Reviewing Performance - The need for change Flashcards
Change
Change is when a business responds to pressures and adapts or alters its policies, procedures, work environment or structure in order to achieve an objective.
Business Change
the adoption of a new idea or behaviour resulting in a difference in the form or operation of a business over time
Proactive approach to change
refers to the situation where a change is planned and occurs before a business is affected by pressures in their environment.
benefits of proactive approach
business can move at its own pace rather than chase the competition.
Opportunity to increase market share and net profit
Reactive approach to change
occurs when a change is unplanned, and takes place after the business has been affected by the pressures from its environment
reactive approach benefits
can benefit from the proactive business’s mistakes by learning from the errors.
Statistical evidence can be available, stakeholders then need less convincing of the need for change.
disadvantages of proactive
Mistakes can occur and damage reputation as there is little guidance or evidence to follow
Competitor businesses can copy best parts of the change and improve increasing their market share.
disadvantages of reactive
By waiting, the business falls behind competitors who have been proactive reducing market share
Employees may feel that the old way was better any may not want to change the way they operate
Efficiency
refers to how well a business uses the resources needed to achieve a goal.
Poorly managed change results in…
- resistance from workers who don’t understand or value the need for change
- Relationships and trust between management and workers will break down.
- higher staff turnover
- future change unlikely to succeed
Effectiveness
indicates to what degree a business has accomplished the objectives it set out to achieve.
KPIs
are criteria used as a measure of the success, or the efficiency and effectiveness, of a particular area of the business’s performance.
Percentage of market share
refers to the business’s share of the total industry sales for a particular good or service, expressed as a percentage.
increase in market share percentage
show a business that its products/services are more popular with customers (sales are increasing relative to competitors) or the competitors are selling less
decrease in market share percentage
show a business that its competitors are improving relative to the businesses sales, or the customers are not happy with the quality/price of the products/services or perhaps delivery or customer service levels are poor, thus reducing sales
net profit figures
a financial indicator that measures the difference between revenue and expenses over a particular period of time.
increase in net profit figures
shows the businesses revenue is greater than expenses or expenses are decreasing (increase efficiency)
decrease in net profit figures
their revenue is lower or expenses are higher and therefore the business is losing efficiency
rate of productivity growth
measures the businesses efficiency in its use of resources to create outputs by using less inputs with an increase in outputs compared to the past periods performance.
increase in productivity growth
means that more goods/services are produced using fewer materials, labor, time, costs which increases efficiency
decrease in productivity growth
fewer outputs or rising production costs or longer time to create goods/services. The business will fall behind competitors if they do not maintain/improve productivity growth when comparing previous data to current data.
number of sales
measures the number of products sold or services provided to customers within a given period of time.
increase in number of sales
increase means there are more customers purchasing products/services which indicates the service has improved/ product quality has improved, etc.
decrease in number of sales
indicates poor quality, lack of availability of goods, poor marketing, non-competitive pricing, successful new competitor who steals market share or a change in consumer preferences.
number of customer complaints
the number of negative written comments made by the purchasers of goods or services and reported to management to indicate their level of dissatisfaction with the performance of the business.
increase in number of customer complaints
indicates that there is dissatisfaction with the goods/services of the business. Could be due to poor quality or poor service and could impact by decreased sales and damage to reputation.
decrease in number of customer complaints
greater customer satisfaction with the quality of goods and services which could/should lead to increased sales and market share
rate of staff absenteeism
measures the number of days that employees are scheduled for work but do not attend.
increase in staff absenteeism
poor staff satisfaction, morale/corporate culture (poor) no loyalty to the business, poor staff selection, poor relationships between management and employees.
decrease in staff absenteeism
indicates staff are happier, more loyal to the business, improved relationships with management and available to work which increases productivity, increase morale and increase corporate culture.
level of staff turnover
measures the number of staff who leave the business and are replaced over a given period of time.
increase in staff turnover
indicate poor staff satisfaction, better pay or conditions in a rival business, morale/corporate culture (poor) no loyalty to the business and it is very costly to rehire staff constantly.
decrease in staff turnover
indicates success as staff do not wish to leave and are happier and loyal to work which increase productivity, increase morale and increase corporate culture and decreases re-employment costs.
Number of workplace accidents
the number of interruptions to workflow caused by injuries or property damage sustained during the production process.
occur due to:
old or faulty equipment
poorly trained employees
dangerous nature of work tasks
unsafe working practices.
increase in number of workplace accidents
indicates lack of safety, danger and lower morale and decreased loyalty from employee’s and lower productivity and increase costs (medical, legal and staff turnover costs)
decrease in number of workplace accidents
indicates better care by management for their employees that increases morale and productivity and lowers costs
level of wastage
measures the amount of unusable materials created that are not converted to outputs during the production process.
increase in level of wastage
indicates poor use of resources, decrease of productivity and costs will increase. Raw materials are wasted and disposal costs increase potentially harming the environment
decrease in level of wastage
indicates improved use of resources, lower costs or time to produce goods and services and a decrease in disposal costs and reduced harm to the environment.
number of website hits
is the amount of customer visits that a business’s online platform receives for a specific period of time
increase in number of website hits
model their online presence so that customers can navigate it comfortably and efficiently, which may provide greater opportunities for sales.
decrease in number of website hits
may suggest a business has a poorly developed online platform that does not entice customers to engage with the business or in online purchasing.
