U4 AOS1 Flashcards
define change
any alteration in the internal or external environments
changes which impact businesses:
- consumer tastes
- employee expectations
- the way things are perceived
- a new way of dealing with problems
define business change
the adoption of a new idea or behaviour by a business
- results in a difference in the form or operation of a business overtime
results of changes which impact businesses:
- modified corporate culture
- implemented new management structures
- recruited employees with new skills
- developed different work practices
the purpose of approaches to change
the ability to manage, embrace and adapt to change determines a business’s competitive advantage and survival
- successful managers are those who anticipate and adjust to changing circumstances, rather than be swept along passively or be caught unprepared
- the long-term survival of a business depends on the ability of its managers to scan the environment, predict future trends and exploit change
- change may be daunting, but the rewards are great
state the two approaches to change
proactive
reactive
define proactive approach
the situation where a change is planned and occurs before a business is affected by pressures in their environment
- anticipated, rather than be done by force
ways to determine the use of a proactive approach
- constantly observing business performance to identify problems before they occur
- forecasting likely events or trends in the market rather than waiting for them to occur
- regularly consulting employees, customers and professional analysts to identify opportunities to make the business more effective and efficient
the effectiveness of using a proactive approach
- the business is prepared when the change occurs, so that the change does not dramatically impact the business
- the business gains a competitive advantage due to not being negatively affected by the change in the environment
- enables long-term survival of the business as its managers scan the environment, predict future trends and exploit changes - leads to greater rewards than challenges
- the business’s objectives such as customer satisfaction, sales and profitability are less likely to be affected
define reactive approach
the situation where a change is unplanned, and takes place after the business has been affected by the pressures from its environment
ways to determine the use of a reactive approach
- observing competitors and then copying their processes, products and strategies
- dealing with a crisis and then creating policies to try and stop the crisis from happening again
- waiting for customers or employees to demand change and then responding to these changes
the effectiveness of using a reactive approach
- the business has already been affected by the change, potentially causing a loss in productivity and sales due to failure to recognise that the change was imminent
- the failure to respond immediately to the change reduces the time available to the business to recover
- the business can lose brand reputation and market share as other, more proactive businesses change faster - gaining a competitive advantage and new customers, while the business’s customers leave for other proactive businesses
good implementation of change vs bad implementation of change
good implementation of change
- changes occur at a pace that allows businesses to absorb and integrate them into their operations
- changes should be evaluated thoroughly to assess their overall impact
negative implementation of change
- poorly managed changes normally result in employee resistance, tension, anxiety, lost productivity, and consequently, unmet objectives
define key performance indicators (KPIs)
specific criteria used to measure the effectiveness and/or efficiency of a business’s performance
- provides data that can act as a driving force for change for a business
draws on information taken from a variety of sources, such as:
- accounting reports
- marketing statistics
- data gathered from customer or employee feedback
- from observation
establish objectives, develop strategies and evaluate performance (using KPIs)
state the 10 key performance indicators (KPIs)
P, N, DOUBLE R, DOUBLE L, 4 NUMBER
percentage of market share
net profit figures
rate of productivity growth
rate of staff absenteeism
level of staff turnover
level of wastage
number of sales
number of customer complaints
number of website hits
number of workplace accidents
define and explain percentage of market share
the business’s share of the total industry sales for a particular good or service, expressed as a percentage
having the largest market share
- the business is outperforming its competitors
an increase in market share
- the business is performing successfully
a decrease in market share
- other businesses are more proactive, so they are gaining more customers, leading to an increase in customer satisfaction, customer demand, sales and profitability
- while other businesses are increasing, the business is not meeting its objectives, leading to a decrease in customer satisfaction, customer demand, sales and profitability
define and explain net profit figures
the measurement of a company’s profit once operating costs, taxes, interest and depreciation have all been subtracted from its total revenue
this concerns investors/shareholders, as net profit figures are the source of their return on their investment
- monitored closely, as a significant net profit is expected, while a low or negative net profit makes them reconsider their investment
a significant net proft
- the business is performing successfully
a low net profit or a negative net profit (a loss)
- the business could be experiencing several problems, including reduced sales, poor customer service or inadequate management of expenses
define and explain rate of productivity growth
productivity
- a measure of performance that indicates how many inputs (resources) it takes to produce an output (a good or service)
