Theme 3 -Influences On Business Decisions

Question 1

Stake holder

Answer 1

Anyone who has interest in the business of who may be at free ted by the activities of the business

Question 2

Corporate influences

Answer 2

The factors which will have an impact on business decisions e.g. level of competition in the market

Question 3

Corporate time scale

Answer 3

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

Question 4

Short termism

Answer 4

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

Question 5

Where is short termism used?

Answer 5

• 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

Question 6

What can shortermism lead to?

Answer 6

• 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

Question 7

Longtermism

Answer 7

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

Question 8

What does long term approach consist of?

Answer 8

• 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

Question 9

What does long-termism lead to

Question 10

Evidence based approach

Answer 10

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)

Question 11

Pros and Cons of evidence based approach

Answer 11

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

Question 12

Subjective decison making approach

Answer 12

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

Question 13

Pros and Cons of subjective decision making approach

Answer 13

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

Question 14

Short term stratergies

Answer 14

• 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
  *

Question 15

Steps of evidence based approach?

Answer 15

• 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

Question 16

When are the two approaches used?

Answer 16

• 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

Question 17

Corporate culture

Answer 17

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

Question 18

Culture

Answer 18

Shared attitudes, values, customs and expectations

Question 19

Person culture

Answer 19

Where there are a number of individuals within the business who have expertise but they don’t necessarily work together

Question 20

Power culture

Answer 20

Where there is a central source of power responsible for decision making

Question 21

Role culture

Answer 21

Decisions made through well established rules and procedures

Question 22

Strong culture

Answer 22

A culture where the values, beliefs, and ways of working are deeply embedded within the business and its employees

Question 23

Strong culture

Answer 23

A culture where the values, beliefs, and ways of working are deeply embedded within the business and its employees

Question 24

Task culture

Answer 24

When a business allows a team to focus on particular task within the broad remit of the overall aim of the business

Question 25

Weak culture

Answer 25

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

Question 26

Internal stakeholders

Answer 26

Includes employees, managers, board of directors and owners of the business

Question 27

Internal stakeholders

Answer 27

Includes employees, managers, board of directors and owners of the business

Question 28

External stakeholders

Answer 28

Groups outside of the business with an interest in its activities

Question 29

Shareholders

Answer 29

The owners of a company who have taken risk by investing their capital into the business

Question 30

Stakeholder approach

Answer 30

When a business should consider all of its stakeholders in its business decisions and objectives

Question 31

Stakeholder approach

Answer 31

When a business should consider all of its stakeholders in its business decisions and objectives

Question 32

Employees as a stakeholder?

Answer 32

* 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

Question 33

Manager as stakeholder

Answer 33

* 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

Question 34

Owner/director

Answer 34

* 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

Question 35

Customers as external stakeholder

Answer 35

* 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

Question 36

Competitors

Answer 36

* 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

Question 37

Suppliers as external sh?

Answer 37

* 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

Question 38

Local community

Answer 38

* 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

Question 39

Shareholders

Answer 39

* 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

Question 40

Potential conflict of shareholder approach

Answer 40

* 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

Question 41

Potential conflict of stakeholder approach

Answer 41

* 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

Question 42

Relationships with stakeholders

Answer 42

* 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

Question 43

Stakeholder mapping

Answer 43

Helps identify how much interest in and power over the business different stakeholders have

Question 44

Business ethics

Answer 44

Principles that govern which behaviours are morally accepetable to society, individuals or groups

Question 45

Business morals

Answer 45

Business morals = standards of behaviour;principles of right and wrong

Question 46

Examples of business ethics and morals

Answer 46

Behave responsibily in regards to the enviroment Avoids negative impacts on animals Adopts fair working practices Implements robusy and equitable supply chains Elimnate corruption (approproriate tax is paid in countries businesses operate) Avoids controversial products or minimise impact Cease trading with questionable suppliers

Question 47

location in ethics?

Answer 47

Labour costs cheaper overseas but workers in bad conditions

Question 48

Suppliers on ethics?

Answer 48

Ethical stance of suppliers (exploiting workers)

Question 49

Bribery and corruption on ethics?

Answer 49

Bribe people to get business activities approved

Question 50

Selling tactics ethics?

Answer 50

Easily persuade customers with low costs but fail to inform about additional costs

Question 51

Trade off between profut and ethics?

Answer 51

A business being ethical means it sacrafices profit = trading off profit for an ethical stance on their business Implementing an ethical code increases the costs of the business However, sacraficing too much damages the firm as limiting growth and making people less likely to invest However customers often willing to pay higher prices when they are concerned about the ethical stances of businessess

Question 52

Ethical concerns regarding pay

Answer 52

The gender pay gap - on average women earn 10% less than men per hour despite equal pay legislation Minimum wages - many businessess pay workers legally required nmw - many low paid workers are entitled to benefits such as tax credits Executive bonuses - senior managers get paid more are the addtional skills and experience worth additional pay they recieve Necessary to ttract best candidates for a job in international labour market Rewardsing senior members of staff with big performance related pay could be viewed as unethical if business has let customers down

Question 53

Executive bonuses

Question 54

Corporate social responsibility

Answer 54

CSR = a business appraoch that contributes to sustainable development by delivering economic, social , enviromental benefits for all its stakeholders csr involves conducting business activity in an ethical way and balancing the interests of shareholders with those of the wider community Go above what is required by the law to help society as a whole

Question 55

CSR polices

Answer 55

Reducing negative impact on enviroment Supporting charities and community projects Treating their workforce ethically

Question 56

Examples of csr intiatitives

Answer 56

* Sustainable sourcing of raw materials and components h and m a goal of only using reclycled or sustainably sourced materials by 2030 * Responsible marketing m and s ensures * Protecting enviormnet * Responsible customer service * Ethical trading policies * Positive links with community

Question 57

Advantages and disadvantages of csr/ethical stance?

Answer 57

Ads: * Improves brand loyalty, attracts new customers through positive publicty * Happy staff = more motivated and productive workers who are proud of the business they work in * Attract more talented workforce * Happy investors more funding and investment * CSR stimukate innovation new products and markets * GOOD PR * GOOD relationships with communities * Happy suppliers * Cost reduction, energy saving and not having to retrie staff Dis: The latest fad - consumers will tire off it and move on CSR has costs associated which shareholders may see as a missue of funds may withdraw investments pressure firms to stop csr Costs passed onto customers - many customers prepared to pay more unless price sensitive Do consumers care CSR disadvantages smaller businessses unliley to have the funds for csr