Influences On Business Decisions 3.4 Flashcards
What are 5 key features of a long termist business?
- Family ownership or family-like corporate culture
- long term investment and focus on R&D
- investment into the workforce
- take corporate social responsibility seriously
- lean organisational hierarchy
what are the pros to a business being long termist? (4)
- Greater independence/ freedom
- positive impacts on society will increase reputation and add value to the business
- staff retention levels likely to increase
- time to establish brand image
what are the pros to a business being short termist? (4)
- Quick return if required, particularly for start ups/ poor performance businesses
- pre-empt and deals with immediate problems to enable them to grow quickly
- stay competitive
- keeps shareholder happy
what are corporate influences?
internal factors affecting business decisions (short versus long term)
what is short termism?
where a business prioritises short term rather than long term performance (quick financial rewards)
what are four factors that suggest a business is short termist:
- high sales volumes
- lots of investment from shareholders
- raising share prices
- costs being as low as possible
what are PLCs often under pressure to do?
to produce dividends for the shareholders
what are the certain performance measures which short termism emphasises? (5)
- share price
- revenue growth
- gross and operating profit
- unit costs and productivity
- return on capital employed (ROCE)
why might businesses be concerned with short term performance? (3)
- stock market (investors) focus on latest financial performance
- reliance on bonuses based on short term performance
- frequent changes in leadership & strategy (e.g. through takeover)
what are long termist businesses usually concerned over? (5)
- social audits - their positive effects
- Investment in R&D and innovation
- considers ethical behaviour of businesses
- quality of brand image
- staff are treated as an asset - spend lots on training
what is long termism?
the ability of a business to invest in projects over a long time
what are three effects of short-termism?
- reluctance to invest in capacity, training, R&D and image building advertising
- decisions which seem wise in the short term but not in the future
- performance reward systems may over-focus on short term gains, encouraging staff to achieve profit even at the expense of tomorrow
what are three causes of short-termism?
- short term focused performance measures such as earnings per share (EPS) as a way of judging the bonus level to be paid to the directors
- the threat of a takeover
- In the UK bosses are more likely to have a career based in finance, so don’t have much understanding of long term thinking
what is the definition of mittelstand?
the family owned small and medium sized businesses that are the backbone of the German economy
what is the definition of earnings per share?
company profits after tax divided by the number of shares issues; a rising EPS makes it easy to pay out rising dividends to shareholders
what is the definition of intuition?
deducing something from circumstances without any direct evidence
what is the definition of stock market index?
a weighted average of the share prices of many companies are added together, adjusted to equal 100, then measured for a percentage change over time
how is corporate culture formed? (5)
- CEOs and leaders and their leadership styles
- Size of the business
- Heroes/ founders
- mottos
- symbols
what are three factors influencing the culture of an organisation?
- market/ industries where they operate
- influence of the founder
- attitudes & approaches to decisions
what are handys four classes of culture?
- role
- power
- person
- task
(Handys four classes of culture) what does the ‘role’ involve?
it has hierarchy links. Believes culture stems from peoples jobs. autocratic/ paternalistic/ democratic style of leadership.
(Handys four classes of culture) what does ‘power’ involve?
the entrepreneurial structure. autocratic style of leadership
(Handys four classes of culture) what does ‘person’ involve?
individuals are equally as important but operate on their own. democratic/ laissez faire style of leadership
(Handys four classes of culture) what does ‘task’ involve?
the matrix structure. democratic/ paternalistic style of leadership
why do cultures in a business need to change? (5)
- to keep up with innovation
- inorganic growth
- poor business performance
- change in leadership
- keep up with economic change
what are the 6 types of culture?
- power culture
- task culture
- role culture
- person culture
- risk averse culture
- toxic culture
what is power culture?
where there is a central source of power responsible for decision making. e.g. the single founders of a small firm
what is task culture?
power lies with those who can accomplish tasks, therefore it depends on expertise rather than roles; teams are often formed with those experts who can get the job done
what is role culture?
decisions are made through well established roles and procedures; can be bureaucratic with clear roles. e.g. marketing director
what is person culture?
where there are a number of individuals who have expertise and see themselves as superior to the organisation; the organisation simply exists to enable the individuals to carry out their work
what is risk averse culture?
where staff are likely to reject decisions that involve taking significant risks. e.g. diversifying and launching new products
what is toxic culture?
where the behaviour and attitudes of staff can damage a firms reputation and lead to unethical behaviour
what isa company culture?
the values and norms of a business
what do strong cultures involve?
good communication, core values, encourages risk taking and innovation and there is little need for policies and procedures
what do weak cultures involve?
little alignment with the values, inconsistent behaviour and often a poorly motivated workforce
what is a criticism of a role culture?
decision making is often slow, and organisations are often risk averse
what is a criticism of a power culture?
strong culture which can quickly turn toxic
what is a criticism of a person culture?
can become quite disparate as it exists for the benefit of the individuals
what is a criticism of a task culture?
success depends on how effectively personalities work together within the group
why is it difficult to change a culture? (4)
- employee can be resistant to change as they are used to the way things are done
- disruptive for staff and consumers
- new leaders often don’t have credibility built up, so employees don’t buy into the vision
- people dont see or accept the change is needed
what are 4 examples of significant change which may result in the culture needing to be changed?
- market changes
- change in societies views
- change in ownership
- change in management or leadership
- economic downturn
what are 4 strategies to change corporate culture?
- take time to decide what works and what doesn’t
- start with a vision
- communicate with all the hierarchy (esp the middle managers)
- get staff to buy in - involve them in the change
what three factors does corporate culture consist of?
