Corporate influences Flashcards
What are corporate timescales?
When a business expects ROI. As well as how far into the future strategies are set for.
How do corporate timescales importance of decision making?
They affect the relative importance that managers place on short and long term strategic decisions.
What two approaches can businesses take when considering their corporate timescales?
Short termism and long termism.
What does short termism focus on?
Making quick financial returns in the short term and increase financial performance in the short term without considering long term impacts
What is a key influence in short termism?
Many limited companies who are partly owned by shareholders will apply short termism to make quick profits to keep shareholders happy. Many shareholders are only interested in the short term performances of a business and what they are making in the present through dividends. Shareholders may see bad short term profits and fear for their profits and sell their shares which may cause the share price to fall and make a business less attractive to shareholders.
Which staff would short termism appeal to?
Managers as it encourages them to boost short term performances (eg share price) in return for short term performance bonuses.
Which businesses may implement this strategy?
New businesses who may be focussed on having good short term performances to survive before then focussing on longer term goals.
What are the issues associated with short termis?
It is designed to minimise costs to boost profits which will see a business minimise their investments into things such as technology, R+D, staff and increasing efficiency. In the long term this can be very damaging and hurt future competitiveness and profits.
As well as lacking investment, what can short termism do to a business?
Adjust statements of financial position to appear more profitable in the short term (allocate a years costs onto the next year e.g.) - window dressing.
Choosing short term contracts with customers, suppliers and staff instead of building long term relationships, allowing them to change directions quickly to invest in short term opportunities and not be tied into contracts in the process.
- Cutting staff to reduce costs.
-Paying extra dividends to shareholders instead of re-investing into the business.
- Using inorganic growth methods to amplify growth.
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What is long termism?
Where businesses concentrate on reaching long term goals instead of short term gains.
Why is this often beneficial?
It allows for a holistic approach to decision making, meaning a firm concentrates on the overall performance of the business, not just the present performance.
How can this be beneficial in the long term?
Firms will invest more in projects which will not generate profits immediately and will reduce short term competitiveness, however, it can increase long term competitiveness.
Will firms that focus on long termism always use it?
No, it is not plausible to always do this and succeed, as a business may perform so badly in the short term, they are no longer able to invest in the long term. For example, a business may have to take short term measures to save costs and push down prices due to new competition.
What are the two methods in which businesses can make decisions to achieve their corporate and departmental aims?
Evidence based and subjective.
What is an evidence based approach?
Structured decision making approach where managers use gathered data to aid them in decision making.
