U4 AOS1: Reviewing performance - the need for change Flashcards
What is change?
Any alteration in the internal or external environments
Proactive change
Initiating change rather than simply reacting to events
What does proactive change involve?
- Observing business performance to predict future problems
- Forecasting likely events and trends in market
- Consulting with customers, employees and analysts to maximise opportunities to increase efficiency and effectiveness
Business change
The adoption of a new idea or behaviour by a business
Percentage of market share
The business’s share of the total industry sales for a particular good or service, expressed as a percentage
Higher % = outperform competitors
Reactive change
Waiting for a change to occur and then responding to it
What does reactive change involve?
- Observing competitors and copying their products/strats
- Dealing with a crisis and creating policies to prevent re-occurance
- Waiting for customers or employees to demand change
What are the two approaches to change?
Proactive and reactive
Rates of staff absenteeism
The number of workers who don’t turn up for work when they are scheduled
- High rates may be due to toxic work environment, dissatisfaction or demotivation
- Low rates may be indicative of a +ve relationship between employee and employer
Key performance indicators (KPIs)
Specific criteria used to measure the efficiency and/or effectiveness of a business’s performance
What are the 10 main KPIs?
- percentage of market share
- net profit figures
- rate of productivity growth
- number of sales
- rates of staff absenteeism
- level of staff turnover
- level of wastage
- number of customer complaints
- number of website hits
- number of workplace accidents
Number of sales
A measure of the amount of goods or services (products) sold
- Helps business evaluate performance and marketing strategies
Level of staff turnover
The rate of employees who are leaving the business over a specific period of time, and need to be replaced by new employees
- Indicator of the degree of staff satisfaction
Proactive vs reactive management
Proactive
- More likely business will benefit and be in position to gain comp adv
- Business objectives and profitability are less likely to be -vely impacted
Reactive
- More likely to experience drops in productivity, sales and profits
- Lose brand rep and market share as other businesses change faster
Number of workplace accidents
Indicates how safe the workplace is for employees
Net profit figures
The measurement of a company’s profit once business expenses have been subtracted from its total revenues
Why are KPIs used
Used to evaluate business’s performance before and after implementing to change to see if business is meeting its objectives
Rate of productivity growth
The change in productivity in one year compared to the previous year
Productivity = a measure of performance that indicates how many inputs (resources) it takes to produce an output (goods or services)
Growth indicates that the business is using resources more efficiently
Force field analysis (FFA)
Outlines the process of determining which forces drive and which forces resist a proposed change
Status quo
The way things have been in the past
Level of wastage
The amount of unwanted or unusable material created by the production process of a business
Can be measured via…
- Units, weight, unit per amount of outputs (1 defect or 12kgs waste per 1000 units)
Number of customer complaints
The number of customers expressing their dissatisfaction with the business, in either spoken or written form
- Indicates satisfaction of business performance
- More complaints = less satisfaction = loss in performance
Equilibrium
A state where opposing forces are in balance
Number of website hits
Records how many potential customers visit its site or engage with the site. A business can track how many of these ‘hits’ result in a purchase
Globalisation (driving force)
the need to compete with overseas businesses
Concept of forces
Driving and restraining forces work against each other, making it difficult for a business to change
The process of conducting a FFA
- Give weighting to current driving and restraining forces
- Rank the top forces to eliminate/strengthen them
- List actions required and implement response
- Evaluate the response
Restraining forces
Forces that work against the proposed change
Innovation (driving force)
the drive and desire to be a market leader
Why is a FFA important?
Managers who are trying to implement a change must conduct a Force Field Analysis to identify these forces and ensure that the driving forces exceed the restraining forces
Advantages of FFA
- Business can identify who is against and for change
- Business can strengthen driving forces supporting change, and take action to eliminate/reduce restraining forces
- Allows timeline to be developed and resource requirements to be identified
Driving forces
Those forces that encourage and support a proposed change
Technology (driving force)
stay up to date or risk falling behind
Employees (driving force)
working in a supportive and innovative environment are free to suggest ideas
Owners and managers (driving force)
want the business to remain profitable and competitive
Disadvantages of FFA
- Weightings of forces are subjective > bias can emerge
- Timelines also subjective, may not consider unexpected events
- Some forces may be overlooked and not identified, may emerge during the change
Reduction of costs (driving force)
financial cost of operating a business can affect profit
What are the potential driving forces for change
- owners and managers
- employees
- competitors
- legislation
- pursuit of profit
- reduction of costs
- globalisation
- technology
- innovation
- societal attitudes
Legislation (driving force)
changes to the law that impact operational practices
Pursuit of profit (driving force)
the greater the profit, the greater rewards for business owners
Competitors (driving force)
fear of loss to a rival if the changes are unsuccessful
Organisational inertia (restraining force)
prefer to stay with the safe and predictable status quo
Societal attitudes (driving force)
the need to reflect what society values
Managers (restraining force)
poor decision-making or fear of loss of control or power
Porter’s generic strategies (1985)
Describes how a business can seek to acquire a competitive advantage in its industry and thus, dominate the industry/increase market share
- Proactive
Financial considerations (restraining force)
financial cost of implementing major changes can be substantial
What are the potential restraining forces against change
- managers
- employees
- time
- organisational inertia
- legislation
- financial considerations
Time (restraining force)
either poor timing, or lack of time
Employees (restraining force)
fearful of changes that threaten job security or require new work routines
Legislation (restraining force)
restrictions placed on certain operational practices
What does Porter’s strategies consist of?
- Lower cost
- Differentiation
Business cannot offer both.
Lower cost strategies
Business will increase profits by trying to make their costs the lowest in the industry
- Charge cheaper than competitors
- Sell higher quantity of outputs to increase market share
Which customers does lower cost target?
Customers who are…
- price conscious
- happy to buy ‘generic’ goods
Product differentiation strategies
The use of factors such as brand names, delivery methods and advertising to establish differences between substitutable products
- Unique
How can lower cost be implemented
Economies of scale - high levels of output to reduce cost per unit through reduced capital (machine) costs and bulk buying
Minimise labour costs - alter staff tasks, size of workforce, outsourcing tasks, new technologies
Reduce input costs - change raw materials, change suppliers, lean management to reduce wastes
Advantages of lower cost
- Strong comp adv towards price conscious customers
- Profitability
- Prevent competitors from matching market share/price
Advantages of differentiation
- Create long-term brand loyalty
- Easier to implement in large business with finance (market brand image)
Disadvantages of lower cost
- Lower price associated with lower quality
- Low brand loyalty
- Lose sales from customers wanting unique products
Which customers does product differentiation target?
Customers who are…
- quality conscious
- prepared to pay high prices for prestige/luxury and convenience
How can differentiation be implemented
high-quality products - ensuring quality is better than competitors. eg. making product more durable/reliable, providing better support for customers, extended warranties.
multiple branding - providing different/more brands in the same market. Involve providing similar products with subtle differences that would appeal to different customers.
innovation/research and development - developing a product with unique features no other business produces. Involve identifying a market not yet filled and providing product before competitors do.
Disadvantages of differentiation
- Competitors may copy uniqueness (lose customers/market share)
- Constant need for innovation to maintain uniqueness (costly)
