Corporate Influences

Influences on business decisions:

One of the main functions of the senior management team is to take strategic decisions.

These can have a long term impact on the business.

Strategic decisions have implications for:

Finances.

Human resources.

Operations.

Click on the picture:

Important business decisions are likely to be influenced by a number of key factors.

1. Corporate culture.

'The way things are done'.

Is the organisation risk averse?

Is the culture creative?

Is the organisation open to new ideas?

Business culture can also be 'toxic'. Click on the headlines.

2. Does the organisation have a 'shareholder' or 'stakeholder' approach to decision making?

3. Business ethics.

Some organisations have a strong commitment to corporate social responsibility (CSR) and this will impact on decision making.

4. The impact of the decision in the short and long term.

'Short-termism'

If a business focuses on the short term it is more likely to:

1. Maximise short-term profits.

Managers are focused on quick financial rewards, such as quarterly profit or sales figures.
  Cost minimisation and maximising revenue are likely to be objectives.

2.Invest less money in research and development.

The view would be that spending on R&D would be risky.

There is no guaranteed return from R&D.

3. Invest less in training.

The view would be that training is expensive and the returns are not immediate.

4. Return cash to shareholders.

There may be special dividends to shareholders.

'Activist investors' may try to force a business to return cash to shareholders.

Wikipedia definition here.

BBC news article here.

5. Engage in asset stripping.

The company buys a struggling business and sells off the profitable parts.

This is considered unethical as the interests of the stakeholders (such as the staff) are not considered.

Click on the headline:

6. Pursue external growth rather than organic growth.

Organic growth is considered too slow for companies with a short term approach.

7. Arrange more short-term contracts  with suppliers or staff.

BBC Article. Details here.

Click on the headline:

‘Quarterly capitalism’ is short-term, myopic, greedy and dysfunctional

Will Hutton

Drawbacks of short-termism:

The long term profitability of the business might be threatened by focusing too much on the short term.

By not investing in R&D the business may miss a lucrative opportunity.

If a business fails to invest in new products and technologies it will lose its competitive edge.

Remember Nokia?

A business that focuses on the short term is likely to produce quarterly financial reports.

The time and effort of producing these reports is a drain on management time.

Reliance on short term contracts does not improve staff motivation or the relationship between the company and suppliers.






Long-termism:

Operating not just to meet monthly or quarterly targets but on a much longer time frame.

A yearly rather than quarterly financial statement.

This involves investing in staff, product development, R&D and other forms of innovation.

Likely to involve corporate social responsibility (CSR) and ethical behaviour.

Long term contracts with suppliers to build meaningful and profitable relationships.

Zappos: in for the long term.

Evidence Based versus Subjective Decision Making

Evidence based:

Taking business decisions can be very costly.

There is the trade off between risk and reward.

Should an evidence based or 'scientific' approach always be taken?

Details here.

Subjective decision making or using a 'hunch'.

Details here.

Evidence-based Versus Subjective Decision Making

Evidence based (Scientific):

A systematic and rational approach to researching and analysing all the available information before a conclusion is reached.

1. Setting / identifying objectives.

2. Gathering information and ideas.

3. Analysing information and ideas.

4. Making a decision.

5. Implementing the decision.

6. Monitoring and evaluation.  

Scientific decision-making involves the use of:

Data mining and big data to source relevant data to inform decisions

Pizza Hut using 'big data'. Click on the picture:

Quite a few of the models you explore as a business student can be linked to scientific decision-making (although they also involve some qualitative judgement), including:

• Decision trees
• Investment appraisal
• Sales forecasting
• Critical path / Network analysis 

Subjective decision making (Hunch?):

Personal opinions of the key decision maker strongly influence the course of action chosen.

May be appropriate if there is a lack of data to analyse.

Some businesses may be dominated by a powerful and persuasive leader.

In some industries this might be a normal way of making decisions eg fashion.

There may be times when quick decisions have to be made.

Kodak did not enter the digital camera market. Was this a subjective decision?

Nice link to this topic here.

Corporate Culture

Corporate culture

Corporate culture refers to the beliefs and behaviours that determine how a company's employees and management behave.

Behaviour towards each other.

Towards customers.

Towards the authorities.

Strong and Weak Culture.
Nice link here.

A strong culture is deeply embedded into the ways a business does things.

10 examples of companies with a very strong company culture: details here.

Click on the headline:

In a weak culture a wide range of sub-cultures will be operating.

More details here.

Classification of Company Cultures

Power Culture:

For a 'power culture', firm control is the key element.

Decisions are made by one or a small number of people. 

