Busman AOS 4

Concept of Business Change

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

- Business change is important because a business's environment is constantly changing and therefore they must make changes to remain relevant in the market

Change

Any alteration in the internal or external environment in which a business operates

Proactive Approach to Change Definition

A change that is planned and occurs before a business is affected by pressures in their environment.

Reactive Approach to Change Definition

A change that is unplanned and occurs after the business has been affected by the pressures from its environment.

Examples of why a proactive approach to change tends to be a more effective way to manage change

- If a business is unprepared for a change, the business is likely to experience a loss in productivity while the business recovers from the change.

- If a business is unprepared for a change, it may result in a decrease in employees morale, which can lead to a further decrease in productivity and an increase in rates of staff absenteeism and/or levels of staff turnover.

- If a business carries out a planned change before its competitors, the business may gain a competitive advantage due to it being the first business to make this change.

Effectiveness

The degree to which a process or system is successful in achievement of business objectives

Efficiency

The best use of resources in the production of goods and/or services.

Key Performance Indicators (KPI)

- Specific criteria used to measure the efficiency and/or effectiveness of the business's performance in a particular area of operations.

Types of Key Performance Indicators

- Number of Sales

- Level of Wastage

- Number of Website Hits

- Number of Workplace Accidents

- Percentage of Market Share

- Net Profit Figures

- Rate of Productivity Growth

- Number of Customer Complaints

- Rate of staff Absenteeism

- Level of staff Turnover

Number of Sales

- A measure of the amount of goods and/or services sold by a business in a specific time period.

- Helps a business evaluate their performance, particularly what products are selling well, the success of marketing campaigns, sales training and product innovation.

Level of wastage

- The amount of unwanted or unusable resources created by the production process of a business.

- Gives an indication of the extent to which a firm's processes are lean and efficient.

- A high level of waste can indicate that a business has high costs and inefficient processes due to buying inputs that are not converted into outputs but instead wasted

Number of website hits

- Measure of the amount of times individuals visit a business's website over a set period of time

- Indicates how popular the business is over online platforms such as Google and other search engines

- Increase in website hits can help determine whether advertisements have been successful

Number of workplace accidents

- The amount of reported, unplanned events that have occurred in a business's work environment and have resulted in injury or property damage.

- Indicates how safe the workplace is for employees and how well the firm caters to its employees.

Percentage of market share

- The business' proportion of total sales in a specific market or industry expressed as a percentage.

- Business sales/ Total sales of all businesses in the industry

- Used to assess the competitiveness of a business

Net profit figures

- The difference between revenue and expenses.

- Can be used as an indicator to determine the successfulness of a business

- A low profit or even a loss suggests that a business could be experiencing several problems including reduced sales, poor customer service or inadequate management of expenses.

Rate of productivity growth

- A measure of efficiency for a business that compares the amount of outputs produced relative to the amount of inputs used in the production process; and the rate at which it increases over time.

- An increase in rate of productivity growth can indicate that a firm is using its resources more efficiently and has an efficient operations system

Number of customer complaints

- The number of times customers have expressed their dissatisfaction with the business in either spoken or written form.

- Indicates the degree of customer satisfaction with the goods/services produced by the business

- Increase in customer complaints may indicate the business that there is need for further training of employees, for refining the products sold to better meet consumer preferences etc

Rate of staff absenteeism

- The number of employees who voluntarily neglect to turn up for work when they are scheduled to do so, expressed as a percentage of total employees.

- May indicate problems at work between the employer and the employees or factors such as decrease in job satisfaction, ongoing personal issues and employee health issues.

Level of staff turnover

- The number of employees who are leaving the business over a specific period of time and need to be replaced by new employees.

- Used as an indicator of the degree of employee job satisfaction and how well liked a business is by employees.

- An increase in staff turnover means possible costs for the business including advertising, recruitment and productivity loss.

Lewin's Force Field Analysis

A framework developed by Kurt Lewin that helps determine which forces drive and which forces resist a proposed change so that the business is able to evaluate both sides of the argument and make an informed decision on what action to take to successfully implement a business change.

How to determine success of change for Lewin's Force Field Analysis

- For change to be successful, driving forces must exceed restraining forces

- When driving forces and restraining forces are in balance, "equilibrium" is reached and it is unlikely that change will occur and even if it does, it may be implemented in a manner resulting in a less than effective situation for the firm.

- When restraining forces are dominant and exceed driving forces, change will not occur

Definition of Driving forces

- The factors that initiate, encourage and support the proposed change, working to assist the business in achieving its goal.

Definition of Restraining forces

- The factors that discourage and work against the proposed change, creating resistance.

Key Principles/Steps for a Force Field Analysis

1) Define the target of change

2) Weighting: leaders or managers in a business need to identify all the driving and restraining forces and then provide them with a weight according to how important they are perceived to be.

3) Ranking: the considerations or forces are placed in order from the most important to the least important to identify the top 3-5 driving and restraining forces.