Driving forces
are those forces that initiate, encourage and support the change — they work to assist the business in achieving its goal.
restraining forces
are those that work against the change, creating resistance — in other words, they hinder the achievement of the goal.
What is a force-field analysis?
a theoretical model that determines if businesses should proceed with a proposed change.
Force-field analysis - a business can only implement change when…
can only move out of equilibrium when the support for the driving forces overcomes the power of the
restraining forces leading to successful change.
benefits of a force-field analysis
allows a timeline to be developed and additional resource requirements to be identified.
can identify inadequate systems so a re-design of systems can be undertaken.
able to weigh up the factors ‘for and against’ and whether the change is worth undertaking.
disadvantages of a force-field analysis
The weightings of the forces are subjective, biases can emerge.
Timelines can also be subjective and may not consider unexpected events.
Assigning responsibility to people to manage aspects of the change may result in a need for training as the skills of people may be lacking or overestimated.
all driving forces?
innovation
societal attitudes
owners and managers
employees
technology
competitors
globalisation
reduction of costs
pursuit of profit
legislation
owners
internal
- vested interest in the ability of their business to meet its objectives and continue to adapt.
- may actively seek out and support change
in order to remain competitive. - act as a driving force if they believe change is beneficial to future business performance.
managers
internal
are employees who hold positions of responsibility/authority within the business.
- Initiating the change
- Supporting the change, motivating and inspiring employees to do the same
- Preparing for the change by ensuring that the leadership and management across the business are all clear about the changes required
employees
internal
those who provide their labour to
the business in exchange for remuneration.
- If employees support the change and are
happy to implement it the business is likely to
find success. - Employees can also act as a source of the
change by creating new ideas and technologies
Pursuit of Profit
internal
desire to increase revenue and/or decrease expenses.
- Profit needs to be sustained over time to ensure that the business can continue to grow.
- continual pressure to increase profit, particularly from shareholders expecting high share prices and dividends.
- If the KPI of net profit is lower than forecasted, previous years or competitors.
Reduction of costs
internal
minimising expenses such as costs of supplies, wages, financing.
- All businesses focus on reducing costs as this will often support generation of profit even if revenue or sales cannot be increased.
- If costs are increasing, this will drive the business to implement strategies to change this.
Competitors
external
refer to business rivals who sell similar products/services in the same industry.
- Businesses being aware of the need to quickly respond to any competitor’s changes to ensure they do not lose customers or market share.
legislation
external
Legislation refers to laws created by the local, state and federal governments.
- Businesses must adapt their policies and practices to ensure they are abiding by the new laws.
- Legislation will drive a business to change in order to ensure safety and correct, ethical and legal behavior is maintained within the business
globalisation
external
means that businesses are operating on a global
scale due to the removal of trade barriers.
- giving increased access to markets around the world
- allows for broader scope for choice of suppliers and inputs (decreasing costs)
- increasing competitors, therefore the business must be conscious of keeping up with the global market
technology
external
machinery or equipment created through scientific knowledge.
-New technology will allow a business to outperform rivals in the industry and dominate market share
- Technology allows a business to operate its processes and practices more efficiently and effectively, cutting costs and improving productivity.
Innovation
external
refers to the process of altering and improving or creating new products or procedures which can increase the likelihood of a business succeeding.
- Being able to innovate and develop new ways of thinking and increases competitive edge.
- research new ideas and be aware of steps that competitors are taking to innovate and capture greater market share.
Societal Attitudes
external
values, opinions and trends of the community as a whole that influence their behaviour.
- New opportunities are developing for businesses that understand the changing attitudes, lifestyles and values of modern society.
- importance of flexible work practices
- importance of supporting local, Australian-made goods and services
all restraining forces
managers
time
organisational inertia
employees
legislation
financial considerations
managers (restraining)
They may feel the change threatens their current position, power or role.
They do not have the skills and experience to deal with the process.
May resent if they did not have input in the decision of change
Senior management may introduce a change which is not successful due to middle or front-line managers refusing to implement it or failing to actively support it (passive resistance).
employees (restraining)
Feeling unappreciated or disconnected from the business
Confusion over the changes
Employees may be fearful of change if it threatens their job status/security
Time
the amount of time available to make informed decisions and implement the change.
- insufficient time to make the change. Change may take a long time to implement properly and may require training and extensive planning.
-wrong time to implement a change. It could either be the wrong time in the year or wrong time in the economy.
organisational inertia
If restraining forces are equal to or greater than driving forces, ‘organisational inertia’ will occur.
“the tendency of a business to remain static rather than implement change”
- The lack of ability of a business to react to internal and external pressures for change as it tends to continue on its well entrenched way.