- shared values of a business
- beliefs and norms that affect every aspect of work life
- behaviours typical of day to day behaviour
what business culture influence?
levels of innovation
what are 3 examples of internal stakeholders?
- owners
- managers
- employees
what are 5 examples of external stakeholders?
- local community
- customers
- suppliers
- the government
- shareholders
with this business decision, which stakeholders will support and which will oppose: cut jobs to reduce costs?
support: shareholders, owners, managers
oppose: employees
with this business decision, which stakeholders will support and which will oppose: add extra shifts increase factory capacity
support: customers
oppose: employees
with this business decision, which stakeholders will support and which will oppose: introduce new machinery replace manual work
support: managers, owners
oppose: employees, government (less jobs)
with this business decision, which stakeholders will support and which will oppose: increase selling prices to improve profit margins
support: owners, shareholders
oppose: customers
what are a customers objectives and how does this conflict with the board of directors/ owners objectives?
low prices. conflict - high profits (keep prices high where possible)
what are a suppliers objectives and how does this conflict with the board of directors/ owners objectives?
high prices for their supplies. conflict - high profits (low prices paid to suppliers)
what are a government objectives and how does this conflict with the board of directors/ owners objectives?
tax. conflict - tax erodes profit
what are a unions objectives and how does this conflict with the board of directors/ owners objectives?
working pay and conditions. conflict - high profits means cost cutting
are stakeholders long termist or short termist?
focus more on long termism
what is a shareholder?
an owner of shares in a company
what is a stakeholder?
a person with an interest/concern in activities and decisions in a business
what is the definition of a pressure group?
a group of people with a common interest who try to further that interest (e.g. Greenpeace)
what is the definition of shareholder value?
the attempt to maximise the companies share price
what is the definition of social responsibilities?
duties towards stakeholder groups which the firm may or may not accept
what are three examples of ways businesses can be ethical?
- working conditions, fair pay
- recycling
- reducing shipping/ transport
what is the definition of a rise in consumerism?
where consumers are more knowledgeable about the products they buy
what are 6 ways which business ethics are tested?
- advertising (badmouthing competitors is illegal)
- personal selling
- suppliers
- pay and rewards (pay in hand means not paying tax)
- contracts with suppliers/ employees - whether short term contracts are made
- pricing
what is an ethical code of practice?
you voluntarily promise/ have a code of conduct
what is the definition of business ethics?
morals and principles that underpin business behaviour
how do business ethics affect strategic decision making? (4)
- dominant influence that guides decision making]
- more social/ environmental objectives rather than profit maximisation
- take a long termist approach
- meet as many stakeholder needs as possible
what is the definition of a strategy?
mid term plan to achieve objectives
what is a social audit?
a way of measuring, understanding, reporting and ultimately improving an organisation’s social and ethical performance
give 5 reasons why you would agree with this statement: “EXECUTIVES HAVE THE RIGHT TO EARN MORE THAN TYPICAL EMPLOYEES”
- executives carry significant role/ higher risk
- earned their status - deserve to be rewarded
- highly pressured role - likely to have a wide span of control
- make strategic decisions - generate businesses income
- high skills/ expertise
give 5 reasons why you would disagree with this statement: “EXECUTIVES HAVE THE RIGHT TO EARN MORE THAN TYPICAL EMPLOYEES”
- sometimes superior staff can take advantage of position of power - don’t deserve pay rise
- everyone works the same hours/ productivity so it is unfair
- if company is performing badly they don’t deserve it
- employees may not have had the same opportunities as CEOs
- could create toxic culture/ divisions
what are four different approaches to business ethics?
- the amoral business
- the legalistic business
- the responsible business
- the ethical business
Describe the amoral business: (2)
- seek to win at all costs
2. anything is acceptable
Describe the legalistic business (1)
- will obey the law but no more than that
Describe the responsive business: (2)
- accepts that being ethical will pay off
2. pay lip-service to it
Describe the ethical business (1)
- ethical practice is at the core of the business
what is the ethical trading policy?
code of practice for a business
what does the ethical trading policy include?
- commitment in terms of adequate budget
2. checks to all parts of supply chain are adhering to the policy
give four reasons for an ethical business:
- can pay off by attracting customers
- good ethics = good business - increase the reputation and add value
- long term - increase profitability
- retain and recruit staff
give four reasons against an ethical business:
- increases costs and short term it affects profitability
- have to practice what you preach - actually implement it
- harder to track investors
- shareholders could question approach - often are short termist
what is the definition of corporate social responsibility?
the extent to which a business addresses the concerns and obligations to its wider stakeholders
what is the difference between ethics and CSR?
ethics - concern actions which can be assessed as right or wrong by reference to moral principles
CSR - about organisations obligations to all stakeholders - and not just shareholders. they choose to accept duty to stakeholders in the strategy
what are four reasons firms engage in CSR?
- governments expect/ encourage it
- adds value - from image and reputation
- good ethics - may bring about business opportunities
- may have a positive effect on the workforce - easily recruit staff
what are four negatives of engaging in CSR?
- attract a lot of pressure group attention - bad if one step is taken wrong
- viral - internet/ social media - damaging effects to a wide audience
- requires capital investment - short term especially which can be high
- CSR stifles innovation
what is the definition of corporate culture?
the culture of an organisation affects the attitudes, decision making and management styles of the staff
what is the definition of vested interest?
when there’s a personal, often hidden reason for making a decision
what is the definition of whistleblowing?
when an employee decides they can accept a moral dilemma and exposes the unacceptable practice to management or to the media.