4) Implementing a response: once the business has weighed up both sides of the argument, it then makes a decision on what action to take to strengthen the top driving forces and/or weaken the top restraining forces.

5) Evaluating a response: once the response or decision has been made, the business must continue to monitor the situation to determine whether the correct decision was made. This can be determined by checking if the driving forces have been strengthened or restraining forces been weakened.

Advantages of a Force Field Analysis

- Can increase the likelihood of a business successfully implementing a business change.

- Can be used to determine the likelihood of a business change being implemented successfully, and thus prevent the business from wasting time and money on changes that are unlikely to be successful.

Disadvantages of a Force Field Analysis

- Can be time-consuming and expensive.

- If a business does not follow a view expressed by a particular stakeholder, this may have a negative impact on the relationship between the business and this stakeholder.

Types of Driving Forces

- Reduction in Costs

- Competitors

- Employees

- Managers

- Societal Attitudes

- Innovation

- Legislation

- Globalisation

- Pursuit of Profit

- Technology

- Owners

Managers (Driving Force)

- A manager is an individual who is responsible for overseeing employees, and day-today tasks, in order to help achieve business objectives.

- Managers are a driving force because they have interests that are directly affected by the extent to which the business they manage achieves its business objectives, and business changes can increase a business' ability to achieve its objectives.

Employees (Driving Force)

- Employees are individuals who work for a business in exchange for wages or salary

- Employees are a driving force because they have interests that are directly affected by both the business changes and the extent to which these business changes are successful.

Legislation (Driving Force)

- Legislation is a law passed by parliament that can legally require a business to implement a particular business change.

- When this is the case, legislation is acting as a driving force for change because, if a business fails to comply with the legal requirements imposed upon it, the business itself may be subject to consequences such as substantial fines.

Technology (Driving Force) (check dowling)

- Technology is any device used by a business to assist in the designing, producing and/or selling of a good or service.

- Technology is a driving force because if a business makes business changes that take into account technological developments, it can increase the efficiency and effectiveness of their operations, decrease costs and provide the business with a competitive edge.

Competitors (Driving Force)

- Competitors are rival businesses that sell similar goods and/or services in the same market as the business.

- Competitors are a driving force because if a business fails to make business changes that take into account the actions of the business' competitors, these competitors may gain a competitive advantage over the business.

Pursuit of Profit (Driving Force)

- Pursuit of profit is when a business is actively seeking to increase its net profit figures (revenue minus all expenses).

- Pursuit of profit is a driving force because business's are constantly seeking to increase their profits as it is one of their main business objectives

Reduction in Costs (Driving Force)

- Reduction in costs is when a business seeks to decrease its business expenses.

- Reduction of costs is a driving force because the lower a business' costs are, the higher the business' net profit figures will be, as long as the business' revenue either remains the same or increases; and increasing profits is of the business's main business objectives.

Innovation (Driving Force)

- Involves a business either creating a new system/product, or significantly improving an existing one.

- Innovation is a driving force because if a business fails to make business changes that either are themselves innovative and/or take into account recent innovations, other businesses that do make these changes may gain a competitive advantage over the business that has failed to do so.

Societal Attitudes (Driving Force)

- Societal attitudes are the collective views and values of the general public

- Societal attitudes are a driving force because if a business fails to make business changes that take into account societal attitudes, other businesses that do make these changes may gain a competitive advantage over the business that has failed to do so.

Globalisation (Driving Force)

- Globalisation is the movement of labour, technology, trade and finance across nations throughout the world as a result of the removal of trade barriers.

- Globalisation is a driving force because if a business fails to make business changes that take into account globalisation, businesses from around the world that do make these changes may gain a competitive advantage over the business that has failed to do so.

Owners (Driving Force)

- An owner is an individual who partially or completely controls a business' activities, due to them having a holding in the business.

- Owners are a driving force because they have interests that are directly affected by the extent to which the business they own achieves its business objectives, and business changes can increase a business' ability to achieve its business objectives.

Types of Restraining Forces

- Financial Considerations

- Organisational Inertia

- Legislation

- Managers

- Employees

- Time

Managers (Restraining Force)

- A manager is an individual who is responsible for overseeing employees, and day-to-day tasks, in order to help achieve business objectives.

- Managers are a restraining force because if all or most of the managers in a business are against a proposed change its highly unlikely that the change will occur because managers are the ones who will have to implement the change.

Employees (Restraining Force)

- Employees are individuals who work for a business in exchange for wages or salary

- Employees are a restraining force because if employees are against a particular business change, the change is unlikely to be successful as employees complete most of the tasks that will determine the success or failure of a business change.

Legislation (Restraining Force)

- Legislation is a law passed by parliament which can legally require a business not to implement a particular business change.

- When this is the case, legislation is acting as a restraining force because if a business fails to comply with the legal requirements imposed upon it, the business itself may be subject to consequences such as substantial fines.

