3.2

Three types of business decisions

Three types of business decisions

Most risky

1. Strategic

2. tactical

3. operational

Less risky

Internal factors when making decisions

1. objectives

2. corporate culture

3. ethics

4. financial performance

5. SWOT analysis

6. resources available Relative power of stakeholders

Corporate timescales

Refers to the strategies and the expectation of when a return will be achieved

Short-termism-

Focuses on quick financial reward and maximisation at the expense of long term investment. e.g. sustainability.

Long-terminist

Holistic approach and focusses on improvements in the long run.

What are the two approaches to decision making

Evidence based and subjective

Evidence based decision making and pros and cons

arriving at a decision in a logical and rational way

Pro- more disciplined and can help influence decisions. Options are stimulated and tested.

Cons- Bias, doesn’t take ethics into account, time consuming and costly.

Subjective based decision making pros and cons

Relying more on instinct and gut feeling without a logical reason

Pro- Uses experience and skills of senior management, Relatively quick and takes into account ethics

Cons- Managers experience may not be relevant, Emotions could cloud judgement, hard to justify for business decisions.

Shareholder-

Any person or organisation that holds at least one share in a company

Stakeholder-

Any individual or organisation who an interest- customers, suppliers, employees ect

Stakeholders will all have an objective

Customers- low price and good quality

Government- tax benefits

Employees- good pay

Shareholder approach

Interests are most important when making decisions. They are the owners

Pros- Consistent decision making, higher revenue, lower investment costs

Cons- Ignores stakeholders, short term- not sustainable, Lack of competitive advantage

Stakeholder approach

Taking into accounts of all stakeholders, Their interests have power and influence

Pro- High staff moral, improved brand image, Sustainable growth

Cons- Slower decision making, loose competitive advantage and lower profits/ dividends

Stakeholder power-

Pressure and influence that each stakeholder has over the business and decision making. - They do not hold equal power

Stakeholder mapping

A technique that can help businesses visualise the stakeholders that might be affected when making a decision.

Stakeholder conflicts-

All stakeholders will have different objectives and therefore conflict can arise

E.G. Cutting of jobs will be liked by banks and shareholders but not by employees