Business Management Unit 4 AOS 1 - Business Change

Business change

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

Proactive approach to business change

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

Reactive approach to business change

When a business undertakes change in response to a situation or crisis

Similarities between proactive and reactive change

- Both involve a business undertaking change for future benefits such as growth, progression, and to improve or restore brand image

- Both require the support of managers who must utilise management and leadership skills in order to implement the change

- Both approaches can be used to respond to stakeholder conflicts

Differences between proactive and reactive change

- Proactive occurs when a business takes advantage of an opportunity and avoids future problems, whereas reactive occurs in response to a situation or crisis that is forcing the business to change

- Proactive involves low-risk strategies whilst reactive involves high-risk strategies

- Proactive change is more planned, coordinated and controlled with fewer pressures whereas reactive is spontaneous, urgent and pressured

Key performance indicators (KPIs)

Criteria that measure a business's efficiency and effectiveness in achieving its different objectives

KPIs (10)

Percentage market share, net profit figures, rate of productivity growth, number of sales, number of customer complaints, rate of staff absenteeism, level of staff turnover, number of workplace accidents, level of wastage, number of website hits

Percentage of market share

Measures the proportion of a business's total sales, compared to the total sales in the industry, expressed as a percentage figure

How to calculate market share

(Total business sales /total industry sales) x 100

Interpretation of market share

Shows a business's impact and success in the market along with how well it is performing in the industry

Net profit figures

Calculated by subtracting the total expenses incurred, from the total business revenue earned, over a specific period of time

How to calculate net profit figures

total revenue - total expenses

Interpretation of net profit figures

- Can be used to evaluates a business's success in meeting its objective of making a profit and its financial performance

- Low net profit figures indicate difficulty in sustaining current levels of operations

Rate of productivity growth

the change in the total amount of outputs produced from a given level of inputs over time, expressed as a percentage

How to calculate productivity growth

(New productivity-old productivity / old productivity) x 100

Interpretation of productivity growth

High rate of productivity indicates that a business has become more effective in its operations and that it is able to better utilise its resources

Number of sales

The total quantity of goods and services sold by a business over a specific period of time

Interpretation of number of sales

- Can measure financial performance and customer satisfaction

- A high number of sales indicates high levels of customer satisfaction whereas a low number of sales indicates customer dissatisfaction

Number of customer complaints

The number of customers that have notified a business of their dissatisfaction over a specific period of time

Interpretation of customer complaints

- The number of customer complaints indicates the level of customer satisfaction and engagement

- Businesses should listen and act upon customer feedback as it can be the difference between business success or faliure

Rates of staff absenteeism

The average number of days employees are not present when scheduled to be at work, for a specific period of time

How to calculate staff absenteeism

(Total number of days all staff are absent / total number of staff) x 100

Interpretation of staff absenteeism

- Acts as an indicator for staff morale

- High rates indicate that employees are unmotivated, dissatisfied with working conditions or do not have a good realtionship with management

- Low levels indicate that employees are highly motivated and have good morale which can improve productivity and corporate culture

Level of staff turnover

The percentage of employees that leave a business over a specific period of time and must be replaced

How to calculate staff turnover

(total number of staff leaving / total number of staff required) x 100

Interpretation of staff turnover

- Used to examine staff morale, employee satisfaction and strength of interpersonal relationships within the business

- High levels indicate employees are dissatisfied with management styles, pay, or working conditions

- Low levels are appealing to potential employees as it indicates that current staff are happy with their pay and work conditions

Number of workplace accidents

Measures the amount of injuries and unsafe incidents that occur at a work location over a specific period of time

Interpretation of work place accidents

- High numbers reflect unsafe work environment and is a big concern for HRM

- Can negatively affect morale and motivation and can lead to increased staff absenteeism and staff turnover

- Low numbers indicate a safe and effective work environment

Level of wastage

The amount of inputs and outputs that are discarded during the process of production

Interpretation of wastage levels

- High levels increase resources, costs and time required to produce a good or service, and can negatively affect a business's CSR

- Low levels indicate an efficient and cost effective production process and a focus on sustainability

Number of website hits

The amount of customer visits that a business's online platform receives for a specific period of time

Interpretation of website hits

- Indicates customer interest and overall interest in a business's products

- High numbers indicate that a business has a good relationship with customers, markets effectively and has a high level of interest in its products

- Low levels indicate a poorly developed online platform that makes it difficult for customers to engage

Lewin's Force Field Analysis

A theoretical model that determines if businesses should proceed with a proposed business change

Driving forces

Factors affecting the business environment that promote and support business change

Restraining forces

Factors that resist a business change or actively try to stop it

Weighting (Lewin's)

The process of scoring and attributing a value to the driving and restraining forces

Ranking (Lewin's)

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

Implementing a response

Involves a business adopting strategies in order to enhance driving forces and limit or eliminate restraining forces. It can also involve the implementation of the proposed change itself

Evaluating the response

Involves determining whether or not the business change has been successfully implemented by comparing the actual change to the anticipated change

Advantages of Lewin's Force Field Analysis

- Takes into account the whole business environment when making change, allowing for a more well-informed change to be made

- Businesses can save time and money by only implementing change that is likely to be successful

- Businesses can examine if a proposed change will be successful or not

Disadvantages of Lewin's Force Field Analysis

- Can be time consuming to conduct the analysis especially if the business is already aware for the need of a mandatory change (eg. a change in legislation)

- Conducting the analysis will require business resources at a cost to the business

Internal driving forces for change (5)

Owners, managers, employees, pursuit of profit, reduction of costs

Owners as a driving force

- Vested interest in the business's ability to meet objectives and adapt, as well as its longevity and success

- Owners may seek out and support change that will help the business thrive and stay competitive, as well as increase financial performance

