Influences on business decisions 3.4 Flashcards
What is meant by short-termism?
This is when the business looks at making a return on an investment in the short-term
Which stakeholders may be the most interested in a short-term approach?
Shareholders - they want a high dividend
Managers - they want a high profit to have high bonuses
What are the benefits of a short-term approach?
- Happier shareholders from higher dividends
- Lower costs from lack of long-term investments
- Quicker growth from inorganic growth
What are the negatives of a short-term approach?
- Lack of investment
- Cannot compete against new entrants in the market
- Less benefit of economies of scale
What is long-termism?
This is when the business focuses on long-term goals rather than short-term financial gains
What are some benefits of long-termism?
- 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
What are some negatives of long-termism?
- 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
What is the difference between tactical and strategic?
Tactical (short-term) and strategic (long-term)
What is an evidence-based approach?
This is when decision-making is based upon data. This can include the decision-making techniques
What is the subjective approach?
This is when decision-making is based upon opinions, experience and gut-instinct
What are some advantages of an evidence-based approach?
- More reliable when using actual data
- Based upon facts
What are some disadvantages of an evidence-based approach?
- 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.
What are some advantages of a subjective approach?
- May consider all aspects of the business and not just data
- Decisions can be made quicker
What are some disadvantages of a subjective approach?
- Poor decision making if people’s instincts are wrong
- Less accurate decisions due to no data to back up decision
What does the type of decision-making approach depend on?
- 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
What is corporate culture?
The way people in the firm do things and the ways they are expected to be done
What is the difference between a weak culture and a strong culture?
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
What are the 4 main types of corporate culture?
Power, task, role and person
What is a power culture?
This a centralised structure where all decisions are made by one person and so employees have little influence on the business
1 benefits and 1 negatives of a power culture?
Decisions are made quicker but, employees are more resistant to change because they have less opinions etc
What is a role culture?
This is when decisions are made in order of importance of the employees in the business
What is 1 benefit and 1 drawback of a role culture?
Better decisions are made if the hierarchy is making the decisions but, there may be poor communication between departments
What is a person culture?
This is when decisions are made loosely between each employee instead of overall in the business
What is 1 benefit and 1 negative of person culture
Better decisions can be made because everyone acts in their old self interest but decisions do not consider the business
What is a task culture?
This is when employees are put into teams and they all work on meeting specific objectives
One benefit and one disadvantage of a task culture?
Tasks can be completed much quicker but, can cause conflict between teams about budgets and resources
What are 3 main factors that affect how a corporate culture is formed?
- 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
What are the 2 reasons to why a manager might want to change a corporate culture?
- Change it to the culture that they are used to
- to be more competitive due to better efficiency
Why is changing corporate culture difficult?
- 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
What are examples of internal stakeholders?
Owners, managers, shareholders and employees
What are examples of external stakeholders?
Customers, suppliers, The local community, government, pressure groups
What is the main conflict between shareholders and stakeholders?
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
How can a business maintain a good relationship with their stakeholders?
Communication to ensure that they are getting information before decisions are going to be made
What is a stakeholder map?
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.
What are 4 main ethical issues that a business may consider?
- Location that they are operating in
- How ethical their suppliers are
- Bribery or corruption
- Selling tactics
What are the trade offs between being ethical and profit
- 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
What is the ethical issue between pay in an organisational structure?
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
What is CSR?
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
What are 3 main advantages of CSR?
- 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
What are the 3 main disadvantages of CSR?
- 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
