Unit 4 AOS1 Business- Reviewing Performance and need for change

what is business change

The alteration of behaviours, policies and practises of a business

examples of change

changing products

moving production

changing materials and suppliers

transitioning from awards to agreements

why do businesses change

to improve performance and remain competitive,

strong leadership and management skills are required

Proactive change

when a business changes to avoid future problems or take advantage of an opportunity to gain a competitive advantage

examples of proactive change

identifying a gap in the market, using new innovative technology

Reactive change

a reactive approach is when a business undertakes change in response to a situation or crisis

examples of reactive change

introduces a new product that is taking a large portion of market share

a data breach that is well covered in the media forcing action from the business

similarities between reactive and proactive change

both are utilised by a manger or business to implement change

both approaches require support of the manger

differences between reactive and proactive change

-proactive change occurs when a business takes advantage of an opportunity and avoids future problems

-reactive change occurs in response to a situation or crisis forcing the business to change

proactive is planned, reactive is not

what is a Key Performance indicator (KPIs)

specific criteria that measures a businesses efficiency and effectiveness in acheiving its stated objectives

Financial KPIs

Net profit

Percentage of market share

Rate of Productivity Growth

Number of Sales

Non-Financial KPIs

Level of Wastage

Number of Workplace Accidents

Number of Customer Complaints

Number of Website Hits

Rates of Staff Absenteeism

Level of Staff Turnover

Net profit

what a company has earned or lost after total revenue - total expenses

percentage of market share

the percentage of an industry's total sales that is earned by a particular company over time

equation:

company sales/ total industry sales x100

Rate of productive growth

measure the efficiency of a company's production process

level of wastage

the amount of resources that are discarded by the business during production

number of workplace accidents

The amount of unplanned or uncontrolled events that result in personal injury or property damage at a business

number of sales

the measure of total customers that bought a good or service in a given period

Number of customer complaints

amount of dissatisfied customers with the business and its products

number of website hits

measures the number people who visit a website

Rates of staff absenteeism

number of days employees are absent from work as a percentage of their possible working time

equation

number of days absent/number of days should be working x100

level of staff turnover

the rate in which employees are leaving the business and need to be replaced

All KPIs

- percentage of market share

- net profit figures

- rate of productivity growth

- number of sales

- rates of staff absenteeism

- level of staff turnover

- level of wastage

- number of customer complaints

- number of website hits

- number of workplace accidents

driving force

forces that initiate change, encourage or support change

Restraining forces

forces that resist or work against change

force field analysis

It weighs driving forces against restraining forces For a change to succeed, the driving forces must outweigh the restraining forces.

Steps in the Force Field Analysis

1) Identify the goal

2) identity driving and restraining forces

3) weighing

4) ranking

5) implementing a response

6) evaluating a response

Weighting in Force Field Analysis

is the process of scoring and attributing a value to the driving and restraining forces. (between 1-5)

Ranking in force field analysis

involves arranging the forces in order of value and determining the total score of driving and restraining forces.

change is only successful when driving forces are stronger than restraining forces

implementing a response in force field analysis

refers to the action that can be taken to strengthen the driving force and reduce restraining forces

evaluating a response in force field analysis

determine whether or not the responses has had an impact on the driving and restraint forces

comparing actual change to anticipated change

Pros of force field analysis

-business can weigh pros and cons to determine if change is worth it

-allows stakeholders to understand pros/cons of change

-business can identify what encourages change (driving forces)

cons of force field analysis

time consuming

requires business resources

can be costly

what are the internal and external driving forces

Internal:

-Owners

-managers

-employees

-pursuit of profit

-innovation

-reduction of costs

External:

-Legislation

-competitors

-globalisation

-technology

-social attitudes

owners as a driving force

owners can act as a driving force for change if they believe change will be beneficial to future business performance

managers as a driving force

managers can initiate change after reviewing KPI data

mangers are responsible for decisions about the future direction of the business

Employees as a driving force

Employees can drive change through innovation and new ideas

Pursuit of profit as a driving force

drive to increase profits for. dividends, capital gains and share prices, this can be done by conducting marketing campaigns and expand the market

