Unit 4: Area of Study 1 - The Need for Change Flashcards
Business Change
Is where a business adopts a new idea or behaviour, resulting from pressures from both the Internal and External Environments
Types of Business Change
- Incremental Change
- Transformational Change
- Proactive Change
- Reactive Change
Type of Business Change: Incremental Change
Are small, continuous changes that occur regularly in the business
Example of an Incremental Business Change
A business implements a new computer system to improve the Efficiency of some processes
Type of Business Change: Transformational Changes
Are significant changes that often impact the whole business
Example of a Transformational Business Change
A business merges with another business
Types of Business Change: Proactive Change
Are planned changes that anticipate pressures in the dynamic environment and implement change to gain a Competitive Advantage
How a Business can Manage Proactive Changes (List 1)
- Proactive Changes can be managed by Forecasting changes in the business environment and implement strategies to take advantage
- A business can manage Proactive Changes by using the results from Key Performance Indicators (KPI’s), to identify possible problems before they occur and therefore can implement strategies accordingly
Types of Business Change: Reactive Change
Is where a business is impacted by pressures from the business environment and then responds as a result of that
How a Business can Manage Changes Reactively (List 1)
- A business can manage Reactive Changes by putting strategies in place when the business is being faced with a crisis
- Managing Reactive Changes can also be done by observing Competitors and replicate what they do
Should a Business be Proactive or Reactive when Managing Change?
A business should look to be Proactive rather than Reactive when managing change
Key Performance Indicators
Are criteria and analytical tools used to measure how well a business is performing and the success of the business’s ability to achieve Business Objectives
Examples of Key Performance Indicators
- Percentage of Market Share
- Net Profit
- Rate of Productivity Growth
- Number of Sales
- Rates of Staff Absenteeism
- Level of Staff Turnover
- Level of Wastage
- Number of Customer Complaints
- Number of Workplace Accidents
Key Performance Indicator: Percentage of Market Share
Is a business’s share of the total industry sales for a particular Good or Service, expressed as a percentage
Key Performance Indicator: Net Profit
Is the amount of money left over after all Expenses have been deducted from the Revenue earned
Key Performance Indicator: Rate of Productivity Growth
Measures the change in productivity from one period to the next, where productivity is the number of Outputs produced per unit of Input
Key Performance Indicator: Number of Sales
Is the number of Goods or Services sold in a specified period of time, either measured as a number or a percentage
Key Performance Indicator: Rates of Staff Absenteeism
Is the number of Employees that do not turn up to work when they are expected to be there, expressed as a number or a percentage
Key Performance Indicator: Level of Staff Turnover
Is the rate in which Employees leave the business and therefore need to be replaced. This is measured as a number or a percentage
Key Performance Indicator: Level of Wastage
Is the amount of waste that was created over the production process. This can be measured by units or by weight
Key Performance Indicator: Number of Customer Complaints
Is the total number of complaints received from Customers over a period of time
Key Performance Indicator: Number of Workplace Accidents
Is the number of uncontrolled events that result in personal injury or property damage at a business
Lewin’s Force-Field Analysis
Is the process of identifying and analysing the forces that will drive the business towards change and those that will resist a proposed change
Forces in Lewin’s Force-Field Analysis
- Driving Forces
- Restraining Forces
Steps in a Force Field Analysis
- Form a Guiding Group of people driving or enabling the change.
2, Identify the Driving Forces.
- Identify the Restraining Forces.
- Analyse each Force to determine their strength. This is done by ranking the Forces between 1 and 5; 5 being the most powerful.
- Create an Action Plan to help reduce the strength of the Restraining Forces or even possibly increase the strength of the Driving Forces.
