Business Management Unit 4 AOS1 SAC Revision

Business change (definition)

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

Proactive change (definition and one feature)

Involves a business changing to avoid future problems or take advantage of future opportunities.

This may involve a business filling a gap in the market, recognizing and addressing a change in market trends, or investing in new technology to prevent the business from becoming outdated.

Advantage of proactive change

Can gain/improve competitive advantage and minimize the impact of both internal and external environment factors since it is normally planned and well thought out

Disadvantage of proactive change

Requires the business to guess and predict how things may look in the future - but futures can be uncertain, and if these predictions do not eventuate it can cause a waste of resources and reduce efficiency.

Reactive change (definition and one feature)

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

This means a business continues with its current practices until a problem arises, and then implements changes to address it.

Advantage of reactive change

Addresses a problem that has already happened, meaning that the solution can be more targeted and specific to reflect the exact problem.

Disadvantage of reactive change

Involves waiting for a problem to happen, when it could have potentially been avoided in the first place through proactive approaches.

Similarities between proactive and reactive change

• Both approaches require the support of managers and employees, and organizational inertia can result in opposition to both types of changes due to humans often being resistant to change if they perceive it as a threat to their position.

• Both approaches have the ultimate goal of maintaining or improving the company's position in the market.

Differences between proactive and reactive change

• Proactive change is more planned, coordinated and controlled, with fewer pressures acting on the business, whereas reactive change is more spontaneous, urgent and pressured.

• Proactive change tends to be more opportunity-focused, seeking to to innovate or gain a competitive advantage, whereas reactive change is more problem-focused, aiming to fix something that has gone wrong before it causes more damage.

Key performance indicators (definition and one feature)

The specific criteria used by businesses to measure and evaluate the efficiency and effectiveness of its performance.

KPIs allow a business to identify whether a change has achieved its desired objectives or if further changes are required. They can also reveal if the change had unintended negative impacts on other areas of the business

Percentage of market share (definition and one feature)

The proportion of a business’s total sales compared to the total sales in the industry, expressed as a percentage figure.

It can indicate a business’s competitiveness within their relevant industry, and a high percentage of market share would suggest greater profit and revenue as customers are choosing to purchase from the business over its competitors.

Net profit figures (definition and one feature)

Are calculated by subtracting total expenses incurred from total business revenue earned over a specific period of time.

High net profit figures are beneficial for business operations, as financial resources can be used for investment in development, growth and meeting shareholder expectations.

Rate of productivity growth (definition and one feature)

The change in the total output produced from a given level of inputs over time, expressed as a percentage figure.
High rates of productivity growth indicate that a business has become more efficient over time as it is better able to utilize its resources in its production processes.

Number of sales (definition and one feature)

Number of sales is the total quantity of goods and services sold by a business over a specific period of time.

A high number of sales indicates a high level of customer satisfaction and that a business has effectively marketed its products and their benefits, whereas a low number of sales may suggest that customers are dissatisfied with a business’s products and/or are not aware of the business.

Number of customer complaints (definition and one feature)

The number of customers who notified the business of their dissatisfaction overtime.

Businesses should receive and act on feedback provided by customers as it could act as an insight into what a business could be doing to better meet their needs/expectations, and thus mean the difference between success and failure.

Rates of staff absenteeism (definition and one feature)

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

A high level may indicate that employees are dissatisfied with the business and unmotivated to come into work, which can be disruptive and expensive.

Level of staff turnover (definition and one feature)

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

High levels negatively impacts productivity as time and money must be spent on recruiting and training new employees.

Number of workplace accidents (definition and one feature)

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

A high number reflects an unsafe environment and is a particular concern for human resource managers, as it is their responsibility to ensure the safety and wellbeing of employees.

Level of wastage (definition and one feature)

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

High levels increases the raw materials, cost and time required to produce a good or service whilst also reflecting poorly on the business in terms of CSR and environmental sustainability.

Number of website hits (definition and one feature)

The amount of customer visits that a business’s online platform receives over a set period of time.

A high number can indicate that a business has a strong relationship with its customers, has effectively marketed its products, or that there is a high level of interest in the business’s current or future products.

