Influences on business decisions 3.4

Question 1

What is meant by short-termism?

Answer 1

This is when the business looks at making a return on an investment in the short-term

Question 2

Which stakeholders may be the most interested in a short-term approach?

Answer 2

Shareholders - they want a high dividend
Managers - they want a high profit to have high bonuses

Question 3

What are the benefits of a short-term approach?

Answer 3

• Happier shareholders from higher dividends
• Lower costs from lack of long-term investments
• Quicker growth from inorganic growth

Question 4

What are the negatives of a short-term approach?

Answer 4

• Lack of investment
• Cannot compete against new entrants in the market
• Less benefit of economies of scale

Question 5

What is long-termism?

Answer 5

This is when the business focuses on long-term goals rather than short-term financial gains

Question 6

What are some benefits of long-termism?

Answer 6

• Higher market share if a business can also remain competitive in the long-run
• Growth also in the long-run not just the short run

Question 7

What are some negatives of long-termism?

Answer 7

• Investments may not be felt for a long term so profits in the short run may not be high - could be making losses
• Shareholders may not be satisfied if they don’t have high short-term dividends

Question 8

What is the difference between tactical and strategic?

Answer 8

Tactical (short-term) and strategic (long-term)

Question 9

What is an evidence-based approach?

Answer 9

This is when decision-making is based upon data. This can include the decision-making techniques

Question 10

What is the subjective approach?

Answer 10

This is when decision-making is based upon opinions, experience and gut-instinct

Question 11

What are some advantages of an evidence-based approach?

Answer 11

• More reliable when using actual data
• Based upon facts

Question 12

What are some disadvantages of an evidence-based approach?

Answer 12

• Can take a long time to gather data etc
• Focus too much on data may overlook other aspects such as how ethical the business is.

Question 13

What are some advantages of a subjective approach?

Answer 13

• May consider all aspects of the business and not just data
• Decisions can be made quicker

Question 14

What are some disadvantages of a subjective approach?

Answer 14

• Poor decision making if people’s instincts are wrong
• Less accurate decisions due to no data to back up decision

Question 15

What does the type of decision-making approach depend on?

Answer 15

• Start-up businesses may have less data so may use a subjective approach compared to a larger business
• A larger decision may use an evidence based approach compared to a smaller business decision

Question 16

What is corporate culture?

Answer 16

The way people in the firm do things and the ways they are expected to be done

Question 17

What is the difference between a weak culture and a strong culture?

Answer 17

A weak culture is when the workers don’t share the same value as the business whereas a strong culture is when they share the same values

Question 18

What are the 4 main types of corporate culture?

Answer 18

Power, task, role and person

Question 19

What is a power culture?

Answer 19

This a centralised structure where all decisions are made by one person and so employees have little influence on the business

Question 20

1 benefits and 1 negatives of a power culture?

Answer 20

Decisions are made quicker but, employees are more resistant to change because they have less opinions etc

Question 21

What is a role culture?

Answer 21

This is when decisions are made in order of importance of the employees in the business

Question 22

What is 1 benefit and 1 drawback of a role culture?

Answer 22

Better decisions are made if the hierarchy is making the decisions but, there may be poor communication between departments

Question 23

What is a person culture?

Answer 23

This is when decisions are made loosely between each employee instead of overall in the business

Question 24

What is 1 benefit and 1 negative of person culture

Answer 24

Better decisions can be made because everyone acts in their old self interest but decisions do not consider the business

Question 25

What is a task culture?

Answer 25

This is when employees are put into teams and they all work on meeting specific objectives

Question 26

One benefit and one disadvantage of a task culture?

Answer 26

Tasks can be completed much quicker but, can cause conflict between teams about budgets and resources

Question 27

What are 3 main factors that affect how a corporate culture is formed?

Answer 27

• The history of the business - if it has grown and had lots of success it will have a stronger culture
• The working conditions and rewards means staff will be more motivated and therefore have a stronger culture
• The nature of the business

Question 28

What are the 2 reasons to why a manager might want to change a corporate culture?

Answer 28

• Change it to the culture that they are used to
• to be more competitive due to better efficiency

Question 29

Why is changing corporate culture difficult?

Answer 29

• People may not want to change what they are used to
• Can be hard if the business already has a strong culture
• Can be costly

Question 30

What are examples of internal stakeholders?

Answer 30

Owners, managers, shareholders and employees

Question 31

What are examples of external stakeholders?

Answer 31

Customers, suppliers, The local community, government, pressure groups

Question 32

What is the main conflict between shareholders and stakeholders?

Answer 32

Shareholders have a profit-maximising objective of high share price and dividends and stakeholders have a focus on being socially responsible which focuses less on profits

Question 33

How can a business maintain a good relationship with their stakeholders?

Answer 33

Communication to ensure that they are getting information before decisions are going to be made

Question 34

What is a stakeholder map?

Answer 34

This is a map that has The power/influence on the y-axis and interest on the x-axis. This is so that the business can determine the most important stakeholder when making a decision.

Question 35

What are 4 main ethical issues that a business may consider?

Answer 35

• Location that they are operating in
• How ethical their suppliers are
• Bribery or corruption
• Selling tactics

Question 36

What are the trade offs between being ethical and profit

Answer 36

• Being ethical can mean heavy investment, higher costs which reduces profits and reduce competitiveness
• However being ethical can be a USP giving the business a competitive advantage and actually increase profits in the LR

Question 37

What is the ethical issue between pay in an organisational structure?

Answer 37

Some businesses pay their staff higher wages at the top of the hierarchy and pay minimum wages at the bottom which could be seen as unethical because of the exploitation of labour at the bottom

Question 38

What is CSR?

Answer 38

This is when the business goes above and beyond what is required by the law to be socially responsible. It means that they own up to any social responsibilities the business had and how they are going to improve that in the future

Question 39

What are 3 main advantages of CSR?

Answer 39

• Better responsibility means brand loyalty
• Employees may choose to work for firms with a good CSR
• Staff morale may be higher to work for a socially responsible firm

Question 40

What are the 3 main disadvantages of CSR?

Answer 40

• Costly which shareholders may not be happy with
• Costs may be passed on to consumers in the form of higher prices
• Small businesses may be put in a disadvantage as they may not have the funds of brand image yet