rate of productivity growth
- the change in productivity in one year compared to the previous year
growth in the rate of productivity
- the business is using resources more efficiently
productivity will improve if a business:
- uses fewer inputs to obtain the same level of output
- more output is produced from the same input
a decrease in the rate of productivity suggests the opposite of this
define and explain rate of staff absenteeism
measures the number of workers who do not turn up for work when they are scheduled to do so
it is not uncommon for staff to have days off work
staff get sick, have family commitments, or other circumstances
- sometimes a sign of a positive relationship between the employer and the employee — if done openly and honestly, it shows that support and trust exist
sometimes employees may be absent from work because they are dissatisfied or demotivated
- a rising rate of staff absenteeism may indicate problems at work between the employer and the employees
- a decrease suggests the opposite (in a good way)
define and explain level of staff turnover
the number, or the rate, of employees who are leaving the business, for whatever reason, over a specific period of time, and needs to be replaced by new employees
some staff turnover is always to be expected as employees move on to new businesses for a variety of reasons including promotion or relocation
high or increasing levels of staff turnover
- problematic
- employees are not satisfied with their working conditions
staff turnover results in employees needing to be replaced, resulting in recruiting and training costs, and the loss of productivity and knowledge
a decrease suggests the opposite
define and explain level of wastage
the amount of unwanted or unusable material created by the production process of a business
- the volume of resources consumed by inefficient or unnecessary activities
- the amount of unwanted material left over from a production process
- output that has no marketable value
- material that from a consumer’s viewpoint doesn’t add value to a good or service
- any material discharged to, deposited in or emitted to an environment in such a quantity that it causes harm or damage
a business manages resources more efficiently by reducing waste, which can cut production costs
an increase of waste means more production costs, and inefficient use of resources
to reduce the level of wastage:
- making use of environmentally friendly packaging (recyclable or biodegradable)
define and explain number of sales
a measure of the amount of goods or services sold by a business in a given period of time
measuring the number of sales helps a business evaluate its performance, especially its marketing strategies
- such a strategy will lead to higher profits in the long term
- a marketing campaign is a strategy that is expected to increase the number of sales
a business will be satisfied with its performance when the number of sales increases over a period of time, even if it means lower profits in the short term due to higher marketing costs
define and explain number of customer complaints
the number of customers expressing their dissatisfaction with a business’s outputs, in a spoken or written form
disappointments can come from:
- the quality of the good or service
- the price of the good or service
- the customer service received for the good or service
e.g. US airlines disappointments come from delays/cancellations, food, tickets/check-in, staff, seats and aircraft and luggage
the number of complaints that customers make can also indicate whether they are satisfied with the way the business performs
- a successful business, aiming to maximise customer satisfaction, would receive a small number of customer complaints
- a large number of customer complaints means that there is a decrease in customer satisfaction, which can lead to loss of sales and profitability — objectives not achieved
some businesses understand that one customer complaint represents the ‘tip of the iceberg’ because for every customer who complains to the business, there are several customers who don’t
define and explain number of website hits
hit
- a request to a web server for a file such as a web page or image
- servers can monitor website activity and register whenever a web page receives a visitor (or a ‘hit’)
- there may be many ‘hits’ once a potential customer visits a web page, since a web page can contain multiple files, such as images and texts, which are ‘downloaded’
number of website hits
- the total number of visits to a website in a given period
businesses record how many potential customers visit its site or engage with the site following an advert or a link from a social media platform
a business can track how many of these ‘hits’ result in a purchase
- increase in hits means that the business is visible to customers, and an increase in brand awareness (increased search engine rankings) and sales results
- decrease in hits means that the business is not visible to customers, so the opposite occurs — a slow to no rate of sales results
define and explain number of workplace accidents
any unplanned event that results in personal injury or property damage at the workplace that is reported to management
- indicates how safe the workplace is for employees
an unsafe workplace impacts on the productivity of the business
- staff members who feel unsafe may not be motivated to work efficiently
- accidents that occur as a result of an unsafe workplace can actually stop production
an increase in the number of workplace accidents
- the workplace is unsafe for employees
- results in employees not going to work — slowing/stopping production and potential loss of sales
a decrease in the number of workplace accidents
- the workplace is safe for employees - production can continue and objectives are being met such as increase in sales
define force field analysis
