Unit 4 - AOS1 - Reviewing performance, the need for change

Business change

Transitioning individual employees, working teams, or the whole business to a new state of operation to constantly evolve and adapt to improve performance

Proactive approaches to change

When a business acts in advance to avoid future problems or takes opportunities to gain a competitive advantage

Reactive change

Occurrs when a business undertakes change in response to a crisis or a situation

• Occurs when businesses must respond quickly to remain competitive and viable

Similarities between reactive and proactive change

• Used by managers to implement change

• Requires the support of the manager who must use management skills if the change is to be implemented successfully

Differences between proactive and reactive change

• Proactive change occurs prior to a crisis arising whereas reactive change occurs after the crisis or situation has arisen, forcing the business to change

• Proactive is more planned, coordinated and controlled with fewer pressures acting on the business throughout the change – Reactive is more spontaneous, urgent and pressured

KPI

A type of measurement that helps a business understand how they are performing in a certain area - act as a compass and guide the business towards the path they need to follow to achieve efficiency and effectiveness in reaching their business objectives

Percentage of market share

The proportion of an industry or markets total sales that is earned by a particular company over a specified period.

• Calculating - the company’s total sales over the whole industies total sales over the same period

What does falling market share indicate

• Customers are not happy with the quality of products

• Prices are too high and must be lowered

How to counteract falling market share

• Introduce quality strategies

• Increase staff training

• Increasing investments in technology to reduce errors and improve quality

Net profit figures

a company's total revenue minus total expenses over a specific period of time, showing the total gain for that given time period

What does low nect profit figures represent

• Customers are not happy with the product, decreasing sales and revenue

• Costs are too high

How to counteract falling net profit figures

• Introduce quality strategies

• Increase staff training and staff motivation

• Introduce cost cutting strategies – cheaper overseas suppliers, reduce labour costs through global manufacturing

• Increase productivity rates via investments in technology

Rate of productivity growth

The number of outputs produced from a given level of inputs over time presented in a % figure

• Measures efficiency

What does a lower productivity rate indicate

• Machinery is failing to produce as quickly potentially due to aging

• Staff are failing to produce efficiently

• Inputs are not arriving on time

How to counteract lower productivity rates

• Investing in new technology

• Redeploy resources (capital/labour)

• Increase staff training and staff motivation

• Initiate a JIT production system

Number of sales

A measure of the total amount of goods and services sold in a given period of time

• May be due to seasonal variations – sales may fluctuate

• influences percentage of market share

• May be an indicator of customer popularity over profits EG. If sales increased due to discounts it does not increase profits

What lower sales may indicate

• The product is not meeting customer needs

• The price of the product/service is too high

• Customers are not aware of the product

How to counteract lower sales

• Improve quality in production

• Increase staff training

• Reduce costs to be able to lower the price

• Improve marketing to customers

Number of customer complaints

The number of customers who notified the business of their dissatisfaction in written or spoken form over a specific period of time

What do increasing customer complaints indicate

• Quality of product is declining

• Customer service is declining

How to counteract increased customer complaints

• Introduce quality management strategies

• Increase investment in technology - reduce errors and improve quality

• Increase staff training and staff motivation

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.

What do increasing rates of staff absenteeism indicate

• Possible employee job dissatisfaction

• Employee ongoing personal issues (eg. mental health) and chronic medical problems

How to counteract increasing rates of staff absenteeism

• Invest into worker motivation – performance related pay or training

• Provide support or counselling

• Change management styles

• Redeploy resources

• Offer medical support or OH&S training - Subsidise flu jabs, introduce health and wellbeing programs

Level of staff turnover

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

• If the rate of staff turnover at a business is greater then the rate of resignation in the broader market it may indicate employee dissatisfaction

What may staff turnover indicate

• Staff job dissatisfaction

• Staff retiring

• Staff being made redundant

• Staff being dismissed

How to counteract increased staff turnover

• Invest into worker motivation – performance related pay or training

• Support and councelling

• Change management styles

• Redeploy resources

• Manage retirement with respect because this is natural and unavoidable

• If staff are being dismissed ensure new staff have clear polices and training on job expectations