- Businesses that are stable with traditions and long history that are not used to change
Some businesses are very conservative which may make change problematic.
legislation (restraining)
finds that it has to manage a change in the law that is unexpected, expensive or difficult to implement, it will be harder for that business to respond positively.
financial considerations
will restrain change if it hasn’t budgeted for the change or if it does not have enough resources to move forward with change.
Costs of developing new policies/procedures and loss of productivity as the business researches, holds meetings, gains input and support, communicates and educates employees
Supplier Power
a business should assess how easy it is for suppliers to drive up prices. The smaller the number of potential suppliers for a business or the more unique the supplier’s product, the more power suppliers tend to have over the business.
Buyer Power
this looks at how easy it is for buyers to drive down prices. It is driven by the number of buyers, the importance of each individual buyer and the cost to them of switching from the business’ product to another. If there are a few powerful buyers, then the power lies with them not the business.
Threat of substitution
this is affected by the ability of customers to find a similar product or service. If substitution is easy then power and influence is reduced.
Threat of new entry
a business’ influence and power is affected by the ability of other businesses to enter the same market and competing. If entry costs are relatively low, new competitors can quickly enter the market and take away customers. This limits the ability of a business to raise prices without losing customers.
Competitive rivalry
focuses on the number and capability of competitors. If there are many competitors with equally attractive products and services, then the business will have limited power and customers can go elsewhere. If the product is unique then the business has a great deal of power and can raise their prices without fear of losing significant market share.
Lower cost strategy
strategy to achieve a competitive advantage by reducing production or delivery costs to become the lowest cost producer.
Lower cost strategy explanation
Businesses will often do this by appealing to cost-conscious customers:.
Resulting rivalry can result in a lack of profitability in the entire industry
There are three main ways of achieving low costs:
Improving efficiency- minimising idle stock on shelves, using assets more efficiently
Reducing direct and indirect costs- by reducing wages, educing the cost of interest
Controlling areas of management responsibility- a business might check and review areas
Advantages of lower cost
A business may become more profitable, as profit per unit can increase.
A business may save money on some costs to allow expansion or development of new lines.
Savings can be put towards differentiation at a later date.
Disadvantages of lower cost
Sales may fall as customers may perceive a product as being of poor quality.
A business may lose its market share if other businesses copy the low-cost approach.
Lowering costs now means there is little room to make changes in the future.
Differentiation
strategy to achieve a competitive advantage by selling a unique product targeted towards satisfying one or more attributes that customers consider important to increase its perceived value and can therefore charge a price premium.
Differentiation strategies
high-quality products — by ensuring that quality is better than that of competitors eg, more reliable/durable
multiple branding — by providing different brands or more brands in the same market to cater to a wide range of customers.
innovation/research and development — developing a product with unique features that no other business currently produces.
differentiation advantages
improve the way a business connects with customers, and can develop customer loyalty.
If able to charge a premium price, the business can make revenue gains.
By developing customer loyalty, market share can be increased.
differentiation disadvantages
Rival businesses can copy the differentiated approach, negating any gains.
Differentiation has an initial cost that must not outweigh the benefits.
Differentiation can be a time-consuming process, and, during that time, consumer tastes or preferences may change.
similarities of lower cost and differentiation
both have the same goal to gain the business a competitive advantage so as to increase market share and profit
can be applied to products and services
require ongoing investment from the business to be successful in the long term.
differences of lower cost and differentiation
low cost products may be below industry average prices whereas with differentiation products are sold at a premium price
differentiation involves significant investment into innovation while lower cost involves investment into cost reduction
differentiation involves appealing to brand loyalty and attractiveness seeking consumers while lower cost appeals to price conscious consumers.
Weighting
process of scoring and attributing a value to the driving and restraining forces.
- enables the business to assign a ‘weight’ to determine the level of impact each force can potentially have on the change.
- involves assigning a numerical score between 1 to 5
- The weight attributed to each force can depend on the degree to which the force is affected by the change.
Ranking
involves arranging the forces in order of value and
determining the total score of driving and restraining forces.
Ranking helps determine which driving forces could
most easily be strengthened further, and which restraining forces are most important to be
removed or minimised.
Implementing a response
whether a business should implement a response dependent on if driving or restraining forces are stronger.
this principle of implementing a response refers to the action that can be taken to strengthen the driving forces, reduce or eliminate the restraining forces, and/or the actual execution of the change.
An action plan needs to be developed that details what needs to be done, who is responsible, the resources required, and deadlines for task completion can be created to support the implementation of the change.
Evaluating a response
involves determining whether or not the change has been successfully implemented.
The principle of evaluating the response refers to comparing the actual change to the anticipated change and determining whether further action needs to be taken.
However, if the evaluation of the change is negative,
the Force Field Analysis may need to be redone, because forces may have strengthened, weakened, or changed.
Porter’s Generic Strategies
Michael E. Porter is a US-born professor in the 1980s developed a theory that is still used today. The theory attempted to explain how businesses may seek future growth by pursuing a competitive advantage over other businesses