Benefits of a Force-Field Analysis (List 2)
- Managers are able to identify and analyse the forces for and against the change
- Helps determine if the change is worth pursuing
- Allows Managers to develop ways of reducing the Restraining Forces
- Allows actions and timelines to be developed
- Identifies Stakeholders that will likely be supportive of the change and those who may resist the change
- It can identify inadequate systems so a re-design of systems can be undertaken
- It allows the business to identify those within the business who are supportive of the change and those restraining the change
Limitations of a Force-Field Analysis (List 2)
- The identification of the Driving and Restraining Forces may not include 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
- The weightings of the forces are subjective. Biases can emerge when determining the importance of a particular force
- Timelines can also be subjective and may not consider unexpected events
- Assigning responsibility to people to manage aspects of the change may result in a need for training as the skills of people may be lacking or overestimated
Driving Forces
Are those that initiate and support change, pushing the business towards a new desired state
Driving Forces for Change
- Managers
- Employees
- Competitors
- Legislation
- Pursuit of Profit
- Reduction of Costs
- Globalisation
- Technology
- Innovation
- Societal Attitudes
Driving Force for Change: Managers
Managers can initiate change after reviewing KPI data, which may show issues that need to be resolved, leading to the initiation of change in response
Driving Force for Change: Employees
Employees can drive change in a business through innovation and can also by placing demands on the business to change conditions, policies and processes
Driving Force for Change: Competitors
Competition can drive a business to implement changes to gain a Competitive Advantage
Driving Force for Change: Legislation
Changes to laws can force a business to implement change to ensure they are meeting legal requirements
Driving Force for Change: Pursuit of Profit
Businesses that are looking to increase Profits may implement changes to the business
Driving Force for Change: Reduction of Costs
High costs eat into profit margins, driving businesses to change. Reducing costs in areas of the business, such as sourcing a new Supplier can make a business more profitable
Driving Force for Change: Globalisation
Globalisation refers to the process where economic boundaries are removed and businesses can begin operating on an international scale. The opportunities that Globalisation presents may drive a business to change
Driving Force for Change: Technology
New technologies can be implemented to improve the Efficiency of the business. The opportunities that new technologies can present may drive change
Driving Force for Change: Innovation
Innovation refers to adopting something new or improving on what already exists. A new concept or idea can often be exiting to drive change
Driving Force for Change: Societal Attitudes
Societal attitudes are constantly changing. Businesses that fail to keep up with these attitudes risk falling behind, and can either be Proactive or Reactive with their change to keep up with the times
Restraining Forces
Are forces that work against a proposed change, and make it difficult for the business to implement change successfully
Restraining Forces for Change
- Managers
- Employees
- Time
- Organisational Inertia
- Legislation
- Financial Considerations
Restraining Force for Change: Managers
Managers on all levels can act as a Restraining Force against change. For example, middle or lower management may not support changes proposed by senior managers
Restraining Force for Change: Employees
- Employees are often the ones most impacted by change
- Change can bring on feelings of fear and anxiety within Employees, causing resistance
- If Employees feel they haven’t been consulted or do not feel appreciated may look to resist change
- Change may have a negative impact on Employees, such as the loss of employment
Restraining Force for Change: Time
Businesses may find a lack of time will impact on their ability to implement change successfully
Restraining Force for Change: Organisational Inertia
Organisational Inertia refers to a business’s lack of response when faced with proposed changes. This is usually because it requires Managers to move away from their ‘comfort zone’
Restraining Force for Change: Legislation
Legislation may block or make it difficult to implement change. If a business does not comply with the law, they can face fines or jail time
Restraining Force for Change: Financial Considerations
The immediate and long-term costs of a proposed change may make it difficult for the change to be implemented successfully. Businesses should perform a Cost/Benefit Analysis before implementing any changes
Porter’s Generic Strategies
Are strategies that outline how a business can pursue a Competitive Advantage in the marketplace. The business can only used one of these strategies or they will be ‘Stuck in the Middle’
What are Porter’s Generic Strategies?
- Lower-Cost Strategy
- Differentiation
Generic Strategy: Lower-Cost Strategy
Is a strategy where the business is able to gain a Competitive Advantage by becoming the low-cost producer in its industry
How a Business can Achieve the Lower-Cost Strategy (List 2)
- Achieving Economies of Scale
- Implementing technology
- Gaining preferential access to raw materials
How a Business can Gain a Competitive Advantage After Becoming the Cost Leader (List 1)
- Reducing prices so they become more attractive to the price conscious consumer
- Sell the Good or Service at or near the industry average, increasing the Profit Margins of the business
Advantages of the Lower-Costs Strategy (List 2)
- The business can gain a Competitive Advantage
- There is the ability to increase Market Share by attracting more customers
- The business can withstand price wars longer than their Competitors
Disadvantages of the Lower-Cost Strategy (List 2)
- Lowering costs in operations may impact on the quality of the product
- If the business lowers the price, they need to increase sales volume significantly to make a substantial profit
- Consumers may perceive the lowered price as lower quality
- It may be difficult over the long term if the Competitors also lower their costs
Generic Strategy: Differentiation Strategy
Is where the business aims to be unique in its industry in some way that is valued by its customer. The business is then rewarded by being able to charge a premium price for the product
Economies of Scale
Are cost advantages that occur when a company buys stock in bulk, resulting in them paying less for that stock.
Premium Price
Is a mark-up on the original market price of an item, that is used to create a vision that the quality of the product is high
Advantages of the Differentiation Strategy (List 2)
- The business can gain a Competitive Advantage
- The business develops brand loyalty
- The business can charge a Premium Price
Disadvantages of the Differentiation Strategy (List 2)
- Being unique will often increase costs
- It may narrow the market as some customers are unable to afford the premium price
- Some unique attributes may be easily copied
Porter’s Five Competitive Forces
- Supplier Power
- Buyer Power
- Competitive Rivalry
- Threat of Substitution
- Threat of New Entry
The Five Competitive Forces: Supplier Power
Refers to how easy it is for Suppliers to drive up costs
The Five Competitive Forces: Buyer Power
Refers to how powerful buyers are in driving prices down
The Five Competitive Forces: Competitive Rivalry
Looks at the number and the strength of the businesses Competitors
The Five Competitive Forces: Threat of Substitution
Refers to how easy it is for Customers to find a similar Good or Service
The Five Competitive Forces: Threat of New Entry
Refers to how easy it is for new Competitors to enter the market