Organisational Inertia (Restraining Force)

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

- Organisational inertia acts as a restraining force by encouraging a business' stakeholders to resist business changes that will require these stakeholders to move outside of their 'comfort zones' (ie, move away from the safe and predictable established ways of operating).

Financial Considerations (Restraining Force)

- Financial considerations are issues related to a business's revenue or expenses

- Financial considerations can act as a restraining force due to the business's current revenue and/or expenses resulting in the business having insufficient funds to implement a business change.

Time (Restraining Force)

- The ongoing pressure for business change

- Time can be a restraining force via 2 ways either a 'lack of time' or 'poor timing'.

- A lack of time means the business does not have enough time to successfully complete a business change

- Poor timing means the change is unlikely to be successful due to the current state of the business's environment

Porter's Generic Strategies

A framework developed by Michael Porter to outline the two major strategic approaches open to businesses that wish to achieve a sustainable competitive advantage.

Competitive Advantage

The attributes and/or conditions that place a business in a superior position than its competitors who sell similar goods/services

Cost Advantage

A competitive advantage gained through a business reducing or altering its expenses

Differentiation Advantage

A competitive advantage gained through a business distinguishing its products from its competitors' substitute products in a way that is valued by customers.

Lower Cost Approach To Strategic Management

Involves a business gaining a competitive advantage, more specifically a cost advantage by becoming a cost leader, the business with the smallest amount of expenses in its industry.

Differentiation Approach To Strategic Management

Involves a business gaining a competitive advantage by making its goods and/or services unique from its competitors' substitute products in a way that is valued by its customers.

How differentiation strategy can be achieved / Components of Differentiation strategy

- High quality products: ensuring the quality is better than that offered by the competitors through durability, warranties etc...

- Effective marketing and promotion: Allowing customers to see how the business offers different and unique features which competitors do not such as higher quality

- Focus on Innovation/R&D: developing a product with unique features that no other business produces.

How lower cost strategy can be achieved / Components of lower cost strategy (need to review)

- Reducing operating costs via downsizing, global outsourcing and/or overseas manufacturing, reducing wages, or offering minimal packaging.

- Reducing long-term energy costs by using renewable energy sources, such as solar energy.

- Improving efficiency: minimising idle inventory on shelves via jit, using assets more efficiently or by operating at economies of scale.

Advantages of lower cost Approach To Strategic Management

- Can decrease competitors market share due to them being unable to match the business' low expenses and/or sales prices.

- Can increase a business' number of sales amongst price-sensitive customers, which in turn increases revenue for the business.

Disadvantages of lower cost Approach To Strategic Management

- Tends to result in jobs being lost to decrease the costs of production thereby decreasing employee morale.

- Risk of consumers potentially viewing the

business's products as low in quality

- May be unsustainable for a business to remain as a 'cost leader'

Advantages of differentiation Approach To Strategic Management

- Can enable a business to charge a premium price for its products, and thus increase the business' revenue due to a lack of substitute products

- Can result in the business developing a loyal customer base due to their unique products which will in turn create a consistent revenue stream for the business.

Disadvantages of differentiation Approach To Strategic Management

- It may be difficult for a business to prevent its competitors from copying the business' point of differentiation, and thus the competitive advantage obtained from this differentiation may not be sustainable.

- Can be expensive and time consuming

particularly, with achieving a unique

attribute that sets its brand/product apart

from its competitors

- If the sales price of a business' products is high, the number of potential customers the business can have will decrease, due to some customers being unable to afford, or unwilling to pay, this price.

Similarities between lower cost and differentiation Approach To Strategic Management

- Both strategies intend to help the business successfully implement business changes that give them a competitive advantage.

- Both strategies can help a business achieve its business objectives.

Differences between lower cost and differentiation Approach To Strategic Management

- The lower cost strategy tends to target price-sensitive customers by contrast the differentiation strategy targets customers who are willing and able to pay a premium price.

- The lower cost strategy is focused on the business' expenses being the lowest in a particular industry by contrast, the differentiation strategy can result in the business' expenses being at or higher than the industry average due to a focus on making a business' products unique from its competitors' substitute products.

Steps to determine which of porters generic strategies to use (check dowling)

1. Conduct a SWOT analysis: by analysing internal Strengths and Weaknesses and external Opportunities and Threats of the business

2. Use the five-force analysis

3. Compare SWOT analysis with result of five force analysis and then consider whether to increase or reduce each of the five forces

4. Select the generic strategy that provides the best set of options

Five force field analysis

- Bargaining power of suppliers: How easy it is for suppliers to drive up prices

- Bargaining power of buyers: How easy it is for businesses to demand cheaper prices from suppliers

- Threat of substitutes: A consumer's ability to find a product/service similar to the one provided by the business

- Rivalry among competitors: The number and capability of competitors

- Entry of new competitors: A firm's power affected by the ability of other businesses entering the same market

Similarities between reactive and proactive approach to change

Both approaches are ways in which a business can manage change