Power cultures are usually found within small organisations or a section/department belonging to a large organisation. 

In a power culture organisation, decisions can be made quickly as there is little consultation. 

However lack of consultation could mean that a firm is not able to take advantage of the skills and experience of its workforce.

Details of the four types of company culture you need to know here.

Role culture:

Power derives from a person's place or role within a highly structured organisation.  

Role cultures are highly bureaucratic with detailed rules about how people and departments interact with each other, customers and sellers.  

Large, well-established companies like insurance companies and banks tend to have role cultures.

Task culture:

Task culture forms when teams in an organisation are formed to address specific problems or progress projects.

Person culture:

A culture which is only there to help the individuals who work there. An example of this type of culture is architects or social groups. 

It is a cluster, there to help the individuals to profit from themselves.

How corporate culture is formed. Click on the image.
Write down the six steps:

Difficulties in changing an established culture: Click on the image.

Shareholders versus Stakeholders

Shareholders:

Part owners of the company.

The largest shareholders of a public limited company (plc) are likely to be pension funds, investment banks and insurance companies.

Directors are also likely to be share owners through their remuneration package.

Employees may be part of a share ownership scheme.

Small investors may also own shares.

A classic view about how shareholders operate:

What shareholders may wish to achieve -

Regular and rising dividend payments.

A rising share price.

Shareholders are entitled to vote at the AGM of a public limited company.

Stakeholder:

A person or group with an interest or concern in something, especially a business.

What groups could be considered internal stakeholders?

Consider the college:

Governors.

Senior leadership team.

Teaching staff.

Non teaching staff.

Students.

External stakeholders:

Parents.

Neighbours.

Schools.

Ofsted.

Southwestern Railway.

For Tesco?

Stakeholder objectives, what are the main priorities for each stakeholder group for the college and for Tesco?

Is there potential for conflict between profit based shareholders and other stakeholder groups with a wider interest?

A nice article looking at the differences between shareholders and stakeholders here.

Merck and river blindness. Click on the picture:

Business Ethics

Business ethics covers the moral 'rights' and 'wrongs' of business decisions.

Most large businesses will have an ethical code of behaviour or a mission statement which contains ethical principles.

Google drops 'Don't be Evil'. Details here.

Specific ethical issues:

The environment:

Should a business go further than the law suggests?

Should environmental standards be maintained in all the countries a business operates in?

Animal rights:

Should pharmaceutical companies test drugs on animals?

Should companies avoid damaging animal and plant life?

Workers in developing countries:

Corruption:

Is it right to use bribes even if a business knows that its competitors do?

Anti bribery law. Details here.

Click on the logo:

New technologies:

Is nuclear power acceptable?

Genetically modified crops?

Cloning?

Many businesses will have ethical codes of practice.

McDonald's Standards of Business Conduct. Details here.

Explicit ethical objectives:

We will not test products on animals.

We will not accept or pay bribes.......

Implicit ethical objectives:

'Treating customers fairly'.

This would be part of the corporate culture of the organisation.

Corporate Social Responsibility (CSR)

This is an acknowledgement of responsibilities to all stakeholders not just shareholders.

CSR reports should be backed up with independent audits - although there are no minimum standards.

What should be audited?

Employment standards.

Human rights.

The impact on local communities.

Business integrity and ethics.

Product responsibility.

The environment.

Foxconn and Social Auditing. Details here.
https://youtu.be/TmLsV9cSk0o    

Pay and rewards (remuneration):

Businesses use pay and rewards for different reasons.

To attract employees with the right skills, experience and knowledge.

To reward and motivate existing staff.

Motivated staff are likely to be productive staff.

Some companies have been accused of excessive executive pay (directors, the CEO or Chairman).

Click on the headline:

Highest paid female chief executive. Details here.

Some employers have been accused of only paying the minimum wage. 

Is this ethical?

Should companies pay such low wages that employees have to rely on tax credits?

Some companies classify employees as self employed to avoid the minimum wage.

Uber. Click on the picture.

Some businesses pay a 'Living Wage'. 

Do you know what this means?

Details here.

Trade-offs between profit and ethics.

Is there is a conflict between profit maximisation and acting ethically?

A trade off occurs when the selection of one course of action leads to a negative impact on another course of action.

Acting ethically can raise costs.

Acting ethically can reduce revenues:

Refusing to give bribes may lose the business income.

Not using GM crops may give a competitor an advantage.

However acting ethically can produce benefits:

Some customers view ethical behaviour as being a USP.

Having a CSR approach to business can act as an insurance policy against possible future problems.

What do you think this means?