Managers as a driving force

- Interested in job security and financial incentives

- Managers are likely to be a driving force if the change will help the business meet objectives and increase financial performance

Employees as a driving force

- Interested in working conditions, fair wages, training and benefits the business can offer

- Likely to support change that will improve work conditions or increase productivity

Pursuit of profit as a driving force

- One main objective of all businesses is to make a profit. Businesses need to be willing to adapt to the changing environment in order to stay relevant within the industry and return dividends to shareholders

Reduction of costs as a driving force

- Acts as a driving force when the proposed change will increase effectiveness and efficiency in operations

- Often leads to increased net profit figures

External driving forces for change (6)

Competitors, legislation, globalisation, technology, innovation, societal attitudes

Competitors as a driving force

Competitors are other businesses within the same industry that sell similar goods or services to a business

- Businesses need to respond appropriately to changes made by rival firms in order to survive

Legislation as a driving force

Legislation is the laws and legal regulations that a business has to follow

- All businesses are required to follow legislation in order to avoid fines, suspensions, penalties or closure, therefore they may be forced to implement changes in order to do so

Globalisation as a driving force

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

- Acts as a driving force as it provides businesses with opportunities to expand in new countries, lower prices and it increases competition to a global market

Technology as a driving force

Technology is the application of scientific knowledge to invent new devices, tools, systems, or processes

- Technology is constantly changing and evolving, so it will always act as a driving force.

- Technology allows businesses to increase productivity, effectiveness and efficiency

Innovation as a driving force

Innovation is the process of altering and improving or creating new products or procedures

- With constant pressure from competitors, businesses should always try to improve existing products or introduce new ones in order to stay relevant and gain a competitive advantage

Societal attitudes as a driving force

Societal attitudes are the collective values, beliefs and views of the general public

- Business need to ensure their operations and products align with constantly changing societal attitudes and behaviours

Restraining forces (6)

Managers, employees, legislation, organisational inertia, time, financial considerations

Managers as a restraining force

Managers are the owners, leaders or upper management that often introduce change within a business

- Managers may not support a proposed change if they do not believe it will improve business performance or if it threatens their position

- It is difficult to over come managers as a restraining force as they are essentially in charge of the business

Employees as a restraining force

Employees are the individuals who perform work tasks for the business and can be both a restraining or driving force for change

- Employees may resist change if the outcome is uncertain, they fear they cannot adapt, it affects their work routine or job security or if they fail to see reason for the change

- Employees may actively oppose these changes by taking industrial action

Legislation as a restraining force

Legislation is the laws and legal regulations that a business has to follow

- Legislation can prevent a business from implementing change due to specific requirements

- A business may have to overcome this by obtaining permits, applying for licences or changing contracts and agreements so they comply with laws

Organisational inertia as a restraining force

Organisational inertia is the tendency for a business to maintain established ways of operating

- As a business grows, it develops efficient processes and procedures.

- As staff become comfortable and familiar with these structures, resource and routine rigidity make it difficult for the business to implement changes

Time as a restraining force

- Business changes often have to completed within a specific period of time. This can be due to other restraining forces such as legislation or other driving forces such as competitors

- If a business cannot implement the change within the given time period, mangers must find ways to alter the restriction. E.g implementing the change in stages or partnering with another business

Financial considerations as a restraining force

- Most business changes have a cost associated with implementation. they can be associated with equipment, redundancy packages, training and/or reorganisation of the business

- A business must ensure that it has enough funds to implement the proposed change, and if not, it needs to consider other options to source it or adapt the change itself

Porter's generic strategies (2)

- Porter's low cost strategy

- Porter's differentiation strategy

Porter's low cost strategy

Involves a business offering customers similar or lower-priced products compared to the industry average, while remaining profitable by achieving the lowest cost of operations amongst competitiors

Pricing approaches for Porter's low cost stratgegy

Similar price to competitors - higher profit margins than competitors because cheaper operations

Slightly lower price than compeitors - maintains slightly higher profit margins but attracts more cost-concious buyers

Much lower price than competitors - thin profit margins are outweighed by a high volume of customer sales

Advantages of Porter's low cost strategy

- Attractive to cost-conscious customers

- Creates barriers to entry for new competition as it is difficult to price match whilst maintaining profitable

- Improves productivity and reduces cost of operation

Disadvantages of Porter's low cost strategy

- Customers are not loyal to specific brands and just purchase from which ever business is cheapest

- Lower prices may result in customers perceiving the products as low quality

- Thin profit margins and reliance on low operating costs can make a business vulnerable to unexpected increases in expenses

Porter's differentiation strategy

Involves offering customers unique services or product features that are of perceived value, which can be sold at a higher price than competitors

Points of differentiation

Point of differentiation is the unique selling features or elements that positively distinguish a business's good or service from competitors

- Introducing new technology

- Innovating original good or service

- Improving durability so the product lasts longer

- Niche marketing

Advantages of Porter's differentiation strategy

- Customers are often loyal to the business because of unique product features not offered by competitors

- Quicker sales from loyal customers when new products or services are introduced

- A business can charge premium prices for products as they cannot be found elsewhere

Disadvantages of Porter's differentiation strategy

- Easy for competitors to replicate points of differentiation

- New employees may require additional training so their skills match the business's point of differentiation

- higher investments of time and resources may be required to develop innovative and products

Similarities between Porter's generic strategies

- Both aim to increase a business's profitability by providing a competitive advantage

Differences between Porter's generic strategies

- Lower cost sells at a similar or lower price than competitors whilst differentiation sells at premium prices

- Lower cost targets cost-conscious customers whilst differentiation targets customers that are not cost sensitive

- Lower cost has an internal focus on operating processes whilst differentiation has an external focus on meeting customer needs