3.4 Business Decisions

• Short Termism - where a business prioritises short term rather than long term performance
• Short Termism emphasises

  • share price
  • revenue growth
  • gross and operating profit
  • unit costs and productivity
  • return on capital employed
• Long Terminism emphasises

  • Market Share
  • Quality
  • Innovation
  • Brand reputation
  • Employee skills and experience
• Influences on Business Decisions

  • Business Objectives/Budgets
  • Attitude to Risk
  • Availability and reliability of data
  • External environment
• Subjective decision-making

  Short Term approach

  Based on gut-feeling, intuition and experience

  Key Benefit: Quick

  Key Drawback: Hard for risky decisions
• Evidenced-based decision making

  Long term approach

  Based on data and analysis

  Time-consuming and costly, no guarantee of right choice

  Supported by Big Data and data analytics
• Big Data

  Process of collecting and analysing large sets of data from digital sources to identify patterns and trends that can be used in decision-making
• Pros of Big Data

  • Generates market insights (Target markets needs and wants)
  • Improved decision making (more material to go off)
  • Better security of business systems (can identify unusual activity)
  • Efficient capacity management
• Data Mining

  process of analysing data and summarising it into usual info
• Benefits of Data Mining

  • Better predict future trends and behaviors
  • Identify unseen relationships between business data sets
• Why Short Termism happens:

  • Pressure from shareholders to deliver immediate results in order to improve value of shares
  • Legal Requirements to give "quarterly" reports on financial performance
  • CEO bonuses linked to share price performance
• Risks of Short Termism

  • Poor Innovation therefore develops into a long term competitiveness issue
  • Employee Disengagement (fed up of constant changing and lack of training)
  • Poor Long Term profits
• Corporate Culture

  • collective behaviours of values and practices that shales how an organisation’s employees interact and work together
• Power Culture (Handy's theory)

  • control comes from the centre
  • quick decision-making
  • employees seek guidance
  • strong leadership
• Role Culture (Handy's theory)

  • people have delegated authorities
  • hierarchal bureaucracy
  • power deriving from person's position
  • employees can specialise
  • stable environment
• Task Culture (Handy's theory)

  • teams are formed to solve particular problems
  • no single power source
  • power derives from expertise
  • employees feel more motivated in a team
  • increased creativity in a team
  • greater training costs
• Person Culture (Handy's Theory)

  • workers have freedom to work independently
  • high employee motivation
  • lack of objectives - short-termism over long-termism
  • lack of direction
• Why Businesses change culture

  • improve business performance
  • respond of significant change
  • change of management
  • economic conditions
  • market changes
  • change in societal views
• Signs Culture needs changing

  • internal fighting
  • high levels of staff turnover
  • greater absenteeism
  • declining customer service
  • less communication
• Features of a Strong Culture

  • competitive advantage
  • clear set of values, missions and goals
  • strong internal communication
  • engaged employees - high motivation and loyalty
  • performance increase
  • encouraged risk-taking
  • business more innovative
• Features of Weak Culture

  • little alignment with business values
  • inconsistent behaviour
  • needs extensible procedures
• Stakeholders vs Shareholders

  1. Stakeholders have an interest in the business
  2. Employees, customers, competitors
  3. Shareholders actually own business and are interested in company growth
• Corporate Social Responsibility (CSR)

  • the idea that businesses should go beyond profit-making to consider the social, environmental, and economic impacts of their activities
• Pros of CSR

  • reputation and brand loyalty
  • reducing risk from following regulations
  • competitive advantage
  • long-term sustainability
• Cons of CSR

  • high costs
  • may charge higher prices
  • impact on profit margins