3.3.4 Influences on business decisions

3.3.4 Influences on business decisions

Corporate Culture

Corporate culture is the shared values, beliefs, attitudes and ways of behaving within a business.It influences: • how employees behave • how decisions are made • leadership style • communication • business performance Think of culture as: "How things are done around here."

Strong Corporate Culture

A strong culture exists when employees widely accept and share the organisation's values and beliefs. Employees generally understand: • expectations • priorities • business values Characteristics • clear values • high employee commitment • shared goals • consistent behaviour

Strong Corporate Culture

Advantages of strong culture • motivates employees • creates identity • improves loyalty • supports decision-making Disadvantages Strong cultures can become resistant to change. Employees may reject new ideas.

Weak Corporate Culture

A weak culture exists when values are not strongly shared. Employees may: • behave differently • have unclear expectations • identify more with departments than business goals Adv: - More flexible to change Dis: - Less efficient

Classification of company cultures:

COMPANIES CULTURE CAN BE CATEGORIZED IN: - POWER- ROLE - TASK - PERSON

POWER cultures:

Advantages

• Fast response
• Quick decisions
• Business adapts rapidly

Disadvantages

• Business becomes dependent on leaders
• Poor decisions may affect entire organisation.

Power concentrated around a few key individuals. = Few rules. Decisions made centrally.Usually found in: • small firms • founder-led businesses Characteristics: • fast decisions • central authority

ROLE cultures:

Advantages

• Clear Responsibilities
• Predictability
• Consistency

Disadvantages

• Too much bureaucracy
• Slow decision-making

Employees have clearly defined roles and responsibilities. Based on: • procedures • hierarchy • structure Often found in: • banks • government organisations

TASK cultures:

Advantages

• Encourages Creativity
• Better Problem-Solving

Disadvantages

• Teams may conflict or become expensive

Teams formed to solve specific problems or projects. Power based on expertise rather than position. Common in: • technology firms • consultancies • project organisations

PERSON cultures:

Advantages

• High Independence

Disadvantages

• Difficult to Coordinate

Individuals are more important than organisation itself. Organisation exists to support members. Examples: • law partnerships • medical practices • consultancies

How corporate culture is formed?

Culture develops over time. Main influences:

• Founder influence
• Leadership Style
• Recruitment
• History and Traditions
• Industry Environment
• Employee Behaviour

Difficulties in Changing an established culture

Culture can become deeply embedded. Changing it is difficult.

• Employee Resistance
• Long-Established Habits
• Management Resistance
• Recruitment Issues
• Large Organizations create Extra Difficulties

Stakeholder model versus shareholder model

Businesses make decisions that affect many groups, and different groups often want different outcomes. The key debate: Should businesses focus mainly on shareholder returns, or should they consider all stakeholders?

Stakeholders

Stakeholders are individuals or groups with an interest in a business and its activities. Stakeholders can affect the business and be affected by it. Internal stakeholders Internal stakeholders are inside the organisation. Examples: • employees • managers • owners/shareholders These people are directly involved in operations.

External stakeholders External stakeholders exist outside the organisation. Examples: • customers • suppliers • government • local communities • pressure groups • lenders

Stakeholders OBJECTIVES

Different stakeholders want different things. This creates potential conflict.

Stakeholder and shareholder influences:

• stakeholder: that the business considers all of its stakeholders in its business decisions/objectives • shareholder: that the business should focus purely on shareholder returns (increasing share price and dividends) in its business decisions/objectives.

Stakeholder model:

Advantages

• Better Reputation
• Improved employee motivation
• Long-term sustainability

Disadvantages

• Balancing Interests may be difficult
• Conflicting objectives may slow down decisions.

The stakeholder model argues that businesses should consider all stakeholders when making decisions. Business decisions should balance interests of: • employees • customers • suppliers • communities • shareholders Not just profit.

Shareholder model:

Advantages

• Clear Objective
• May attract investors

Disadvantages

• Ignoring wider stakeholders may create problems

The shareholder model argues that businesses should focus primarily on maximising shareholder wealth. Objectives: • increase dividends • increase share price • maximise profits This idea is strongly linked to profit maximisation.

The potential for conflict between profit-based (shareholder) and wider objectives (stakeholder).

•Conflict 1: Shareholders vs Employees Shareholders: Want higher profits Employees: Want higher wages Conflict 2: Shareholders vs Customers Shareholders: Higher profits Customers: low prices

•Conflict 3: Shareholders vs Communities Shareholders: Lower costs Communities: High wages Conflict 4: Shareholders vs Environment Environmental investment may increase costs.

Business Ethics

Business ethics are the moral principles and standards that guide business behaviour and decision-making. Ethics asks: "Is this decision right or wrong?" —not simply: "Will it increase profit?" Ethics influence strategic decisions involving: • employees • customers • suppliers • environment • communities

Ethics of strategic decisions: trade-offs between profit and ethics.

A trade-off occurs when improving one objective creates costs or reduces another. Businesses often face: Profit vs ethical behaviour Ethical decisions may increase costs in the short term but create benefits in the long term. Examples:

• Paying Fair wages
• Using sustainable materials
• Refusing cheap overseas suppliers with poor conditions

Evaluation Ethical behaviour does not always reduce profits. In some industries consumers value ethics highly. Examples: • organic food • sustainability • fair trade products However: If customers prioritise low prices, ethical spending may not increase demand.

Businesses must decide how employees are rewarded. Pay decisions create ethical questions. Examples: • executive pay • bonus systems • wage inequality • minimum wages Evaluation Higher pay increases motivation only if employees value money more than other factors. Some employees value: • flexibility • work-life balance • job security

Pay and rewards

Executive pay controversy

Senior managers sometimes receive extremely high salaries. Potential issue: CEO receives €10 million Employees receive low wages ↓ Employees may view system as unfair ↓ Motivation falls ↓ Negative publicity possible

Performance related Pay

Rewards linked to employee performance. Advantages: Higher rewards ↓ Greater motivation ↓ Higher productivity Disadvantages: Employees may focus only on measured targets. Competition may increase. Stress may rise.

Low pay issues

Low wages may: • reduce morale • increase labour turnover • damage reputation

Corporate Social Responsibility

CSR occurs when businesses voluntarily consider the social and environmental impact of their actions. Businesses go beyond legal requirements. Examples: • reducing pollution • charitable activities • ethical sourcing • employee welfare • sustainability initiatives

Advantages

• Better Reputation
• Improved employee motivation
• Competitive Advantage

Disadvantages

• Higher costs
• Difficult to measure benefits
• Shareholders may oppose

Evaluation CSR effectiveness depends on: • industry • customer attitudes • costs involved