Influences on Business decisions (3.4), pages 53-61

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What are the main influences on corporate decision-making? (7)
Risk, Attitude to risk, Past successes, Nature of the industry, Stakeholder power, Ethical values, Resources available.
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How is risk an influence on corporate decision making?
The risk associated with a decision will have an impact on whether the decision is made or not. For instance, high risk decisions are unlikely to be made as further analysis is needed. Whereas a low risk strategy is likely to be implemented quicker.
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How is the attitude to risk an influence on corporate decision making?
This can influence whether a decision is implemented or not. A business averse to risk is unlikely to implement a high risk decision whereas a business which takes risks may not be hesitant.
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How is past success an influence on corporate decision making?
If a someone has had past success with a particular style or method of decision making will continue to adopt this approach, making the decision more likely. One with an unsuccessful method will look to new methods.
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How is the nature of the industry an influence on corporate decision making?
For instance, a highly competitive industry may place greater onus on thorough market research in making a decision, wrong decisions could be costly.
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How is stakeholder power an influence on corporate decision making?
If a powerful group is not in support of a decision it probably won't happen. Or, if customers pressure for cheaper prices or a new product they may get this. If staff went on strike in aid for better pay this may work also.
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How is ethical values an influence on corporate decision making?
The ethical values of a business will influence decisions, if a proposal goes against the ethics it probably wont happen.
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How are the resources available an influence on corporate decision making?
E.g if financial and human resources available could determine whether a proposed decision is feasible or not or whether it has to be revised.
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What is short-termism?
A form of decision making that sees companies working mostly towards meeting their quarterly.
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What are some of the main examples? (4)
Current cash flow, Change in production, Training, Acquisition.
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Explain the current cash flow in relation to short-termism.
A business might opt for taking out a loan in order to afford its day to day expenses, however this does not necessarily address the original reason why it cannot afford to pay and so might land the firm in further finance trouble.
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Explain the change in production in relation to short-termism.
Leadership may decide to produce a new type of item or produce it in a different manner. This may lead to short term popularity, though can be a risk if decided with limited market research.
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Explain training cash flow in relation to short-termism.
A decrease in the amount of training given to employees can help a business save money in the short term, though can worsen its efficiency in the long run.
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Explain the acquisition in relation to short-termism.
By taking over a business that is doing well, a firm can increase its profitability. The opposite result can occur, however, if the acquisition is made with a view to improving the company only in the short term.
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What is long termism?
The type of decision making which focuses on the bigger picture. For instance, what may happen to the business in a few years rather than months. Companies that do this often invest more into R&D.
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What are strategic decisions?
These involve the process of choosing and implementing actions that will affect an organisation's future abilities to achieve its objectives. These tend to be set at times of uncertainty and therefore influence the medium to long term future.
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What are tactical decisions?
These affect the day to day implementation of actions required to achieve the goals of a strategy. For example, should the price of the product be reduced or not. These are based on the short term, involve less uncertainty and fewer resources.
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In what areas can the analysis of data help businesses make decisions? (7)
Hiring new staff, Improving product quality, Changing pricing strategy, Entering new markets, Changing the corporate image, Embarking on public relation campaigns, Deciding output level.
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What are evidence based decisions?
This involves selecting a logical choice from the available options. In making a good decision the manager must weigh up the pros and cons of an option and consider all the alternatives.
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What does evidence based decision making involve?
Involves taking a logical and research based approach to decision making. It uses a formal procedure to ensure that decisions are arrived at in an objective manner. It attempts to eliminate hunch or bias by ensuring that decisions are based on facts.
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What may this lead businesses to making decisions in?
Break even analysis, Investment appraisal, Decision trees.
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What 6 stages will a business using the evidence based decision making take?
Set objectives. Gather data. Analyse data. Select a course of action (plan). Implement the plan. Review the effect.
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Explain each stage - objectives:
Objectives are set based on what the business wishes to achieve with a timescale.