outlines the process of determining which forces drive and which forces resist a proposed change
- for change to be successful, the strengths of the driving forces should outweigh the strengths of the restraining forces
define driving forces
forces that initiate, encourage and support a proposed change
- assists the business in achieving its goal
- driving forces encourage change; they are not sources of change
define restraining forces
forces that work against the proposed change, creating resistance
- hinders the achievement of the goal
the force field analysis process (IWRRE)
(1) identify the driving and restraining forces for the proposed change
(2) weighting (out of 5) to each force to represent its strength
- a low score (1) suggests that the force is weak
- a high score (5) suggests that the force is strong
(3) rank the top 3-5 driving and restraining forces
- the business and the guiding group needs to either strengthen or eliminate these forces for change to occur
- strengthen driving forces
- eliminate/weaken restraining forces
(4) response - develop an action plan to reduce the strength of the restraining forces and increase strength of driving forces
- list the actions that are required to be completed to:
- list and implement the actions to address the driving and restraining forces
- driving forces: strategies to encourage driving forces
- restraining forces: strategies to eliminate restraining forces
(meet the proposed change, assign responsibility for each action and implement a response)
(5) evaluate the response to determine its effectiveness
- a process of review and evaluation of the implementation of a response
- the managers can then plan for successful change
state the corresponding strengths and weaknesses of a force field analysis
strength 1
- allows a business to identify and strengthen the driving forces supporting the change and to take action to reduce or eliminate the restraining forces
weakness 1
- the identification of the driving and restraining forces may omit some forces; they may not be clearly identifiable at the time and may emerge during the change or the person completing the analysis may not have identified the force
strength 2
- allows a timeline to be developed and additional resource requirements to be identified
weakness 2
- timelines can be subjective and may not consider unexpected events
strength 3
- businesses are able to weigh up the factors ‘for and against’ and whether the change is worth undertaking
weakness 3
- the weightings of the forces are subjective; biases can emerge when determining the importance of a particular force
state the driving forces (CEO TIPS GRL)
- competitors
- employees
- owners and managers
- technology
- innovation
- pursuit of profit
- societal attitudes
- globalisation
- reduction of costs
- legislation
explain competitors as a driving force
businesses that sell goods and services in the same industry and are constantly trying to increase their market share
- knowledge of such changes enables a business to make modifications to its existing business activities and to plan new ones
- fear of loss to a rival if the changes are unsuccessful
actions of competitors that can drive a business to change:
- the opening of a business may cause the exisiting business to undergo change to stay relevant to customers
- pricing policies by a competitor may lead a business to adopt a similar strategy
- the adoption of new technologies, both in production and products, can drive a competitor to change their products or processes
- advertising campaigns, sales and the development of an online presence can drive change
explain employees as a driving force
the people who work for the businesses
in return for their vital contribution to production, employees working for a business expect to be:
- paid fairly
- trained properly
- trained ethically
many employees are stimulated and motivated by an environment that fosters innovation and creativity
- where ideas are shared and acted on, are likely to recommend changes to policies, production processes or products
- businesses can benefit from employee input, enabling them to develop innovative technologies
explain owners and managers as a driving force
the people who establish and operate a business
- wants the business to remain profitable and competitive
- the livelihood of the owner is tied to the ability of the business to change and maintain sales, profit, market share and its customer base
- shareholders expect a return on their investment; must ensure that dividends are paid to shareholders
- will be under pressure to push for changes that will lead to a better outcome and more efficient achievement of business objectives
explain technology as a driving force
a business that wants to be locally, nationally or globally competitive must adopt the appropriate technology
- stay up to date or risk falling behind
- if slow to exploit technology, a business is likely to fail because its competitors will strive to capture greater market share and develop a sustainable competitive advantage
- allows a business to operate its processes and practices more efficiently and effectively, cutting costs and improving productivity
explain innovation as a driving force
a process that occurs when something already established is improved upon
- the drive and desire to be a market leader
innovation can be driven or result from:
- technological advances and by globalisation
- research and development undertaken by businesses or through individuals identifying areas for improvement
- the identification of a niche market, which is a narrowly selected market segment within a larger market
explain pursuit of profit as a driving force
all businesses, regardless of size, need to earn a profit, of which they return a portion to owners/shareholders
- the greater the profit, the greater rewards for business owners; so they pursue it
