U4 AOS1 Business Management Revision Set

Business Change

the alteration of behaviours, policies, and practices of a business.

Proactive/planned change

happens when a business chooses to change to avoid potential issues or grasp opportunities, which is less stressful

Reactive Change

happens when a business must respond quickly to a problem or crisis. Often unplanned and urgent, triggered by competitive actions, negative media, etc.

Proactive and Reactive similarities

• utilized to implement change

• lead to future benefits

• manager must support

• can respond to stakeholder conflicts

Effectiveness in business evaluation

indicates to what degree a business has accomplished the objectives it set out to achieve

Efficiency in business evaluation

refers to how well a business uses the resources needed to achieve a goal

Key Performance Indicators (KPIs)

criteria units used as a measure of business success, or the efficiency and effectiveness in achieving its different objectives, whilst providing data that drives change for a business

criteria for a KPI

• relevant: provides data and info required for analysis

• reliable: data appropriately collected from trustworthy sources

• comparable: able to be compared to an objective or period of time

• measurable: qualitative or quantitative

10 KPIs

• Percentage of market share

• Net Profit figures

• Number of sales

• Number of customer complaints

• Number of website hits

• Rates of staff absenteeism

• Level of staff turnover

• Number of workplace accidents

• Level of wastage

• Rate of productivity growth

Percentage of market share formula

total sales/total industry sales x 100

Net profit figure formula

total revenue - total expenses

rate of staff absenteeism formula

total days all staff absent/total staff

only includes unscheduled absences

level of staff turnover

refers to the number of employees who are leaving an organisation and have to be replaced

rate of productivity growth

the increase in outputs produced from a given level of inputs over time, as a percentage.

new productivity rate - old/old x100

Force-field analysis

a model developed by Kurt Lewin that helped managers understand the factors that worked in support of a change and those that worked against the change

Driving forces

forces that encourage and support a proposed change

Restraining forces

forces that work against the proposed change

Steps for a force field analysis

1. What is the change?

2. Identify - driving and restraining forces

3. Weighting - each force is allocated a score out of 5

4. Rank - rank the top 3-5 forces

5. Response - develop an action plan to reduce restraining and boost driving

6. Evaluate - determine the effectiveness of the change

Advantages of force field analysis

• Managers can clearly indicate forces for and against change

• helps determine value of change

• clear actions to minimise restraining

• identifies critical factors impacting change

Disadvantages of force field analysis

• identifying and weighting forces are subjective

• analysis takes time, effort and resources

• strong focus on current, not future

Types of driving forces

• owners

• managers

• employees

• reduction of costs

• competitors

• globalisation

• technology

• innovation

• societal attitudes

globalisation

the process by which governments, businesses, and people across the globe are becoming more interconnected, allowing for increased international trade and cultural exchange

Free trade

trade without extra costs such as tarrifs

Economies of scale

the cost savings a business experiences when it produces in large quantities, whereby fixed costs of production are spread across the large volume of items produced and bulk-buying discounts are received from suppliers

cultural homogenisation

the decrease in cultural diversity due to the bringing together of people from different countries and regions

types of restraining forces

• Managers

• Employees

• Time

• Organisational Inertia

• Legislation

• Financial considerations

Organisational inertia

the issue that occurs when a business has been operating a certain way for such a long period of time that it may become difficult for change to occur

Porter’s Generic Strategies

explain how businesses can achieve future goals through a competitive advantage, this improving performance in KPIs. This involves either the use of a differentiation or lower cost strategy

Lower cost strategy

a strategy in which a business lowers their cost to appeal to cost-conscious customers, through methods that aim to reduce operating costs and cost of supplies. This may include charging similar to, less than or much less than competitors

Ways to reduce operations costs

• produce basic, no-frill products

• reduce spending on marketing and advertising

• lower labour and operation costs through overseas manufacturing

• high outputs through APLs

• reduce costs due to economies of scale

• lowering long term energy costs through renewables

Ways to reduce costs of supplies

• obtain supplier discounts through bulk buying

• cheaper suppliers through global sourcing of inputs

• use of JIT

• Lowering long-term costs by sourcing high-quality suppliers

Advantages of the lower cost method

• strong competitive advantage in markets with price conscious customers

• operations are optimised for low cost and efficiency

• barrier to entry for new competitors, as their should only be one in the market

• more profitable, profit per units increased

• expenses of operations reduced

Disadvantages of the low cost method

• lower customer loyalty

• goods and services wont be right for all customers

• low price may give customers the assumption of low quality

• vulnerable to sudden expenditure changes

Differentiation strategy

involves offering customers unique services or products that are of perceived value to customers, which can be sold at a higher price than competitors

Methods of differentiation

• introducing new technology

• improving product durability

• advertising a brand image that aligns with customers personal values

• innnovating an original good or service

• niche marketing

Advantages of the differentiation strategy

• loyal customers from unique product features

• possible to charge premium prices

• quicker sales from loyal customers

Disadvantages of the differentiation strategy

• difficult to prevent competitor replication

• possibility of higher investments of time and money

• new employees may require added training

• higher prices deter cost conscious customers