Influences On Business Decisions

Question 1

What is short termism?

Answer 1

Short termism is when the actions of managers show total prioritisation of immediate issues, ignoring long-term ones.

Question 2

What are the causes of short-termism? (Look this up online instead)

Answer 2

The use of short term performance measures such as earnings per share to award bonuses:
The relationship between PLC’s and financial markets: the
performance of city investors, running pension funds and similar investment vehicles are judged quarterly. This encourages them to look for companies whose performance is strong now, not in a few years time.
The threat of a takeover: boosting short-term profit tends to push a company share price higher making the business more expensive to buy and deterring people from a takeover.
The functional background of many UK bosses: Many UK plc bosses have risen through the finance department. Managers from other functional areas such as engineering or marketing have a far better understanding of the need for long-term perspective when making decisions.

Question 3

What are the effects of short-termism?

Answer 3

Inadequate expenditure on research and development,
Accounting adjustments that inflate current learnings,
A bias towards using profit for higher dividend payments or to buy back shares at the expense of investment,
Adopting pay schemes for directors that focus on achieving short-term financial objectives,
A willingness to cut the workforce quickly, leading to high labour turnover and a loss of experience and skills that may be needed in the future,
Ignoring long-term risks with products and services such as shifts in consumer habits or potential obsolescence,
A focus on takeovers to grow rather than the use of organic growth,
A shortage of investment in image-building advertising,
Minimal training budgets.

Question 4

What are common features of a MitteIstand company?

Mittelstand commonly refers to small and medium-sized enterprises in German-speaking countries

Answer 4

Family owned and family run,
People centred management,
Long-term thinking,
I focus on doing one thing well.

Question 5

What is the weakness of evidence-based decision-making?

Answer 5

The weakness of evidence-based decision-making is its basis in extrapolation. The expectation that the future will be similar to the past prevent revolutionary thinking and decisions. As a result, evidence-based decision-making is less effective when facing strategic decisions, for which limited data may be available.

Question 6

What is subjective decision-making?

Answer 6

The use of intuition by managers, it allows human judgement to take precedence over data. It can be thought of as the artistic side of business decision-making, in contrast to the scientific approach.

Question 7

What is corporate culture?

Answer 7

Corporate culture sums up the spirit, attitudes, behaviours and the ethos of an organisation.

Question 8

What factors can corporate culture be determined by?

Answer 8

The aims or mission of the business,
The behaviour of company directors and senior staff,
The attitude of senior managers to risk and enterprising behaviour,
Recruitment and training procedures.

Question 9

What two questions can determine whether a company has a strong or weak culture?

Answer 9

The difference can be summarised in the answers to 2 questions:
Is there a ‘can-do’ attitude or a ‘must we’ attitude?
Is there a conviction among staff that the organisation is a force for good, rather than just a money-making machine?

Question 10

What are the signs of a strong culture?

Answer 10

Focusing on customers real needs, allowing staff to make decisions e.g. refunds.
A united view among staff that the organisation is a force for good e.g. staff taking pride in the company support for the local community.
Sticking together and working together at a time of crisis.

Question 11

What are the signs of a weak culture?

Answer 11

Staff follow a script when dealing with customers (not trusted to know what is right),
There isn’t a united approach, different departments cut themselves off from each other,
A cynical view among many staff, doubting the company’s supposed principles and ethos; suspecting that there’s too much PR spin and too little commitment,
When things look bad, better qualified staff look to find another job.

Question 12

What is a power culture?

Answer 12

A power culture will occur when there is one or a small group of extremely powerful people leading an organisation.

Power cultures can work effectively under great leaders, but too often can lead to unethical behaviour as the desire to please the boss drives staff to make poor decisions.

Question 13

What’s the characteristics of a power culture?

Answer 13

Everything goes through the boss,
Few rules or procedures laid down,
Communication is through personal contact,
Decision-making is likely to be governed by the desire to please the boss,
The leadership is autocratic.

Question 14

What is role culture?

Answer 14

This is likely to exist in an established organisation dominated by rules and procedures.
Role culture can be an effective culture for maintaining a company’s current position but really struggles in dynamic environments.

Question 15

What are the characteristics of a role culture?

Answer 15

Power depends on the position held within the organisation structure,
All employees are expected to follow the rules,
Career progress will be predictable and based on who follows procedure best,
The culture is bureaucratic, focused on avoiding mistakes,
The organisational will struggle to cope with rapid change, especially problematic if there is rapid change in the market,
Leadership style is likely to be autocratic or paternalistic.

Question 16

What is task culture? When does it work and what is a potential drawback?

Answer 16

In a task culture, the project being worked on is the central focus. Senior managers allocate projects to teams of employees from different functional areas. Project teams become the normal working environment for staff.

