Chapter 56- Corporate Influences

Question 1

What influences decision making

Answer 1

• Corporate aims/strategies
• Corporate culture
• Stakeholder perspective
• Business ethics

Question 2

Corporate influences

Answer 2

Most businesses have a set strategy which has long-term objectives and short-term goals.

Sometimes, in an attempt to boost profits, they might make short-term decisions which do not fit into the long-term strategy.

This might help boost profits in the short term but could adversely affect the long-term performance of the business if worker motivation declines.

Question 3

Corporate culture

Answer 3

The culture of an organisation can influence decision making

– for example if the culture is open, creative, flexible and innovative, a business is more likely to make decisions that involve change

Question 4

Stakeholder perspective

Answer 4

Some corporations take a ‘shareholder approach’ when making business decisions.

This means that the vies of the shareholders influence the decision making, while those of other stakeholders are marginalised.

Question 5

Business ethics

Answer 5

Corporations with a strong ethical stance are likely to make different decisions from those that have little regard for ethics.

For example, businesses with a strong sense of corporate social responsibility are not likely to choose a course of action that may threaten the environment, damage relations with local communities or upset the workforce.

In contrast a corporation that is not concerned with ethical issues may decide to invest cash reserves, in for example, a weapons manufacturer.

Question 6

Asset stripping

Answer 6

Take all of the assets out of a business after buying it then sell individual parts

Question 7

Short-termism

Answer 7

• Maximise short term profits – companies pursue short term objectives through aiming to increase shareholder value – they are likely to do this by trying to maximise short-term profits. There are several ways they can do this for example they might try to maximise revenue by charging higher prices or investing heavily in persuasive advertising.
• Less investment in R and D – this is because research and development can be a big drain on cash reserves
• Invest less in training – training staff is also expensive, and the returns are not immediate. Yet the returns from training are likely to be positive because workers will be better motivated.
• Use asset stripping – Is where a business buys another business, often in financial difficulty, and breaks it up. The profitable parts are sold for cash and the loss-making section closed down.

Question 8

Drawbacks of short-termism:

Answer 8

• The long-terms profitability of a business might be threatened by focusing too much on the short term
• Companies may lose their competitive edge in overseas markets – the ability to compete internationally may be hampered if the long-term performance of business is ignored – if businesses fail to invest in the future by developing new products and new technology to reduce costs, they will eventually lose their market shares.
• Over-reliance on short-term contracts may be inappropriate – in some cases the cost of recourses may be higher than when sourced for longer time periods.

Question 9

Longer-termism

Answer 9

-Businesses with a long term outlook would not suffer from the drawbacks associated with short-termism – for example, businesses that are less likely to overlook lucrative opportunities that yield long-term profits.

Question 10

Evidence based decision making

Answer 10

• First stage is identifying objectives the business wants to achieve – the objective might be a corporate objective, such as growth or survival in a poor trading period. These decisions are likely to be complex and might be taken by the board of directors
• Collecting information and ideas
• Analysing the next stage in the process and perhaps look for alternative courses of action
• Next step is for a decision to be made – this is the most important part of the process
• Once that decision is made, communication is key – personal is informed and the decision is passed down through the chain of command
• Once the decision has been carried out it will take time before the results are known – this is the outcome
• Finally, decision makers need to evaluate the outcome of their decisions – this is often presented as a report – it may be necessary to modify the course of action on the basis of the report.

Question 11

Subjective decision making

Answer 11

you get the views of high up people, more emotions

• If there is a lack of current, accurate and meaningful information relating to a decision, decision makers may be forced to take a subjective approach
• Some corporations are dominated by a powerful and persuasive leader. There may be occasions where such a leader makes strategic decisions single handily, without consultation and perhaps with only a limited range of information.
• In some industries subjective decision making may be quite normal, for example, in the fashion industry people may have to make decisions, for instance, about which collection of designs to purchase, based purely on what they feel.