Business Change and Key Performance Indicators Study Notes

Concept of Business Change

  • Verbatim Definition: "Business change is the alteration of behaviours, policies, and practices of a business."
  • Nature of Change: Change is a constant for businesses aiming to remain competitive and adapt to market trends. Failure to adapt can be detrimental to performance and viability.
  • Scope of Impact: Change can affect every area or just single parts of a business.
    • Example: Introduction of computer-aided manufacturing may only affect the operations management area.
    • Example: Transitioning employees from an industry award to an enterprise agreement affects the entire business.
  • Management Requirements: Successful business change requires strong leadership, effective management skills, and the support of internal stakeholders (e.g., employees).
  • Potential Outcomes: Outcomes are both positive and negative. Change in one area can adversely affect another.
    • Example: Introducing an automated production line improves efficiency but leads to employee redundancies.

Proactive and Reactive Approaches to Change

Proactive Approach to Change
  • Verbatim Definition: "A proactive approach is when a business changes to avoid future problems or take advantage of an opportunity to gain a competitive advantage."
  • Characteristics:
    • Often involves fulfilling a "gap in the market" (an unmet need in an industry).
    • Involves recognizing market trends or investing in new technology to prevent obsolescence.
    • Occurs with fewer pressures, allowing for a calmer, more planned, and controlled transformation.
    • Often utilizes low-risk strategies.
  • Case Study (RM Williams): In 2022, owner Andrew Forrest invested in a sustainable materials company to introduce plant-based leather alternatives. This responded to societal attitudes seeking plastic-free alternatives, allowing RM Williams to lead the industry proactively.
Reactive Approach to Change
  • Verbatim Definition: "A reactive approach is when a business undertakes change in response to a situation or crisis."
  • Characteristics:
    • Prompted by external factors like a competitor's new product or media controversies.
    • Usually involves high levels of pressure, acting urgently and with relatively little planning.
    • Requires swift action to restore reputation or competitiveness.
    • Often utilizes high-risk strategies.
  • Case Study (The Walt Disney Company): In 2022, Disney faced criticism for a lack of gender inclusivity. Reactively, the company changed theme park loudspeaker announcements from "ladies and gentlemen, boys and girls" to "dreamers of all ages" to maintain its reputation as a family-friendly company.

Key Performance Indicators (KPIs)

  • Verbatim Definition: "Key performance indicators (KPIs) are criteria that measure a business’s efficiency and effectiveness in achieving its different objectives."
    • Efficiency: How productively a business uses resources during production.
    • Effectiveness: The extent to which a business achieves its stated objectives.
  • Utility: KPIs highlight the need for change, provide measurement for success, and assist in implementing business transformations. For success, KPIs must be relevant, reliable, and used for historical comparison.
KPIs: Part 1 (Financial and Performance Metrics)

  • Percentage of Market Share:

    • Definition: "Measures the proportion of a business’s total sales, compared to the total sales in the industry, expressed as a percentage figure."
    • Formula: Percentage of market share=A business’s total sales ($)Total sales in the business’s industry ($)×100\text{Percentage of market share} = \frac{\text{A business's total sales (\$)}}{\text{Total sales in the business's industry (\$)}} \times 100
    • Data (Supermarket Industry 2021): Woolworths (37%37\%), Coles (28.5%28.5\%), ALDI (10.5%10.5\%), IGA (7%7\%). Total industry value: $120 billion\$120 \text{ billion}.

  • Net Profit Figures:

    • Definition: "Calculated by subtracting total expenses incurred from total business revenue earned, over a specific period of time."
    • Formula: Net profit figures=Total revenue−Total expenses\text{Net profit figures} = \text{Total revenue} - \text{Total expenses}
    • Case Study (Macquarie Group Ltd.): Reported a 56%56\% increase in net profit in 2021 to $4.71 billion\$4.71 \text{ billion}. Forecasts for 2023 projected a drop to $4.2 billion\$4.2 \text{ billion} due to global tensions like the Russia-Ukraine war.

  • Rate of Productivity Growth:

    • Definition: "The change in the total output produced from a given level of inputs over time, expressed as a percentage figure."
    • Formula: Rate of productivity growth=New productivity−Old productivityOld productivity×100\text{Rate of productivity growth} = \frac{\text{New productivity} - \text{Old productivity}}{\text{Old productivity}} \times 100
    • Example (Lucky Glover): Year 1 (30 gloves from 5 rolls); Year 2 (35 gloves from 5 rolls, 16.67%16.67\% growth); Year 3 (30 gloves from 3 rolls, 42.86%42.86\% growth).

  • Number of Sales: "The total quantity of goods and services sold by a business over a specific period of time."

