Theme 3 -Influences On Business Decisions Flashcards
Stake holder
Anyone who has interest in the business of who may be at free ted by the activities of the business
Corporate influences
The factors which will have an impact on business decisions e.g. level of competition in the market
Corporate time scale
Corporate time scale = refers to the expectation within a business of when a return on investment will be achieved as well as how far into the future they set stratergies for
- Affect the relative importance that managers place on short term and long term strategic decisions
- Businesses can use a short term or long term approach
Short termism
Short termism = where firms make decisions to increase financial performace over short time periods, often at the expense of long term performance
- Means that a business is only interested in a quick financial reward
- Choosing a course of action which is best in the short term but may be critical in the long term
- Lack of development as a business focuses on short term returns n investment - business should be looking to invest in research projects that will give the business the competitive advantage
- Makes businesses fail to innovate and stagnate
Where is short termism used?
- Limited companies - it is used to keep shareholders happy as they look at short term performances
- This approach is attractive to managers as their bonuses often based on short term performances
- Used in very new businesses - unlikley to focus on long term goals until they are making profit and financially stable
What can shortermism lead to?
- Businesses have little to no investment in technology, training and research and development
- This reduces costs and increases profit in the short term but it means reduced competitiveness as it is unprepared for changes in the future and reduced profit
- Businesses adjust financial accounts to show increased profits for a particular time periods which can attract additional investment in the short term
- Choosing short term contracts with customers, suppliers and staff instead of fostering long term relationships firm can change direction quickly to maximise return lead to higher than necessary costs as benefits such as bulk buying cant be achieved
- Cutting staff numbers to reduce costs - losing skilled and experienced staff paying extra dividends to shareholders rather than investing extra money into business
- Using in organic growth methods in order to grow more quickly
- Loss of profitability and competitive edge as lucrative long term opportunities are ignored
Longtermism
Businesses concentrate on reaching long term goals rather than prioritisng short financial gains
- Allows for a more hollistic approach to strategic decision making meaning a firm concentrates on the overall performance rather than just short term finanical state
- affect the long-term mission and vision of the business over a period of anything up to ten years
What does long term approach consist of?
- Considers ethical behaviour of the business in decision making
- Adopting long term outlook with less emphasis on frequent financial reporting
- Conducting on going investment in research and development, innovation and new product development
- Staff development seen as long term objective of the business to retain and develop staff investing signifcant resources into recruitment, training and retention of staff
- Long term technology investments secure data for the future
- Incorporate CSR ( corporate social responsibility)
- Establishing and nuturing meaningful relationships with suppliers
What does long-termism lead to
Evidence based approach
A structured approach to decision making where managers use data that has been gathered and analysed to help them make their decisions on objectives stratergies and tactics
(uses investment apprasial, decision trees and critical path analysis)
Pros and Cons of evidence based approach
Pros:
- Based on facts that can be verified, making it easier to justifty a decision to others
- More disciplined and less liable to error
- Uses validated decision making tools e.g. critical path analisis
- Decision is well structured and there is a record of how the decision was reached
- Options can be simulated and tested
Cons:
- Can take a long time to reach a decision - time consuming and costly to gather evidence - circumstances might change in the meantime
- Different interpretations are possible from evidence may lead to firm overlooking other aspects of the decison e.g. how ethical it is
- Lacks creativity which may lead to failture to come up with innovative approaches
Subjective decison making approach
Decisions relating to a business which are based on personal perspectives, feelings and opinions
- Subjective decision-making is often more risky than an evidence-based approach but there are some circumstances where it may be more appropriate
Pros and Cons of subjective decision making approach
Pros:
* Decisions can be made quickly which can let a firm take advantage of a short-lived opprotunity
* It can be used when theres a lack of data to base the decision on or when an opinion isneeded
* Skills of senior managment may be a better source of information than historical data
* Take into account social and ethical impacts of decisions
* Very flexibile means business owners can take advantage of opportunities as they arise
Dis:
- Peoples instincts may be wrong or biased leading to poor decisions being made
- Can be difficult to justify the decision
- Can lead to managers making snap decisions without fully considering the long term consquences of the decision
- Management experience may not be up to date and relevant
- Emotions and feelings can cloud good business decision making
- May not be the best method for high risk decisons which require big investments
Short term stratergies
- Maximise short-term profits
- Minimise research and development investment
- Maximise returns to shareholders
- Pursue rapid inorganic rather than organic growth
- Invest less in human resouces e.g. training
- Prioriise short term supply contracts
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Steps of evidence based approach?
- Firstly a business identifies the measurable objective it wants to achieve and determine the criteria against which success will be measured
- Data is then gathered and analysed to consider the range of available decisions
1. Internal data may be gathered from sales records and market research
2. External market data and economic forecasts are also often used - The appropriate evidence-based strategic and tactical decision is made and communicated with those required to carry out the range of tasks involved
- The decision is implemented and carefully monitored and reviewed
- The outcome of the decision can be used to inform future decision-making
When are the two approaches used?
