Paper 1- Theme 3.4- Influences on business decisions Flashcards
define corporate influences
internal factors affecting business decisions
e.g. short v long term & scientific v intuition decision making
define corporate timescales
refers to the strategy and the expectation of when a return on investment will be achieved
e.g. short termism and long termism
define short termism
where a business prioritises short term gains over long term performance
typical aims of a short termism
- increase share price
- growth of revenue
- lower unit costs
- higher and faster return on investment
- higher productivity
why may businesses focus on short term performance
- stock market focuses on latest financial performance
- bonus based culture focuses on short term performance
- frequent changes in leadership and strategy- new leaders or strategy need quick results or they’ll be scrapped
define long termism
where a business focuses on investing into projects over the long term
typical aims/ features of long termism
- investing in R&D and innovation
- invest in long term technology
- developing staff
- improving ethical reputation by recognising social responsibility
define evidence based decision making
pros that I wouldn’t know
- decisions based on numerical and objective data that is valid
pros: forces you to consider all options
define intuition based decision making
pro
and
con
that I wouldn’t know
- decisions which are based on personal persepctives, opinions and feelings
pros: leap of faith can lead to something special that evidence would have gone against (e.g. Apple products) - first mover advantage
cons: rely on experience
factors influencing what decision making to use
- level of risk willing to take
- managers experience and skillset
- availability and reliability of data
define a corporate culture
norms and values of a business
Define a weak culture
Features of it
when the business’ values and beliefs aren’t widely shared and don’t influence people’s behaviour
- inconsistent workforce
- staff don’t align and aren’t influenced by core values
Describe the 4 cultures in Handy’s Model
power
role
task
person
describe power culture
features
•central source of power responsible for decision making
- few people have decision making power
- subordinates have flexibility as there is little bureaucracy and rules
describe role culture
features
•decisions are made by those with distinct roles and through established rules and procedures
- power depends on your role title in the business
- long chains of communication and very bureaucratic so decision making is slow
- employees must conform to all rules and procedures
describe task culture
features
- senior managers allocate projects to teams of employees from different departments
- the power depends on the expertise of the individual rather than roles
- focus is on team projects
- dynamic culture as structure of teams changes based on the project
describe person culture
Features
• the power lies with each individual, as they see themselves as superior to the organisation (which exists to enable them to do their work)
- employees are highly skilled and qualified
- similarly skilled people share experience and knowledge
how a corporate culture is formed
- influence and values of founder
- leadership style
- size of the business and legal structure (if plc then profit must be achieved quickly for shareholders)
- market operating in (e.g. dynamic or not)
Difficulties in changing corporate culture
- stubbornness or difficulty to adapting to change
- self interests and ambitions
- experienced employees may disagree with proposed changes
- fear of unknown (loss of job, income)
Describe CSR
Corporate social responsibility is when companies go beyond the legal minimum in order to be good social citizens
define business ethics
morals and principals that underpin business behaviour
positives of CSR
+creates advantage in marketing (can be USP)
+positive effect on workplace
- employee motivation - attract better qualified - low staff turnover (less cost on recruitment, training) - publicity
Key to successful corporate culture changes
- clear consistent message
- all staff believe change is positive and will take place
- educate and train staff on the new culture to aid transition
- increase communication levels with staff (quality circles to understand how they are feeling)
Define a strong culture
features of it
- when the business’ values and beliefs are widely shared and influence peoples behaviour
- staff align to core values
- culture based on tradition and history of founders
- staff are engaged and consistent
negative of CSR
+reduced profit
+harder to grow ethically in long term (have to reject some opportunities)
+ people may see through CSR as PR tool (hide true moral actions or purpose (e.g. Barclays tax avoidance through setting up operations in tax havens, or even Waitrose continuing to sell food at high prices during recession)
what is a business’s code of practice called
ethical trading policy
define consumerism
when consumers expect more from the businesses they buy from
ethical considerations
- treatment of staff
- fair dealing with suppliers and customers
- accurate financial accounts
- animal testing
- corruption or bribery
- ignoring unethical practice in supply chain
- ## unethical marketing
define vested interest
a personal, hidden reason for making a decision (usually monetary)
pro and con of person culture
pro: employees learn and develop from each other
con: possible lack of co-ordination to corporate aims as. so many individuals
pro and con of power culture
pro: flexible decision making and few procedures
con: power down to limited people which may limit innovation and possibly risk taking
- low morale as employees seem very out of touch from power, minimal room for personal growth
pro and con of role culture
pro: communication may suffer due to lots of levels of differing power
con: struggle to adapt to new market conditions
pro and con of task culture
pro: effective at dealing with rapidly changing competitive environments
- motivating as power lies within employee’s expertise
con: project teams may develop own objectives independent of firm
define internal stakeholder
someone from inside the business with a vested interest in the activities and decision making of the business
e.g. staff, owners
define external stakeholder
someone outside of the business with a vested interest in the activities and decision making of the business
(group, organisation or individual)
e.g. customers, society, government, suppliers, shareholders
define shareholder
any person, or company that owns at least one share of the business
describe the shareholder approach
business main interest is maximising and growing the value of shareholder returns, through focus on profit
- Friedman
pros and cons of shareholder approach
pros
- should be priority as they provide essential investment (may withdraw if unsatisfied)
- shareholders have direct influence as they can voice concerns and appoint directors so important for cohesion
- leads to focus on profit maximisation and drive for efficiency
- cheaper investment costs as don’t have to rely as much on debt finance
cons
- seen as short termist, through inorganic growth –> ignoring sustainability
- —> may miss opportunity by focusing on short term
- lack of investment in innovation may lose firm their competitive advantage
- impact reputation with and isolate other stakeholders
describe the stakeholder concept
business main focus is trying to satisfy the needs of stakeholders as much as possible through the business’ decisions and activities
pros and cons of stakeholder approach
pros
- motivation among staff
- improved customer perception of brand —-> lead to loyalty
- majority of groups benefit —-> greater holistic benefit
- long term benefits on costs (focus on long term benefits)
cons
- some of these are key (if they aren’t satisfied, the business cant function)
- in short term, costly to meet all the needs
- very difficult to meet all needs as some will be contradicting, possible conflicts
- seen as being CSR —> increase price, added value
examples of conflicts
wage rise = lower profits and dividends
organisational growth = less short term profit
expand production = disruption to local community
increasing credit for customers = reduce cashflow and increase credit on supply