Lewin’s Force Field Analysis (definition and one feature)

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

The principles are conducted in a step by step manner, starting from weighting the forces, ranking them, implementing a response and then evaluating the response.

Weighting (definition and how it is applied)

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

The business first identifies the driving and restraining forces, and then assigns a “weight” (usually a numerical score) to determine the level of impact each force could have on the proposed change.

Ranking (definition and how it is applied)

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

At this stage, it can be determined whether the driving forces overpower the restraining forces.

If a change is to be implemented successfully, the driving forces must outweigh the restraining forces.

Implementing a response (definition and how it is applied)

The action that can be taken to strengthen the driving forces, reduce or eliminate the restraining forces, and/or the execution of the change.

In order to support the implementation of the change, businesses could develop an action plan that details what needs to be done, who is responsible, the resources required and the deadlines for task completion.

Evaluating the response (definition and one feature)

Involves determining if the change was implemented successfully or not.

A business could use KPIs to measure the success of the change in achieving business objectives.

Advantages of a force field analysis

• Businesses can save money by only implementing change where success is likely.

• It takes into account all aspects of the business environment, including impacts/reactions from employees, shareholders, customers, operations, etc., allowing for a more well-informed change to be made.

Disadvantages of a force field analysis

• Conducting the analysis will require a lot of time, resources and effort, which can come at a cost to the business.

Driving forces (definition and one feature)

Factors affecting the business environment that support and promote a proposed change.

Successful change is more likely to occur when driving forces outweigh restraining forces.

Owners as a driving force

• Most owners have developed their business overtime and thus have a personal and vested interest in its longevity and success, especially as they receive an income from its operations that needs to be shared around to employees/reinvested back into the business..

• They may therefore actively seek out support change in order to remain competitive in the rapidly changing market and maximise financial performance.

Managers as a driving force

• Managers are responsible for overseeing the implementation of business policies and procedures in daily operations.

• Therefore when a manager is in support of a change, their attitude, management and leadership can act as a driving force as they can set an example and guide the behavior and performance of other employees.

Employees as a driving force

• Employees are interested in the working conditions, wages, training and benefits a business can offer them.

• In such instances, employees may act as a driving force if they think a business change is likely to improve their wages and conditions of work.

Pursuit of profit as a driving force

• Improved financial performance can enable a business to survive in the market, provide stronger returns to shareholders, provide wages to employees and fulfil future business opportunities, thus making it a driving force.

• If a business’s revenue drops due to a change in the market, the business must be willing to explore new opportunities to change in order to remain profitable.

Reduction of costs as a driving force

• Reducing unnecessary costs, e.g., sourcing from a cheaper supplier, or renting a cheaper space for business operations, can improve efficiency and effectiveness and increase profits, thus making it a driving force.

Competitors as a driving force

• When competitors change prices, use new technology or launch a new and exciting product, they may gain a competitive advantage and steal market share from other businesses in the same industry.

• Thus they act as a driving force as they may force a business to adapt in order to stay competitive and relevant with customers.

Legislation as a driving force

• The laws and legal regulations that a business has to follow.

• Acts as a driving force as if new legislation is introduced, and current operations breach the new legislation, the business will have no choice but to change the way it operates so that it can avoid fines, suspensions and closure.

Globalization as a driving force

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

• It has made it so that Australian businesses are competing in a global market with international businesses, which can allow them to access a larger number of customers across borders and cater to their demands.

• It also provides opportunity to access cheaper raw materials and labour, thus acting as a driving force.

Technology as a driving force

• Allows businesses to operate its processes and practices more efficiently and effectively, through automated production lines, AI and online services, which can help them cut costs through reduced labour costs and improve productivity.

• If a business fails to upgrade to the latest advancements in technology, it may be viewed as outdated or its processes may not be optimized, which may negatively impact its ability to compete and survive.

Innovation as a driving force

• The process of altering and improving or creating new products and procedures.

• By taking advantage of the latest innovations (e.g., social media encouraging businesses to create their own accounts to connect with existing and potential customers), this can allow businesses to increase their sales and market share.

Societal attitudes as a driving force

• The collective values, beliefs and views of the general public.