- profit is essential to the survival of a business as a business cannot operate if expenses are greater than revenue for long periods of time
- undertake changes to assist in meeting such objectives if profit levels are not sufficient
explain societal attitudes as a driving force
businesses are constantly confronted by changes in society’s attitudes and values
- the need to reflect society’s attitudes
- society’s attitudes about what is socially acceptable are constantly changing and this affects the ways in which businesses operate
- pressures forces businesses to implement change to preserve and protect the environment
- requires businesses to sell acceptable products and treat staff with respect
- expects businesses to contribute to society by returning something positive to the communities in which they operate
explain globalisation as a driving force
the movement across nations of trade, investment, technology, finance and labour brought about by the removal of trade barriers
- the need to chase new markets overseas and gain the benefit of new inputs from overseas which may be cheaper and of better quality
- the whole world operates as a single market, producing a more integrated global economic system
- the development of hi-tech communications, lower transport costs and unrestricted trade and financial flows allows this
examples
- global sourcing of inputs
- overseas manufacturing
- global outsourcing
explain reduction of costs as a driving force
a business will incur a range of costs
- financial cost of operating a business can affect profit
- if costs are rising, profits will be negatively impacted
- businesses will seek to implement strategies to reduce costs
examples are supplies, materials, utility costs, government charges and taxes etc
cost-reducing strategies:
- source materials and supplies from a cheaper supplier, either locally or overseas
- source a local supplier to avoid paying import duties
- reduce wages through downsizing or replacing labour with technology
- source a new supplier of utilities
explain legislation as a driving force
laws can be passed that require a business to stop doing something or to start doing something
- it is a legal requirement for businesses to comply with the law or they may face substantial fines or even imprisonment of individuals
- changes to the law that impact operational practices
state the restraining forces (LEFTMO)
- legislation
- employees
- financial considerations
- time
- managers
- organisational inertia
explain legislation as a restraining force
legislation must be complied with
- restrictions on certain operational practices and procedures
- Australian Competition and Consumer Commission (ACCC) has the power to prevent a merge
- laws such as occupational health and safety laws can prevent businesses from undertaking changes that could cause injury to worker
- privacy legislation has become an issue as businesses have access to, and are handling and storing personal data
explain employees as a restraining force
the people who work for the business
- any type of change to a business will eventually impact on the level and type of staffing
- no matter how technically or administratively perfect a proposed change may be, staffing issues may make or break it
- the introduction of a major change may result in a complete breakdown of the existing corporate culture
- a fear of job loss during any change can lead to staff resisting the change
- creates a feeling of mistrust and suspicion among the employees
- employees may resist as they are worried that they cannot adapt to new procedures, which threaten established work routines
in return for their vital contribution to production, employees working for a business expect to be:
- paid fairly
- trained properly
- treated ethically
explain financial considerations as a restraining force
cost and revenue issues associated with a proposed change, and in the short term this may involve significant costs associated with new capital equipment or new training requirements
- even given sufficient finances, a business contemplating change must weigh up the costs associated with implementing the change and compare with the benefits of the change
- well-informed, calculated decisions will minimise the risk and enhance the long-term viability of the change
examples
purchasing new equipment, technology, redundancy payments etc
explain time as a restraining force
change is ongoing and, as such, there is always pressure for change
- poor timing, or lack of time
- some pressures occur quickly, so businesses do not have the time to plan the change as efficiently and effectively as they would like
- sometimes, not enough time allows people to think about the change, accept the change and implement the change
explain managers as a restraining force
the people who operate a business
employees lose confidence in the decision-making abilities of management
changes that threaten to eliminate jobs usually face strong resistance
- may make hasty decisions that are poorly timed and unclear
- may be indecisive and put off making a decision, creating uncertainty
- may lack the experience and skills to oversee a transformation
- may not be able to deal with resistance from the various stakeholders in the business
- may lack the capacity to deal with change
explain organisational inertia as a restraining force
an unenthusiastic response from a business to proposed change
- inability to make internal changes, or lack of response, when faced with significant external changes
- employees and managers prefer a safe and predictable status quo
managers may resist change:
- requires moving outside and away from their ‘comfort zones’
- may be reluctant to invest in new projects, particularly when things are going well
- may feel that a new direction is too risky, or they may be too attached to what they have always done
explain competitors as a driving force for coles
sell goods and services in the same industry and are constantly trying to increase their market share
