Business Management VCE Unit 4 Area Of Study 1 - Reviewing Performance

Change

Any alteration in internal or external environments

Business Change

The adoption of a new idea or behaviour by a business resulting in a difference in the form or operations of a business over time

Proactive Change

A situation where a change is planned and occurs before a business is affected by pressures in their environment

Consequences of Proactive Change

Allows a business to be prepared when the change occurs so it does not negatively impact the business, and is a more effective approach

Reactive Change

A situation where a change is unplanned, taking place after the business has been effected by the pressures from its environment

Consequences of a Reactive Change

Less effective, as the business has already suffered the negative consequences from the environment, it can lead to a loss in productivity, losing sales and reduce time available for a business to recover

What can Poorly managed change lead to

- Employee Resistance
- Tension
- Anxiety
- Lost productivity
- Unmet Objectives

What are Key Performance Indicators (KPI's)

Specific criteria used to measure the efficiency and/or effectiveness of a businesses performance, they can also provide data that can act as a driving force for change.

Why use KPI's (4)

- Identify weather results were achieved
- Identify which strategies were or were not effective
- Benchmarking to measure performance against competitors
- Informs a business on what area need to be addressed

10 KPI's and an important thing to include when discussing each

IMPORTANT: All are measured over a period of time.

- Percentage of Market Share
- Net Profit Figures
- Rates 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

Percentage of Market Share and what it measures

- Refers to the businesses share of total industry sales
- Measures: Financial performance & Customer satisfaction

Net Profit Figures

- The revenue that remains after all expenses have been deducted
- Measures: Financial performance

Rates of productivity growth

- Growth in ratio of outputs relative to inputs over a given time
- Measures: Efficiency

Number of sales

- Volume of outputs customers have purchased from a business over time
- Measures: Customer trends, Financial performance, customer satisfaction

Rates of staff absenteeism

- The number of workers who do not turn up for work when they are scheduled too
- Measures: Staff Motivation

Level of staff turnover

- The number of staff who are leaving the business and must be replaced
- Measures: Staff Motivation

Level of wastage

- Amount of materials or products discarded
- Measures: efficiency and CSR

Number of customer complaints

- The number of customers that contact the business to express disappointment with the businesses products, quality, price or customer services
- Measures: Customer Satisfaction and Employees Quality

Number of website hits

- The number of potential customers that visit a businesses site from ads, links or social media
- Measures: Potential customers and effectiveness of marketing

Number of workplace accidents

- Number of injuries and other incidents occurring in the workplace
- Measures: Safety, efficiency and social responsibility

Force Field Analysis

Outlines the process of determining which forces drive and which forces resist a proposed change

Driving Forces

The forces that support a change

Restraining Forces

The forces that work against a change

What must occur for a change to take effect

Driving forces must outweigh restraining forces

Steps to complete a Force Field Analysis

1. Identify the Driving and Restraining forces

2. Give a weighting from 1 (weak) to 5 (strong) for each driving and restraining forces

3. Rank the strongest forces in order to eliminate them (restraining) or strengthen them (driving)

4. Use an action plan to list actions that will strengthen or eliminate forces, assign responsibilities for people to complete each action and set a deadline

5. Evaluate the response, stating weather it was successful, unsuccessful or had no effect

Benefits of a Force Field Analysis

- Businesses are able to weigh up the factors for and against the change
- Helps businesses identify and strengthen driving forces and reduce or weaken restraining forces
- Action plan provides a clear and concise visual aid, supporting the skill of communication

Limitations of a Force Field Analysis

- Weightings are subjective and bias can effect the importance of a force
- Some driving and restraining forces may not be identified as they may emerge during a change
- The person completing the analysis may have missed certain forces

10 Driving Forces

- Owners & Managers
- Employees
- Competitors
- Legislation
- Pursuit of Profit
- Reduction of costs
- Globalisation
- Technology
- Innovation
- Societal attitudes

6 Restraining Forces

- Managers
- Employees
- Time
- Organisational Inertia
- Legislation
- Financial Considerations

Two Generic Strategies

- Cost Advantage
- Differentiation Advantage

Cost Advantage

A competitive advantage gained through reducing the costs of the business, allowing it to operate with larger profit compared to rivals

Differentiation Advantage

Businesses gain a competitive advantage through differentiating their good or service from others in the market

Lower Cost Strategy

A business seeks to become the business with the lowest costs in it's industry. These lower costs can be passed onto the consumer or to the businesses profits

Strategies to achieve lower cost (6)

- Reducing costs of sales
- Reducing other expenses
- Improving efficiency
- Operating economies of scale
- Implement waste management strategies
- Implement materials management strategies

Advantages of a Lower Cost Strategy

- Increased profit for owners
- Increase and prevent competitors from achieving a business market share
- Reduced costs can be used to expand operations

Disadvantages of a Lower Cost Strategy

- Sales may fall as customers believe product is of a poorer quality
- Can lead to poorer quality due to cheaper employees, rent and suppliers
- Potential to be socially iresponsible

Differentiation Strategy

The use of factors such as brand names, delivery methods and advertising to establish differences between substitutable products

Strategies to differentiate products (4)

- Quality management strategies
- Marketing and Branding
- Innovation
- Training

Advantages of a differentiation strategy

- Increased customer loyalty
- More revenue as they can charge a premium
- Increased marketshare due to loyal customers

Disadvantage of a differentiation strategy

- Competitors can copy differentiated approaches
- Differentiation may have initial costs
- While a business undergoes differentiation tastes & preferences can change

How many strategies should a business focus on

It is best to focus on just one strategy, using both strategies is not recommended by Porter

How to determine the best strategy

1. Conduct a SWOT Analysis
2. Conduct a Five Force Analysis
3. Compare both Analysis

Five Forces Analysis and the Five Forces

An indepth look at the five forces in an industry that determine a businesses competitiveness
- Supplier Power
- Buyer Power
- Competition Rivalry
- Threat of substitution
- Threat of new entries

When to use a Low Cost Strategy

- When the product is generic
- When the business is big and producing a lot
- When the consumers are price sensitive
- When the business is on a tight budget

When to use a Differentiation Strategy

- Product is unique
- Small businesses with low volumes
- Business has financial strength
- Customer relations are important

Similarities of Generic Strategies

- Both used to gain a competitve advantage
- Both aimed at increasing profits
- Both require consideration of compeition

Differences of Generic Strategies

- Diff: Innoative, Cost: Generic
- Diff: High prices & less volumes, Cost: Low prices & more volumes
- Diff: Niche market, Cost: Generic market