• Businesses need to ensure that their operations align with societal attitudes and behaviours in order to maintain popularity with consumers and employees, thus making this a driving force.

• Failure to adapt to the changing beliefs of society can result in customers boycotting the business, which can lead to a decrease in sales and net profits.

Restraining forces (definition and one feature)

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

If restraining forces exceed the driving forces, a business change is unlikely to be successful.

Managers as restraining forces

• Managers may be unwilling to support a change if they do not believe it to be beneficial for the business or if it threatens their position.

• They can therefore act as a restraining force as they are leaders and hold power and influence over the business’s employees and processes, which can allow them to negatively shape behaviours, discourage employee support and cause the change to gain less traction.

Employees as a restraining force

• Employees may resist a business change if the outcome is uncertain, they fear they cannot adapt, it affects their job security or conditions of work, or if they do not see adequate reasoning for the change.

• Change can be emotional and disorientating and can result in disputes, strikes, and industrial action, thus making them a restraining force.

Legislation as a restraining force

• As a restraining force, certain laws may prevent the business operating in the way it would like to (e.g., COVID 19 restrictions, national employment standards).

• For example, businesses may struggle to compete with cheaper imports. To try and reduce production costs, management may consider reducing wage rates per hour. However, the national employment standards make it illegal to pay people below the national minimum wage, thus making it a restraining force.

Organizational inertia as a restraining force (define too)

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

• As staff become familiar and comfortable with certain structures and routines, attempts to make changes can become difficult due to resource and routine rigidity, and an inability to disrupt the status quo smoothly.

Time as a restraining force

• Changes take time, and having insufficient time to work through change can impact the ability of the change to be planned well and implemented succesfully.

• Being slow to react or implement change can result in reduced competitive edge.

Financial considerations as a restraining force

• Business changes very often incur significant financial costs, and a business may not have enough money to support the change without it damaging profits.

• These costs may be associated with purchasing new technology/equipment, redundancy packages, training or restructuring of the business.

Porter’s generic strategies (definition)

A strategic management theory describing how a business can seek to acquire a competitive advantage.

Lower cost strategies (definition and how it may be implemented)

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 among competitors.

CAN BE IMPLEMENTED THROUGH:

• Sourcing cheaper inputs.

• Minimizing wage costs.

• Only stocking items that are known to sell well.

Advantages of lower cost strategies

• The business can effectively target cost conscious consumers.

• Creates barriers to entry for new competitors, as it would be hard to offer similar prices whilst still remaining profitable.

Disadvantages of lower cost strategies

• The business is unlikely to be able to establish a loyal customer base since they are price sensitive and likely only after the cheapest deal, regardless of the business that is offering it.

• The business’s low prices may result in customers perceiving the products to be of a low quality, which can negatively impact the image of the business and deter customers who care about quality.

Differentiation (definition and how it may be applied)

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

HOW IT CAN BE APPLIED:

• Introducing new technology, such as electric cars or wireless charging for smartphones.

• Innovating its original good or service, such as adding new flavours.

• Improving durability, meaning the product lasts longer because of higher quality materials or design.

• Offering warranties or loyalty cards.

Advantages of differentiation strategies

• Customers are often loyal to the business due to the unique product features being offered that are not available at competing businesses.

• Can charge premium prices for products as customers are less likely to be able to purchase a similar product elsewhere, which can increase profits.

Disadvantages of differentiation strategies

• Higher selling prices can reduce the business’s ability to generate sales from the significant portion of the consumer base that consists of cost-conscious customers.

• Higher investments of time and money may be required in order to source the highest quality materials, research new developments and improve levels of service.

Similarities between lower cost and differentiation strategies

• Both intend to increase a business’s profitability by providing a competitive advantage.

Differences between lower cost and differentiation strategies

• Lower cost strategies involve selling at a similar or lower price than competitors, whereas differentiation involves selling at premium prices.

• Lower cost targets cost-conscious customers, whereas differentiation targets customers who are not price sensitive and instead care more about quality or the perceived status of the product.

• Lower cost has a internal focus on operating processes, whereas differentiation has an external focus on meeting customer needs.