- a business needs to respond to the actions of competitors or risk being left out of the industry
- knowledge of such changes enables a business to make modifications to its existing business activities and to plan new ones
amazon’s move to take a share of the $100 billion grocery market in Australia was a driving force for coles as they fought to stop a new overseas entrant from stealing their market share
- coles and woolworths together currently control 85% of australia’s online grocery sales
explain technology as a driving force for coles
allows a business to operate its processes and practices more efficiently and effectively, cutting costs and improving productivity
- allows businesses to reduce the need for labour and to improve customers’ experiences
- if a business is slow to exploit technology, a business is likely to fail because its competitors will strive to capture greater market share and develop a sustainable competitive advantage
the opportunity for coles to introduce the ocado automated, robot controlled warehouse system meant coles would be able to use technology in a way that would not have been possible before
- two ‘end-to-end’ automated online grocery warehouse system allows for orders to be packed and shipped automatically
explain financial considerations as a restraining force for coles
cost and revenue issues associated with a proposed change, and in the short term this may involve significant costs associated with new capital equipment or new training requirements
- even given sufficient finances, a business contemplating change must weigh up the costs associated with implementing the change and compare with the benefits of the change
- well-informed, calculated decisions will minimise the risk and enhance the long-term viability of the change
at coles, one cost restraining the change is the revamped online grocery system that is expected to cost $130 to $150 billion over the four-year construction and development period
explain employees as a restraining force for coles
the people who work for the business
- any type of change to a business will eventually impact on the level and type of staffing
- no matter how technically or administratively perfect a proposed change may be, staffing issues may make or break it
- the introduction of a major change may result in a complete breakdown of the existing corporate culture
in return for their vital contribution to production, employees working for a business expect to be:
- paid fairly
- trained properly
- treated ethically
on november 18 2020, 350 coles warehouse employees went on strike
coles has said that long-serving employees would not be moved to the new automated distribution site once it was built
the employees were demanding five weeks of redundancy pay for every year of service, up to a maximum of two years pay
- employees’ belief that coles’ decision will put them into economic recession
- employees’ belief that they are not being treated ethically, and are at risk of job security as a result of coles’ decision of not having them work at the new shed
define and explain porter’s generic strategies
a strategic management theory describing how a business can seek to acquire a competitive advantage in its industry and therefore, dominate that industry or increase its market share in it
- a proactive approach
- the idea that a business cannot offer both lower cost and differentiation
state the two key approaches to strategic management according to porter’s generic strategies
lower cost
differentiation
define and explain the approach of lower cost strategies
a business offering customers similar or lower-priced products compared to the industry average, while remaining profitable by achieving the lowest cost of operations among competitors
(1) cost leadership: trying to make their costs the lowest in the industry so they can either
- charge prices at or near the industry average and make a higher profit margin on each unit of output
- charge a cheaper price than competitors and sell a higher quantity of outputs to increase market share
(2) cost focus: trying to seek a competitive advantage in a segment of an industry (a niche market)
how does a business use lower cost?
- economies of scale: high levels of output to reduce cost per unit through reduced capital costs and bulk buying
- minimise labour costs: altering staff tasks, reducing size of workforce, outsourcing tasks or introducing new technologies
- reduce input costs (sourcing elsewhere): change raw materials, change suppliers or use lean management to reduce wastes
- the use of materials management strategies such as Just In Time (JIT) to reduce costs
state the corresponding strengths and weaknesses of lower cost
strength 1
- a business may be able to prevent competitors from increasing their market share if they cannot match costs or prices
weakness 1
- a business may lose its market share if other businesses copy the low-cost approach
strength 2
- a business may become more profitable, as profit per unit can increase
weakness 2
- sales may fall as customers may perceive cheap products as being of poor quality
strength 3
- savings can be put towards differentiation at a later date
weakness 3
- lowering costs may make it difficult to differentiate in the future if the cost advantage disappears
define and explain the approach of differentiation
a business offering unique services or product features that are of perceived value to customers, which can then be sold at a higher price than competitors
- superior quality, innovative products and successful marketing
- distinguishes business from competitors and creates brand loyalty, allowing the business to charge a price premium
(1) customers will feel brand loyalty to this product because of its unique characteristics
(2) customers will be willing to pay a price minimum for the product, increasing profits
how does a business use differentiation?