Number of workplace accidents

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

• May occur due to - faulty equipment, Poorly trained employees or the dangerous nature of work tasks

What increased accidents may indicate

• insufficient quality of safety equipment or training

• A lack of employee motivation or carelessness

How to counteract increased worplace accidents

• Increase staff training

• Investments in technology

• Redeploy resources

Level of wastage

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

• increases production costs and therefore reduces profit and has negative effects on the environment and business reputation

WHat may increased level of wastage indicate

• Storage is insufficient

• Production process is inefficient

• lack of productivity

How to counteract high levels of wastage

• undertake a quality assurance assessment to identify incorrect storage procedures

• Invest in new technology and staff training to improve accuracy

The number of website hits

The amount of visits that a businesses online platform receives for a specific period of time

• A sign of customer engagement when the visits translates into orders therefore increasing sales and profits

What may decreasing number of website hits indicate

• Lack of promotion

• Lack of engagement

• Poor reputation

• Poor quality products or services

How to counteract decreased number of website hits

• Improved quality production

• Improved technology engagement in online services

• Improved promotion and marketing

Force Field analysis

theoretical model stating that businesses usually exist in a state of equilibrium where some forces acting on a business will drive change while others restrain change.

• The driving forces must overpower restraining forces either by strengthening driving forces or weakening retraining forces to enter a new equilibrium point

Driving forces

The factors affecting the business environment that promote and support business change

Restraining forced for change

factors that resist a business change or actively try to stop it.

Key steps and principles - Weighting

the process of giving each force a score according to the degree of influence it has on business change

Key steps and principles - Ranking

Using the scores given in the weighting process to order each force from most to least influential in terms of its impact on the proposed change – the scores are tallied up to determine the total scores for driving and restraining forces (if the change is to be implemented successfully the driving forces score must be higher)

Key steps and principles - Implementing

once the force field analysis has been completed the business can decide whether or not to move forward with implementing the change (assess whether the forces against change outweigh the forces for it) – this is where strategies to weaken the restraining forces or strategies to strengthen the driving forces must be implemented

Key steps and principles - Evaluating

the business considers/assesses whether the goal objective of implementing the change has been achieved and if not what can now be further done to strengthen the driving forces or weaken the restraining forces

Force field analysis - advantages

• can lead to a change being successful and having positive impact on employees, increasing morale

• takes into account a whole business environment, allowing for a more informed change

Force field analysis - disadvantages

• can be time consuming, esp for a mandatory change needed such as legislation

• will be expensive to implement change and the analysis

Owners as a driving force

• Interested in the success of the business from a financial and personal reputation position therefore support change if they believe its beneficial

• Seek and support change to rival competitors

• Owners want to improve their “return on investment”

Managers as a driving force

• Job security – it may be in their contract of employment to initiate change in an area – or if the owner desires change and the manager fails to do so their employment may be at risk

• Financial benefit – there may be a financial incentive in their contract if they achieve success in change

• Personal reputation – successful change can build personal status and is also something they can put on their resume for future positions

Employees as a driving force

• Seeking better terms and working conditions of employment

• As employees are often on the front hand of the business and experiencing issues first hand they may drive change to create better outcomes for their customers

Pursuit of profit as a driving force

• Profit from the change can bring more dividends for shareholders of the business

• Change can bring about more money to allocate or donate to a social cause in a social enterprise

Reduction of costs as a driving force

Cutting expenses will increase profit margin instead of trying to increase just overall revenue

EG.