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Gather information:
Data is gathered using either primary or secondary research. This may provide data on demand, market trends and costs.
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Analyse the data:
Data is analysed which provides the basis to make recommendations. Quantitative techniques like investment appraisal, break-even analysis and critical path analysis may be used during this stage.
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Select a course of action (plan):
Based on the data analysis a strategy is selected.
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Implement a plan:
The chosen strategy is implemented.
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Review:
The strategy is reviewed to establish if it is having the desired outcome in relation to the objectives set. This may involve adjustments being made to the strategy or a rejected one being considered again.
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Why are evidence based decisions often made in groups rather than just one person?
As it will be selected in the best interests of the business, not just the person choosing the strategy.
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What is the downside of using group decisions in evidence based decisions rather than one person making a choice?
Can be more time consuming due to analysis and research.
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What is subjective decision making mainly based on?
Gut instinct of the manager who may or may not have a degree of experience within the market related to the strategy.
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What is the main advantage and disadvantage to subjective decision making?
A) Can be very fast decision making. D) High risk due to little analysis and judgement.
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What do decision making processes heavily depend on within a business? (5)
Business culture. Size of the business. Risks the business is willing to take. Time available. Level of certainty.
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Why is business culture important?
Whether the business favours a particular method.
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Why is the size of the business important?
Size will depend on the approach, usually. e.g intuitive approach is favoured by small businesses with limited resources.
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Why are the risks the business is willing to take important?
Businesses may have the ability and capacity to risk a lot, such as money and time. However, businesses that don't will usually take a scientific decision making process.
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Why is the time the business has available important?
If time is limited, the intuitive approach may be used, as this is quicker than a scientific method.
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Why is the level of certainty important?
The higher the level of uncertainty the more likely a scientific decision making process will be used as it will provide greater confidence.
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What is an organisational culture?
The accepted norms, attitudes, beliefs and behaviours which prevail within an organisation.
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In what ways can the culture of a business be identified? (7)
Communication between staff. Who employees approach regarding issues. Procedures for decision making. Where people are located within the business. Routines that are followed. Organisational struct. Staff relations. Dress code.
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Why is business culture important?
Respond to external changes. Employee relationships. Organisational structure. Leadership style. 'Them and us' culture. Change. Success.
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Why is how a business responds to external changes important?
Some companies may not be equipped to respond to competitors and may believe they don't need to change to the market.
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Why is employee relationships important in relation to business culture?
It will dictate the way which they choose to work with each other and whether it is successful or not.
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Why is the organisational structure important in relation to business culture?
It is influences by the organisational culture, as this will dictate whether decision making is centralised or decentralised. A centralised struct. will see decisions made at the top. Decentralised will see delegation between decisions.
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Why is leadership style important?
Leadership style is influenced by the organisational structure. This will determine an autocratic or democratic approach. If the culture is one particular style of leadership it may be satisfactory when the business operates in an unchanging market.
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Why is the 'them and us culture' important when regarding business culture?
Employees will be used to senior managers making decisions and may be unwilling to put forward their own ideas, when it could make a real difference to the business performance.
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Why is business success important when regarding business culture?
The success of a business will depend on its culture. A culture which is wrong for the prevailing circumstances can result in business performance suffering.
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What is a strong culture?
e.g Twitter has a thriving culture that encourages employees to continually learn and work towards a set of 10 core values. This fosters a shared spirit within the company whereby every employee can strive for the same result.
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What is a weak culture?
E. Uber's hierarchy has a weak culture. Taxi drivers are employed as contractors. Meaning they have fewer rights than those employed by the company.
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What are Charles Handy's for types of organisation cultures?
Power, Role, Task and Person.
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What is meant by a power culture?
Usually found in small businesses. A powerful individual or small group who are dominant and make all the key decisions as they are at the heart of the decisions made their influences spreads out to other employees looking for guidance.
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What are the advantages and disadvantages of power culture?