- high quality products: ensuring that quality is better than that of competitors (more durable or reliable products, providing better support for customers or offering extended warranties)
- multiple branding: providing different brands or more brands in the same market, providing similar products with very subtle differences that would appeal to different customers
- innovation/research and development: developing a product with unique features that no other business currently produces by identifying a market that is not yet filled
state the corresponding strengths and weaknesses of differentiation
strength 1
- can develop brand loyalty, allowing higher prices and ensuring higher profits over time
weakness 1
- competitors can copy the differentiated approach, negating any gains (stealing customers and market share)
strength 2
- if able to charge a premium price, the business can make revenue gains
weakness 2
- differentiation has an initial cost that must not outweigh the benefits
strength 3
- easier to implement in large businesses with finance to invest in marketing their brand image (wasted funds)
weakness 3
- time-consuming process, and, during that time, consumer tastes or preferences may change
or - constant need for innovation to create unique products can be costly, reducing profits
explain lower cost as a strategy for ALDI
economies of scale, cutting labour or finding cheaper inputs
economies of scale
- stacking products in whole boxes and pallets rather than unpacking each item separately
- employees can stack shelves much faster, decreasing labour costs and increasing productivity
- bulk buying results in higher volume of sales and less labour necessary to stack shelves
- stocking a small range of products, achieving high volume and therefore buying those
products at a lower cost
fewer register staff and staff do not bag groceries (self checkout instead of the cashier doing it)
- customers must return trolleys to get their coin back and must purchase bags if they need their products to be carried
- altering staff tasks minimises labour costs as staff do not have to do this job, the customer can efficiently do it themselves
using similar, lower cost brands rather than well known brands
- reduce input costs
- using lesser known, but also lower cost brands are a cheaper alternative as this reduces the business’s money that is spent on purchasing supplies
less operating time by closing at 8pm
- reduce labour costs
explain differentiation as a strategy for IGA
- offers a wide range of products and offers niche products such as organic food that is not available at other supermarkets (multiple branding or different products from same brand)
- offers luxury goods such as expensive cheese that is not available in other mainstream supermarkets
- visually appealing floor displays of stock with space to walk around allows customers to browse and creates a more pleasant shopping experience and customers feel employees are willing to put in effort to suggest high quality products
strengths for this:
- create brand loyalty, allowing higher prices and ensuring higher profits over time
disadvantages for this:
- competitors may copy the unique products and in-store experiences offered, stealing customers and market share
- may be forced to constantly find new ways to differentiate themselves from other supermarkets, and this constant innovation can lead to increased costs and lower profits
distinguish between globalisation and organisational inertia
2 marks for both definitions
1 mark for difference
while globalisation is a driving force where elements external to the business push it towards enacting change, organisational inertia is a restraining force, where internal stakeholders such as managers and employees resist change because they do not like moving outside of their comfort zones and adopting new practices
distinguish between rate of productivity growth and level of wastage
- the level of wastage is the amount of waste created over a given period of time, either the total amount of
waste, or waste per unit of output - the rate of productivity growth measures the change of productivity from one period to next, where productivity is the number of outputs produced per unit of input
- while both are used
to judge the efficiency with which a business is using inputs, they differ in that the level of wastage generally
measures inputs that are discarded and therefore not turned into outputs for sale - the rate of productivity growth however reflects broader factors that impact efficiency, such as how much work staff complete in an
hour and how efficiently machines are able to complete manufacturing processes
other differences:
- a business would want a rate of productivity growth to be as high as possible, whereas the level of
wastage should be as low as possible - level of wastage only measures efficiency in terms of inputs that are not turned into outputs,
whereas productivity measures the efficiency of the entire process, such as time taken by employees to transform input into outputs - wastage can be measured in a volume, whereas rate of
productivity growth is only measured as a rate, which means output per unit of input