• Marketing – cut back on advertising

• Operations – using waste minimisation to increase efficiency or reduce waste or materials strategies like sourcing cheaper materials from overseas

• Human resources – outsourcing, overseas labour sources on lower wage rates

Competitors as a driving force

• adoption of new technology

• adoption of new pricing

• opening of a new business

 they may gain a competitive advantage and steal market share from the business

Legislation as a driving force

The laws and legal regulations that a business must follow therefore legislation is a compulsory driving force

Globalisation as a driving force

The increase in global trade, communication and transport on a global scale which creates many drives for a business to change

• Allows governments, businesses and individuals across the globe to become more interconnected – increased international trade and cultural exchange

• Some businesses may be exposed to global competitors

• Provides global opportunities to expand through free trade agreements and expanding internet and electronic communication channels

• Reduces labour costs, outsourcing, raw materials around the globe based on quality and price

 

Technology as a driving force

Continuously progressing such as robotics, automated production lines, big data cloud computing, AI

• Retail – online shopping outlets such as eBay replace physical brick-and-mortar stores

• Tourism – self-service apps like Airbnb replace travel agents and traditional hotels

• Food delivery – Uber Eats allows processes such as ordering, tracking and delivery of food to be made much easier

Innovation as a driving force

the process of altering, improving, or creating new products or procedures, businesses are always looking for ways to improve in order to gain a competitive advantage or to better fulfil a social or market need.

Societal attitudes as a driving force

The collective values, beliefs and views of the general public – businesses are driven to respond to these changing needs from their customers, employees and general society to maintain popularity

EG.

• A business can respond to environmental and social concerns by providing eco-friendly packaging, sustainable raw materials, minimising waste

Managers as a restraining force

• managers are not convinced by the change

• very comfortable within their current working conditions

• fear the change may threaten their position

Employees as a restraining force

• change result in breakdown of corporate culture creating suspicion and mistrust

• fear for their job security

• fail to see a reason to change

• Change can be emotionally disorienting and can result in disputes the appropriate level of communication, training and support must be given to overcome this.

Time as a restraining force

• deadlines, manger announcements, delays with contractors

• When competitors move into an industry the business must respond as quick as possible – the time taken to change a business’s tasks, procedures or products and services can be time consuming

Organisational inertia as a restraining force

The tendency for a business to maintain an established way of operating

• requires stakeholders to move out of 'comfort zone'

• may be reluctant to implement change if business is going well, feeling too risky

Leads to businesses being stuck within their status quo position of their present spot - often occurs in stable, conservative businesses where holding onto long term traditions make it harder to bring about change

Legislation as a restraining force

• must abide to the laws - certain laws may prevent the business operating in the way they would like to

• must provide minimum wage to employees

Porters generic strategy

strategic management theory describing how a business can seek to acquire a competitive advantage within an industry or market and therefore dominate the industry or increase its market share with two underlying concepts

Lower cost strategy

A business opting to become the lowest cost producer of a product within its industry

• This will give them a competitive advantage as they can now sell their products at a cheaper more “customer attractive” price then rivals while still maintaining or increasing their profit margins by having a low cost of operations and at the same time increasing sales and market share

How can a business lower costs

• using economics of scale (increasing scale of production - decrease in the average cost per unit)

• Introducing automated production lines (quicker and cheaper production)

• purchasing raw materials from lower cost sources globally

• Lowering labour costs by overseas manufacturing

Lower cost strategy - advantages

• Strong competitive advantage in markets with price-conscious customers

• Difficult for competitors to enter the market

• Reduces the expenses of a business

Lower cost strategy - disadvantages

• If customers are only price sensitive there may be lower customer loyalty

• Customers may associate lower prices with lower quality

• Standardised goods and services will not meet the demands of customers who want unique, customer-specific offerings, and what something “different”

Differentiation strategy

Involves a business deciding that their strength is to be more innovative and creative then their competitors and create goods and services that have a unique point of differentiation to their competitors

• Allows their product to be more attractive to customers and therefore increasing sales and subsequently increase market share

How can businesses implement the differentiation strategy

• Innovation to products

• New product features and extended product durability

• Offering warranties, loyalty cards Through the delivery system by which products are sold

Differentiation strategy - advantages

• Strong competitive advantage in markets with brand loyalty

• Can charge premium pricing as customers may be willing to may for unique products

• Effective for large businesses which have the money to create a brand image

• Effective for smaller businesses which create a unique point of difference

Differentiation strategy - disadvantages

• Wont work for price sensitive customers or markets

• Unique features can be copied by other producers domestically or overseas which destroys competitive advantage