategies to overcome relevant restraining forces.
Managers as a restraining force
Managers are the owners, leaders or upper management that often introduce change within a business. Managers may be unwilling to introduce a business change if they do not support the change or it threatens their position.
Employees as a restraining force
Employees may resist a business change if the outcome is uncertain, it affects their job security or they fail to see a reason for the change. Employees may even actively oppose these changes by carrying out industrial action. To overcome employees as a restraining force, managers often have to persuade or create incentives for the proposed changes to be adopted
Legislation as a restraining force
businesses need to comply with laws and regulations to avoid fines, suspensions or even closure. Therefore, a business must consider the types of legislation that apply to any proposed business change. To overcome a legislative restraining force, a business may have to apply for licenses, obtain permits or even change contracts and
agreements
Legislation affecting different stakeholders
Competitors: Competition and Consumer Act, intellectual property laws.
Customers: Pricing displays and regulations, product labelling, warranties and refunds, privacy laws.
Employee’s: Pay and conditions, Worker’s Compensation Insurance, Occupational Health and Safety, Anti-bullying and harassment, Unfair Dismissal laws.
Environment: Environmental licenses and permits.
Suppliers: Contracts, importing and exporting laws.
Time as a restraining force
Business changes often have to be completed before, after or within a certain time period. The time restrictions may be due to other restraining forces such as legislation deadlines or financial pressures. If the time has been identified as a restraining force, a business may have to find ways to alter the time restriction. This can mean the change is progressively implemented in stages or another business is engaged to assist with implementing the change.
Financial considerations as a restraining force
Most business changes will incur a cost for it to be introduced or implemented. A business must ensure that it has enough funds to carry out the proposed change. If the business cannot finance the change, it will need to explore different ways of obtaining the required funds. In some cases, it may even have to alter the proposed change due to financial restrictions
Organisational inertia as a restraining force
A business may have been operating in a certain way for such a long time that it can become difficult for change to occur. When a business matures and grows in size, processes and procedures often have to be made consistent to promote efficiency in operations. As staff become familiar and comfortable with these structures, attempts to make changes can be difficult. To overcome organisational inertia, a business may have to change leadership, restructure the business or create work environments that promote new directions.
Porter’s lower cost strategy
Lower cost strategy is a business offering customers similar or lower-priced products compared to the industry average while remaining profitable by achieving the lowest cost of operations among competitors.
The three pricing approaches of a lower cost strategy
Charge similar prices to competitors: Experiences higher profit margins than competitors because the business has the lowest cost of operations.
Charge slightly lower prices than competitors: Maintains a higher profit margin than competitors by keeping the price
decrease smaller than the business’s cost advantage.
Charge much lower prices than competitors: Thin profit margins are outweighed by a high volume of customer sales gained from significantly lower prices.
A business can achieve the lowest cost of operations by:
- Reducing internal operating costs:
• producing basic, no-frills products or services.
• reducing expenditure on marketing and advertising. - Reducing the cost of supplies:
• obtaining discounts by purchasing supplies in bulk.
• securing cheaper supplies from global sourcing of inputs.
The advantages and disadvantages of Porter’s lower cost strategy
ADVANTAGES
• Attractive to cost-conscious customers.
• Business operations are optimised and must remain efficient and effective to maintain lower costs of production.
• Reduces the expense of operations.
DISADVANTAGES
• Thin profit margins and reliance on low operating costs can leave a business vulnerable to unforeseen increases in expenses such as suppliers raising their prices
• Fewer employees required as work tasks and roles may be merged. This may result in increased work stress due to multiple responsibilities.
• Standardised or basic products may not meet the needs of customers who have specific needs.
Porter’s differentiation strategy
The differentiation strategy offers customers unique services or product features that are of perceived value to customers which can then be sold at a higher price than competitors.
A business can create a point of differentiation for their product or service by:
- introducing new technology such as electric cars or wireless charging for smartphones.
- implementing innovations such as new flavours for chocolates or soft drinks.
- introducing a ban on plastic reusable bags
The advantages and disadvantages of Porter’s lower differentiation strategy
ADVANTAGES
• Customers are often loyal to the business brand because of unique features or services not offered by competitors.
• Quicker sales from loyal customers when new products or services from the business are introduced.
• Can charge premium prices for products or services as customers cannot purchase the product or service elsewhere.
DISADVANTAGES
• Can be difficult to prevent competitors from replicating point of differentiation.
• Higher investments of time and money such as research to develop innovative products or improve service levels of employees.
• Higher selling prices can deter some customers.
The similarities between the lower cost and differentiation strategy.
• Increases a business’s profitability by providing a competitive
advantage
The differences between the lower cost and differentiation strategy.
Lower cost sells at similar or lower prices. Whereas differentiation sells at premium prices.
Targets cost-conscious customers. Targets customers that are not price-sensitive
Internal focus on operating processes. External focus on meeting customer needs.
Woolworths article 3 business change
The reusable plastic shopping bags will be phased out gradually state-by-state from Woolies supermarkets (including Metro stores), and online orders. Woolworths says all 15-cent reusable plastic shopping bags should be gone from all its stores nationwide by June 2023
Societal attitudes as a driving force: society will see Woolworths changing and working hard in order to protect the environment
Organisational inertia as a restraining force: staff and customers may have tendency to maintain the same way operating as usual and may struggle to change their behaviour.