    • Data (Australian Car Industry 2021): Over 1 million1 \text{ million} cars sold (14.5%14.5\% increase). Toyota sold over 220,000220,000 units, holding 21.3%21.3\% market share.

  • Number of Customer Complaints: "The number of customers who notified the business of their dissatisfaction over a specific period of time."

KPIs: Part 2 (Employee and Operational Metrics)

  • Rates of Staff Absenteeism:

    • Definition: "The average number of days employees are not present when scheduled to be at work, for a specific period of time."
    • Formula: Rates of staff absenteeism=Total number of days all staff are absent for a period of timeTotal number of staff\text{Rates of staff absenteeism} = \frac{\text{Total number of days all staff are absent for a period of time}}{\text{Total number of staff}}
    • Implications: High rates indicate low staff morale (collective workplace attitudes) and motivation. Case study: Qantas experienced flight delays and luggage issues in 2022 due to high absenteeism during the holiday period.

  • Level of Staff Turnover:

    • Definition: "The percentage of employees that leave a business over a specific period of time and must be replaced."
    • Formula: Level of staff turnover=Total number of staff leaving over a period of timeTotal number of staff required×100\text{Level of staff turnover} = \frac{\text{Total number of staff leaving over a period of time}}{\text{Total number of staff required}} \times 100
    • Employer of Choice: A business that attracts and retains highly skilled staff via inclusive culture (e.g., Telstra, Adobe). Chipotle reported a 194%194\% turnover rate in 2021, an increase of 53%53\% from the previous year.

  • Number of Workplace Accidents: "Measures the amount of injuries and unsafe incidents that occur at a work location over a specific period of time."

    • Implications: High numbers indicate an unsafe environment, reducing efficiency and damaging reputation. Legal impact: Western Australia (31 April 2022) introduced fines up to $10 million\$10 \text{ million} and 20 years20 \text{ years} jail for workplace deaths.

  • Level of Wastage: "The amount of inputs and outputs that are discarded during the production process."

    • Data (Coles 2021): Trials of refill stations reduced packaging costs, leading to price drops for customers of 17%17\% (olive oil) to 55%55\% (laundry detergent).

  • Number of Website Hits: "The amount of customer visits that a business’s online platform receives for a specific period of time."

    • Data (Apple Inc. 2022): Reported 2.5 billion2.5 \text{ billion} hits in March, with visits averaging 19 minutes19 \text{ minutes}.

Lewin's Force Field Analysis Theory

  • Verbatim Definition: "Force Field Analysis is a theoretical model that determines if businesses should proceed with a proposed change."
  • Components:
    • Driving Forces: Factors that promote and support change.
    • Restraining Forces: Factors that resist or stop change.
  • Key Principles/Steps:
    1. Weighting: "The process of scoring and attributing a value to the driving and restraining forces." Usually scored from 1 (low) to 5 (high).
    2. Ranking: "Arranging the forces in order of value and determining the total score of driving and restraining forces." Sum of driving must exceed restraining for success.
    3. Implementing a Response: Action taken to strengthen driving forces or reduce restraining forces.
    4. Evaluating the Response: Assessing if change was successfully implemented using KPIs.
  • Case Study (Qantas Project Sunrise): Evaluation of direct flights to New York and London. Driving forces: Profit targets and customer needs. Restraining forces: High aircraft cost and project timeframe. Plan to start by end of 2025.

Driving Forces for Business Change

  • Verbatim Definition: "Driving forces are factors affecting the business environment that promote and support business change."
Internal Driving Forces
  • Owners: Make large-scale decisions and have a vested interest in longevity.
    • Example: Heartland Records owner Paul Cook adapted to digital trends (eBay) to keep the vinyl store profitable.
  • Managers: Ensure objectives are met.
    • Example: Toyota Kinto manager Mark Ramsay expanded car rental services during pandemic-related shortages.
  • Employees: Drive change for better conditions or innovation.
    • Example: Google’s "20 per cent time policy" led to projects like Gmail and Google Maps.
  • Pursuit of Profit: Decisions to improve financial outcomes.
    • Example: Qantas launching Melbourne-to-Dallas flights to recover $16 billion\$16 \text{ billion} lost revenue.
  • Reduction of Costs: To improve efficiency.
    • Example: Qantas performed 85008500 redundancies in 2021 to cut $600 million\$600 \text{ million} in costs.
External Driving Forces
  • Competitors: Rivals selling similar goods/services.
    • Example: Google Pixel Watch (2022) forces Apple to improve its watch features.
  • Legislation: Laws/regulations.
    • Example: Environment Protection Amendment Act 2018 (Vic) forces businesses to minimize environmental risk.
  • Globalisation: Interconnected international trade.
    • Example: Five Guys expansion into Sydney (2021) forced local burger shops to adapt.
  • Technology: Rapidly progressing systems.
    • Example: McDonald’s AI drive-thru trial (2021) to increase accuracy and speed.
  • Innovation: Creating new/improved products.
    • Example: Woolworths partnering with Uber Eats for same-hour delivery.
  • Societal Attitudes: Changing public values.
    • Example: Woolworths stocking "Impossible Foods" brand faux-meat due to environmental/health trends.

