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