Innovation as a driving force

the introduction of new products or modifying existing ones, this can help create a competitive advantage

reduction of costs as a driving force

reducing costs can make a business more profitable by reducing cost, for example replace human labour with technology

Legislation as a driving force

businesses nee to meet legal requirements

eg: minimum wage, anit-discrimination, OH&S

Competitors as a driving force

proactive- pursuit of a competitive edge is a constant driving force

Reactive- Business must respond to what competitors are doing or risk being left out of the industry

globalisation as a driving force

business can trade internationally, which increases trade, communication and transportation on a global scale which create drives for businesses

Technology as a driving force

can impact all parts of a business, business may need to implement technology to stay competitive

Societal attitudes as a driving force

Societal attitudes are the changing values, beliefs and expectations of society that influence how businesses operate and make decisions.

internal and external restraining forces

internal:

-managers

-employees

-Financial consideration

-organisation inertia

-time

External

-legislation

mangers are a restraining force

managers can resist change id jeu fell they don't have the ability or resource to pursue change

employees as a restraining force

employees can resist change due to fear, anxiety, job security, work routine and failure to see reasoning for change

Financial considerations as a restraining force

change costs money and if a business cannot fund change it won't happen

examples of costs include:

equipment, training, redundancy packages

Organisational inertia as a restraining force

when a business is slow or unwilling to change, even when change is needed. to overcome this businesses may need a change in leadership or create new working environments

Time as a restraining force

a lack of time can impact the ability of businesses to implement change successfully, this could be due to pressure from competitors, laws or deadlines

Legislation as a restraining force

businesses must comply with laws to avoid fines, suspension or closure, which can make change difficult

what are the 2 strategies in Porters generic strategies

The lower cost strategy and the differentiation strategy

lower cost strategy

the lower cost strategy is about reducing cost within the business, and potentially selling goods at lower costs to increase profits

how can businesses implement the lower cost strategy

1) USE ASSETS EFFICIENTLY- Minimise idles stock, don't stock products that don't sell and turn over stock quickly

2) LOWER OPERATING COST- Source supplies from cheaper suppliers, use cheaper packaging and minimise wages

3) CONTROL THE SUPPLY CHAIN- seek contracts with suppliers that guarantee prices, implement stock management systems like just in time to reduce costs

the 3 pricing approaches to porters lower cost strategy

-Charging similar prices to competitors

-Charging slightly lower prices than competitors

-Charging much lower prices than competitors

what does Charging similar prices to competitors do?

experience higher profits than competitors because the businesses cost of operations is lower

what does Charging slightly lower prices than competitors do?

higher profits than competitors

what does Charging much lower prices than competitors do?

profit margins are out weighed by a high volume of customer sales gained from selling products at a significantly lower prices.

methods of reducing operating costs and costs of supplies

operating costs:

-produce basic products

-reduce expenditure

-lower cost of labour

Cost of supplies:

-buying in bulk

-overseas suppliers

Pros and Cons of the lower cost strategy

Pros:

-strong competitive advantage in markets with price conscious consumers

Cons:

-lower customer loyalty as customer are price sensitive

-lower price may lead customer to believe its Low quality

-standardised goods will not meet demand of customer who value specific or unique items

what is the differentiation strategy

businesses offer customers unique services or product features that are perceived valuable to customer, which can allow businesses to sell at a higher price

how can the differentiation strategy be implemented

1) Develop effective marketing and promotion strategies

2) Deliver high-quality products

Pros and Cons of the differentiation strategy

Pros:

-strong competitive advantage in market with brand loyalty

- can charge premium pricing

Cons:

-not good for price sensitive consumers

-products can be duped

-can be hard to protect intellectual property (Copyright..)