- Decision maing varies between businezses - start up to use subjective as they dont have enough dara
- Deoends on the nature of the business - might use evidence based on big expensive decisions and subjective for smaller decisions that are less costly
- Persuasive and single minded leader - subjective
Corporate culture
An unwritten code of conduct within a business organisation that reflects it values and embodies the shared beleifs and assumptions that underpin the decision making process
Reflects the firms values and shapes expectations and attitudes of staff and managers
Culture
Shared attitudes, values, customs and expectations
Person culture
Where there are a number of individuals within the business who have expertise but they don’t necessarily work together
Power culture
Where there is a central source of power responsible for decision making
Role culture
Decisions made through well established rules and procedures
Strong culture
A culture where the values, beliefs, and ways of working are deeply embedded within the business and its employees
Strong culture
A culture where the values, beliefs, and ways of working are deeply embedded within the business and its employees
Task culture
When a business allows a team to focus on particular task within the broad remit of the overall aim of the business
Weak culture
When the needs of the business are put before the needs of the customers, communication is weak, staff turnover is high and mistakes are about blame not learning
Internal stakeholders
Includes employees, managers, board of directors and owners of the business
Internal stakeholders
Includes employees, managers, board of directors and owners of the business
External stakeholders
Groups outside of the business with an interest in its activities
Shareholders
The owners of a company who have taken risk by investing their capital into the business
Stakeholder approach
When a business should consider all of its stakeholders in its business decisions and objectives
Stakeholder approach
When a business should consider all of its stakeholders in its business decisions and objectives
Employees as a stakeholder?
- Internal stakeholders key the businessess success
- Those involved directly in the running of the business
- The satisifcation of internal stakeholders is a way to judge how well a company stratergy is working
- Employees can carry out the tasks given to them by Managers
Interested in: rewards (basic pay), Job security and working conditions, promotion opportunities, job satisifaction and status, roles and responsibilties and managers
Manager as stakeholder
- Critical internal stakeholders
- Told the strategic direction of the business by the directors and must translate this into operational objectives and goals
- Need to communicate this to employees so that the stratergy is carried out
Owner/director
- Owners of large companies are largely engaged in the day-day running of the business
- Considered initial investors who are mainly interested in the business value and profitablilty
- Board of directors is usually made up of the top most management of the organisation including the chief executive officer and they are the policy makers of the company
- Make profit and if succesful decide what happens to the business
Customers as external stakeholder
- Primary stakeholder because they face a risk if the business fails to perform
- Customers will consume the end product or servoce of the company
- Their loyalty is never guaranteed and businesses need to work hard to keep their businesses
Interested in: Value for money, product quality and customer service
Competitors
- Rival businesses operating in the same market
- Compeitiors want to remain competitive by being aware of the practices and products of their rivals and responding properly
- Competitors also want to benchmark their perforamnce against other companies by comparing key business indicators e.g. sales revenue, market share, number of employees and profit
Suppliers as external sh?
- Interested in the excellent performance of the business since it assures them of regular orders and prompt payments, which keep them in business
- Supplier can also influence business by changing the credit terms, delivering times, and increasing or decreasing quality of their materials
- Suppliers objectives are to be fair priced and paid on time
- Businessess supply suppliers incomes so need to be paid on time or they will have cash flow problems
Interested in: continued profitable trade and financial stability
Local community
- Businesses generally located atound that form the major external stakeholders
- They have a duty to ensure the saftey,health and economic development of the communities around them
- Whenever a company enters or exists a community it afffecrs employment income and overall spending in the area
- Objectives to maintain or improve the standard of living in the community
- Local community will gain if the business provides local employment and sponsors local activities
- Community will suffer if business causes noise and pollution ofr if the business has to cut jobs
Interested in; success of the business, impact upon themselves
Shareholders
- A person who owns a share in the company and therefore holds an ownership stake in the company and has an interest in its profitability
- Share price increases, shareholders value increases and they would prefer companys managemnet to take actions that would increase their share price and dividens and improve their financial position
Most interested in: ROI, profits+ dividends, success and growth of the business, proper running of the business
Potential conflict of shareholder approach
- Some businesses may have different approaches to way stakeholders influence their decision making
- Businesses that focus on the objectives of its stakeholders over those of other stakeholders - focus on profit based objectives helps to ensure shareholders get good returns by increasing shareprice and dividend payments - more lileyt to use short termisn
Potential conflict of stakeholder approach
- Considers objectives of all its stakeholders - focus less heavily on maximising profit
- Corporate objectives likley to be wider- reaching and put more focus on acting ethically and socially responsible
- More likley to use long termisim
- Businesses aim to consider the interests of all their stakeholders must try to satisfy as many groups as possible - needs to decidde which group to prioritise - stakeholder mapping
- stakeholders dont always disagree - interests may overlap
Relationships with stakeholders
- Are important to managers
- Mange to prevent damage of firm if stakeholder isnt satisifed
- Consult stakeholders before making any major decisions - feel valued
- Good communication - vital managing relationships with stakeholders
Stakeholder mapping
Helps identify how much interest in and power over the business different stakeholders have
Business ethics
Principles that govern which behaviours are morally accepetable to society, individuals or groups
Business morals
Examples of business ethics and morals
location in ethics?
Suppliers on ethics?
Bribery and corruption on ethics?
Selling tactics ethics?
Trade off between profut and ethics?
Ethical concerns regarding pay
Executive bonuses
Corporate social responsibility
CSR polices
Examples of csr intiatitives
Advantages and disadvantages of csr/ethical stance?