+Quick decision making, -Prevents employees thinking and acting independently. -If the business expands they may not be able to cope with making decisions.
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What is meant by role culture?
This tends to be implemented as businesses grow. It is very much linked to a bureaucratic system with employees having clear roles which are prescribed in the job description.
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What are the advantages and disadvantages of role culture?
+Predictable as employees know their roles and do what they're told. -An unexpected event can lead to the business being ill equipped to cope, as a role culture tends to be inflexible and does not allow for individual initiative to problem solve.
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What is meant by task culture?
Associated with a particular job or project. A project will have a particular team and individuals are brought into them, as and when they are able to provide a required skill or understanding.
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What are the advantages and disadvantages of task culture?
+Empowering to employees as individuals are given control over the way the project is to be completed. However, making use of different types of experts can cause coordination problems, if they are coming from different departments etc.
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What is meant by person culture?
Evident in organisations where individuals share a similar educational background and form groups associated with specific professions, e.g teaching+accountancy. They may work in groups to share their expertise.
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What are the advantages and disadvantages of person culture?
+encourages independent working. - Can be problematic if a more centralised approach is necessary.
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What is an entrepreneurial culture?
One where an organisation rewards initiative, encourages risk taking and sets both financial and quantitative goals. To enable individuals to demonstrate their initiative the organisational structure is flat and flexible.
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What are the main ways in which corporate culture is formed and changed? (4)
Ownership, Key staff, Hours, Nature of the business.
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How is ownership a way?
The original owners of a company refusing to take a step back from its day to day operations can have significant impact on its culture. Employees may feel anxious by the feeling of always being watched.
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How are key staff a factor?
Recruitment and promotion of main roles, such as HR manager and chief executive, can inform the culture of a company where targets and expectations are fed down the hierarchy.
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How are hours a factor?
Companies must provide employees with a minimum of 20min break time for 6 hours. Some companies offer the bare minimum while others offer more to satisfy staff.
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How is the nature of the business a factor?
The type of product or service a business sells can have great effect on its culture. A firm that publishes storybook for children, for instance may foster a creative culture to inspire staff. This may be different for an accountancy firm.
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Why may the organisational structure change over time? (4)
New leader, Merger or takeover, External environment, Improve performance.
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Why is a new leader a factor?
A new leader may be unhappy with the organisational culture and seek to change it into one of which they are familiar and believe in. However, these may not always work and result in retaliation.
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Why is a merger or a takeover a factor?
It can lead to the culture of one of the businesses being changed to fit in with the other.
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Why is the external environment a factor?
It can lead to an organisational culture changing, possibly due to competitor, government and economic growth influences.
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Why is improving the performance a factor?
1980's onwards saw businesses believe the way to improve performance was to move away from a centralised organisational culture to one that allowed greater employee participation.
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What are the main factors which make it difficult to change a culture? (5)
Staff resistance, Communication, Employee participation, Funding, Organisational structure, Resource allocation.
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Why is staff resistance a factor?
Employees may not see the need for change or want it. This could be due to job security or adverse to change. It may occur which is represented in the form of trade unions or industrial action.
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Why is communication a factor?
Communication to employees regarding change is important. Both to make it clear and to hear their opinion. They may not communicate back however, and may not like change in reality.
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Why is employee participation a factor?
It has not been part of the decision making process in deciding why the culture has to change and how, it could lead to the strategies implemented for change failing, as staff feel no ownership in the process and will not provide the required effort.
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Why is resource allocation a factor?
Change in culture may require resource allocation to departments. This may mean some receive a lower level of funding or allocation of other resources, which can cause resentment between those employees who are part of the department.
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Why is funding a factor?
Funding may be needed to change an organisational culture, possibly for training or changing the organisational culture. It can be difficult for those firms facing financial difficulties to find the funds required for these.
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Why is organisational structure a factor?
It may in itself be a problem when changing the organisational culture. If it is very hierarchical with decisions made based on the role of people within it, employees may believe there is a them and us culture.
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