This culture works when dealing with rapid change. However, a potential drawback is the chance of project teams developing their own objectives rather than sticking to the corporate objectives.

Question 17

What are the characteristics of a task culture?

Answer 17

Each project team is formed for a single project, then disbanded once the project is complete,
An individual’s power depends on their expertise rather than status within the organisational structure,
Employees become used to working with staff from other departments -helping employees to understand the different perspectives of each functional area.

Question 18

What is a person culture like?

Answer 18

Operating in organisations with highly skilled, professional staff, a person culture sees individuals form groups in which they share their knowledge and expertise. In this way individuals can develop new skills and knowledge.

Question 19

What are the characteristics of a person culture?

Answer 19

Staff are well paid and treated,
Leadership style is democratic,
Staff feel a sense of personal development which is likely to be highly motivating.

Question 20

What factors will affect the formation of a company’s culture?

Answer 20

Leadership style,

Type of ownership: PLCs are likely to place the need to satisfy stock markets above all else creating a culture where short-term returns are encouraged unlike privately owned family firms where a longer term perspective can emerge.

Recruitment policies: policies and procedures can develop which actively harm a businesses success in the market. Recruitment policies might end up appointing existing versions of senior staff and the workforce can begin to lack diversity.

Question 21

Why might people resist attempts to change corporate culture?

Answer 21

Self interest,
Low tolerance to change,
Misunderstanding of the proposed change,
Different assessments of the need to change.

Question 22

What combination of factors needs to exist to successfully change corporate culture?

Answer 22

A clear purpose,
Education and training,
Consistency of communication methods and messages,
Effective communication that change is going to happen.

Question 23

What are stakeholders?

Answer 23

Stakeholders are groups that are influenced by and influence the operations of a business.

Question 24

What is the stakeholder approach?

Answer 24

This is where you try to meet the needs of all stakeholder groups, like customers suppliers and staff, when making decisions in order to ensure their continued positive relationship with the business.

Question 25

What is the shareholder approach?

Answer 25

Some believe that the sole responsibility of business has is to its shareholders: the owners of the business. They place increasing shareholder value, through increased profit and share price, above all other responsibilities. Other stakeholder groups have their interests ignored.

Question 26

What are the likely stakeholder objectives of staff, managers/directors and shareholders?

Answer 26

Staff: growth (preferably organic), new technology products, not processes, introduced and rising profit (if profit-sharing takes place).
Managers/directors: growth organic or inorganic, new products and processes, rising profits (especially if bonuses are paid).
Shareholders: rising profits in the short and long term.

Question 27

What are the stakeholder objectives of suppliers, customers, bankers and local residents?

Answer 27

Suppliers: growth
Customers: quality of product/service, innovative new products.
Bankers: stable profits
Local residents: clean, green production with a few deliveries or dispatches

Question 28

What are business ethics?

Answer 28

Business ethics are the moral principles that underpin decision-making.

Question 29

What are some examples of ethical considerations that can be found throughout the operations of a business?

Answer 29

Dealing fairly and honestly with customers and suppliers,
Protecting the natural environment,
Dealing effectively with bullying, harassment and discrimination in the workplace,
Providing accurate and transparent financial information,
Anti-competitive actions,
Testing products on animals,
Whistleblowing of unethical actions by members of staff.

Question 30

What is the trade-off between ethics and profit?

Answer 30

In the short term at least, ethical behaviour often means paying a little more or making a little less profit on a business transaction. Alternatively ethical behaviour may involve spending money on workers conditions without expecting any financial return. There is almost always a clear trade-off between what is morally right and what is most profitable.

Question 31

What is corporate social responsibility?

Answer 31

Corporate social responsibility describes the desire to run a business in a morally correct way, attempting to balance the needs of all stakeholder groups.

Question 32

Advantages of corporate social responsibility:

Answer 32

Marketing advantages: consumers who have enough disposable income will often pay a premium so that they buy with a clear conscience from businesses that behave in a socially responsible way. CSR can be a point of differentiation for some businesses.

Positive effects on the workforce: recruiting highflying staff may be easier if they do not wish to work for a morally corrupt enterprise. Meanwhile, staff motivation may be enhanced as they feel happier working for a socially responsible business with a clear sense of moral purpose.

Question 33

What are the disadvantages of CSR?

Answer 33

Reduced profitability: CSR is likely to mean higher costs and lower revenues, with suppliers paid a fair price and selling prices set at a reasonable amount rather than the business trying to make really high margins.

Reduced growth prospects: some business opportunities may need to be turned down if they involve compromising the morality needed to be socially responsible.

Rejection of CSR as a PR tool: if it’s treated as a marketing tool rather than an inherent shift in corporate culture, it serves no valid purpose.