Chapter 63- Causes and Effects of Change

Question 1

Causes of change

Answer 1

Businesses today have to operate in rapidly changing markets and conditions. They can no longer rely on constant stream of customers, the same production process or selling the same product over a long period of time.

They must constantly be aware of, and prepared to respond to, organisational change in a number of areas.
• Changes in organisational size
• Poor business performance
• New ownership
• Transformational leadership
• The market and other external factors (PESTILE)

Possible effects on:
•	Competitiveness
•	Productivity 
•	Financial performance
•	Stakeholders

Question 2

Changes in organisational size

Answer 2

Businesses can grow organically or inorganically. Latter presenting more problems e.g. different management styles, operating systems, strategy etc. Key for the business is to manage effectively because changes in size of the organisation will impact the chain of command and span of control.

The size of an organisation will naturally change as it seeks to grow. One of the most significant drivers of change as a business grows is the need to restructure and adopt policies and processes to manage expansion.

External growth or takeovers can bring sudden change to all aspects of the business.

Question 3

Changes in size will affect an organisations:

Answer 3

• Competitiveness, business will become more competitive as they grow because of increasing market share, economies of scale and brand recognition.
• Productivity- technological economies of scale.
• Financial performance- increase sales revenue and increase profits and invest more in machinery and equipment.
• Stakeholders- Internal diseconomies arise in large business, communication, coordination problems and low levels of motivation due to employee alternation.

Question 4

How can a business improve its performance?

Answer 4

• Cut costs (no. of employees, change suppliers, alter the work pattern for employees, use zero hour contracts)
• Change leaders
• Increase motivation of staff
• Advertise and promotion

Question 5

Effects of change on business performance:

Answer 5

• Competiveness- lose in competitiveness will often result in poor business performance
• Productivity- lose in productivity and efficiency will often lead to a reduction in sales and businesses will have to cut costs as a result.
• Financial Performance- business will often experience cash flow problems when there is a reduction in sales and businesses will have to cut cost as a result.
• Stakeholders- poor business performance= reduction in profits and therefore shareholders may decide to sell their shares.

Question 6

Change in ownership:

Answer 6

• The change in ownership of a business may come from internal growth, the transition from a private limited company to a public limited company and flotation of a firm’s shares on the stock market
• A change in ownership may also become necessary as a business goes through the process of a merger of acquisition.

Question 7

Effects of change of a change in ownership:

Answer 7

• Competitiveness- The impact on competitiveness will very much be determined by how the companies integrate and complement one another. However, significant economies of scale may come from two firms merging.
• Productivity – Productivity may eventually rise as a result of a merger, but in the short term it is likely that business operations will be disrupted as the two firms work out how to get along and integrate all aspects of the business
• Financial Performance- Acquisitions can be very expensive, and should the venture fail it can lead to huge losses being incurred by the buyer. However, acquisitions are good for share price and the announcement of an acquisition or merger can increase demand for the company’s stocks.
• Stakeholders- With a merger or acquisition comes the danger of a clash between two corporate cultures.