Restraining Forces for Business Change

  • Verbatim Definition: "Restraining forces are factors that resist a business change or actively try to stop it."

  • Managers: May resist if change threatens their position or if they disagree with the benefit.

    • Example: Amazon management spent millions to prevent the formation of employee unions.

  • Employees: Resist due to fear of the unknown, lack of training, or job security concerns.

    • Example: Google Cloud layoffs (2022) met with employee retaliation.

  • Time: Implementation may take too long, missing market opportunities or deadlines.

  • Organisational Inertia: "The tendency for a business to maintain established ways of operating."

    • Example: Blockbuster failed due to inertia regarding DVD rentals vs streaming. Rebranding Facebook to Meta faced internal resistance from staff settled in old structures.

  • Legislation: Legal barriers to new practices.

    • Example: 2022 Superannuation legislation removing the $450\$450 threshold increased costs for small businesses.

  • Financial Considerations: Lack of funds for implementation.

    • Example: Facebook name rights for "Meta" cost $60 million\$60 \text{ million} which required significant capital.

Porter's Generic Strategies

Michael Porter proposed businesses gain a "Competitive Advantage" (superior position over rivals) by choosing one of two strategic directions.

Porter’s Lower Cost Strategy
  • Verbatim Definition: "Porter’s lower cost strategy 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."
  • Methods to achieve: producir basic "no-frills" products, overseas manufacturing, bulk buying, Just In Time material management, and economies of scale.
  • Pricing Approaches:
    • Charge similar prices for higher margins.
    • Charge slightly lower prices to maintain higher margins via cost savings per unit.
    • Charge much lower prices to gain high volume of sales.
  • Case Study (Costco): Membership-only ($60\$60/year). Markups capped at 14%14\%. Revenue driven by volume despite 2%2\% profit margin. Advertising budget is $0\$0.
Porter’s Differentiation Strategy
  • Verbatim Definition: "Porter’s differentiation strategy involves offering customers unique services or product features that are of perceived value to customers, which can then be sold at a higher price than competitors."
  • Methods to achieve: High-quality materials, innovation, branding (status-aligned), and niche marketing.
  • Case Study (Sal’s Authentic New York Pizza): Uses imported New York flour and tomatoes. Charges a premium price of $35–$40\$35\text{--}\$40 per pizza for the unique "authentic" experience.
  • Case Study (BOSS Fitness): Female-only gym environment providing childcare and specialized classes at $35 per week\$35 \text{ per week}.

Questions & Discussion

Case Study Analysis: Blanichi Chocolates (Review Page 27)
  • Situation: CEO Melina Bennet pivoted from standard chocolates to gourmet quality to compete on quality rather than price.
  • Actions: Investment in state-of-the-art Belgium equipment; 5050 out of 400400 employees made redundant.
  • KPI Changes (2021 to 2022):
    • Sales: 230,000 boxes→920,000 boxes230,000 \text{ boxes} \rightarrow 920,000 \text{ boxes}.
    • Complaints: 144→56144 \rightarrow 56.
    • Website hits: 20,000→44,00020,000 \rightarrow 44,000.
    • Absenteeism: 4 days→8 days4 \text{ days} \rightarrow 8 \text{ days}.
Case Study Analysis: Potato Pals (Review Page 56)
  • Goal: Become a global brand by diversifying into onion rings.
  • Technology: Purchased 'Onionblade' for $500,000\$500,000. Capacity: 14 tonnes per hour14 \text{ tonnes per hour}.
  • Restraining Force: Legislation for carbon emission reduction may limit machinery purchases. Organisational inertia from employees used to current machinery.
Case Study Analysis: McDonald’s (Review Page 69)
  • Innovation: Partnered with IBM for robotic drive-thrus.
  • Functionality: Voice assistants, license plate scanning to predict orders, digital menu adaptation for weather and regional popularity.
  • Force Field Analysis application:
    • Weighting: Employees (high weight restraining) and Owners (moderate weight driving).
    • Ranking: Must determine if drive-thru efficiency outweighs job security concerns.
    • Evaluating: Use website hits and number of sales to assess AI effectiveness.