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16.1 Causes and Effects of Change:

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16.1 Causes and Effects of Change:
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What are the main causes of change for a business?
There are several internal factors that can lead to change in a business, for example;
A change in the organisational size
New ownership
Poor business performance
Transformational leadership
A Change in Organisational Size Can Affect a Business
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What is one of the largest impacts of an increase in the business organisational side?
An increase in a businesses organisational size, for example if it expands abroad, could mean that there's an increase in the number of workers.
What positive impact does an increased number of workers have?
An increase in the number of workers can lead to reduced production time and economies of scale, which will reduce unit costs for the business. These reduced costs can then be passed onto customers in the form of cheaper prices, making them more competitive.
What happens however if the business is unable to manage the increase in the number of new workers?
If the business is unable to manage an increase in the number of new workers effectively, then productivity can decrease.
Give an example of the effect of poor management on a business?
A decrease in productivity can occur if for example, there is not enough machinery or resources for the new workers. This can result in increased production time and diseconomies of scale, which can lead to reduced competitiveness.
What is another negative impact of having more workers?
Having more workers also means that it is harder to communicate as quickly and effectively. Slow communication can lead to appropriate action not being taken as staff are not informed of decisions in time which can reduce productivity.
What process might have to be put into place to counteract this issue?
Slow communication may force a business to reduce its number of layers and organisational hierarchy in order to allow for sustainable successful growth.
Outside of customers and managers, who else does growth affect?
Growth could also affect external stakeholders, such as shareholders and or other investors. If the business is growing and increasing its profits than shareholders might receive higher dividends. However, if the growth is reducing the businesses competitiveness then potential investors may choose not to invest and current shareholders may choose to sell their shares as they lose confidence in the business.
What can be put into place to help maintain previous competitiveness?
There may need to be changes made to the businesses production methods, such as switching to newer technology or hiring a new supervisor to ensure that there is not a fall in productivity as the business grows. This will help maintain or increase its competitiveness which will also give investors more confidence in the business
What tends to be affected during periods of growth?
Cash flow is usually affected during periods of growth. Cash flow needs to be managed as the business grows otherwise the business could end up overtrading. Overtrading could lead to the business not having enough cash to pay its day to day costs and its financial performance being poor.
A Decreased Organisational Size Can Affect a Business:
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Why do certain businesses experience a decrease in size?
A reduction in size could arise, for example, when a business undertakes a demerger
What is the biggest disadvantage of decreasing in size?
Any advantages from having economies of scale may be lost as the business reduces in size. This may cause competitiveness to reduce because production costs per unit, and therefore prices increase. A reduction in profits means that shareholders get less in the form of dividends which has its own issues associated with it.
What may a business do in order to remain competitive?
The business may sell assets such as machinery, or make staff redundant to reduce costs and increase profits, which would mean that the business remains competitive and can give shareholders a larger dividend
What impact does a shrinking organizational size have on employees?
Redundancies caused by a decrease in organisational size to decrease costs may cause the motivation of the remaining staff to fall, as they become concerned that they may lose their jobs. Reduced staff motivation can cause productivity to fall which can lead to higher prices and a fall in sales and profits.
How could motivation then be increased?
Motivation however could be increased amongst these staff through various incentives such as delegation of work or using piecework pay.
A Change in Ownership Can Affect a Business:
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Why may a business experience a change in ownership?
There are several reasons why a firm may experience change in ownership, for example:
The firm could transition from being a sole trader to partnership or from sole trader to a limited company. This could lead to there being additional owners of the business
A private limited company could become a public limited company
The owner could retire and sell or gift the business to new owners
Ownership can change following a takeover or merger
Management buyouts are when the management of a business purchases a majority of the share in the business and therefore takes over control of the business from owners.
What impact will new owners have on business?
New owners will often have their own beliefs about the direction the firm should take and the way it should be managed. This changes the vision and could lead to the change in many factors such as; aims and objectives, staffing structure, production, policies and culture
Who will the changes made by the new owners impact?
Any changes made by new owners will affect the firm's stakeholders, for example:
Manages might see a change in their responsibilities or the businesses aims
Customers might find that there are changes to the quality of customer service offered by the firm.
Local residents may become affected.
What type of stakeholder resists change?
Stakeholders that are negatively affected by a change in ownership might resist the change. One way to combat resistance to change is for the business to ensure that it communicates with stakeholders so that they are aware of any changes to the organisation/ This will help to make the stakeholders feel valued and supported, and so less likely to resist any changes.
How can a change in ownership lead to economies of scale?
A change in ownership can cause economies of scale to occur. For example the new owner might increase the size of the business
How can a change in ownership lead to a diseconomies of scale?
If the growth is not managed then diseconomies of scale can occur. Diseconomies of scale can reduce the competitiveness of a business as its unit costs are higher and these may be passed onto customers in the form of increased prices.
Poor Business Performance Can Affect a Business:
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Why might a business be considered to be performing badly?
There are several reasons why a business could be considered as performing badly. For example if it has lower sales or profits than expected, if operating expenses are rising faster than revenue or if the business is growing slower than expected.
What does poor business performance often lead to a decrease in?
Poor business performance can reduce competitiveness. For example, lower sales means that the business has to increase its prices to customers to make up for the lower sales volume, reducing competitiveness which can lead to even poorer business performance.
Why does productivity often decrease when a business is performing badly?
Poor business performance can negatively affect the productivity and efficiency of the business because if a firm has experienced a period of low sales it might decide to lower its output. This would reduce productivity and efficiency as the firm would have the same number of workers and machines but be producing less. To avoid a fall in productivity or efficiency the business might sell machinery or make some members of staff redundant.
Why does the value of shares often fall due to poor business performance?
The value of shares in a business often decreases due to poor business performance, so shareholders could find that the value of their investments fall.
Who is often in charge of making changes to poorly performing firms?
Managers at the top of a firm will often try to make changes to correct poor business performances, this may lead to new senior managers being recruited to direct the firm in a more successful direction. The changes introduced may need to be quick and extensive, and might including reducing costs etc
A Transformational Leader Can Affect a Business:
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What is a transformational leader?
A transformational leader is an owner or manager who makes large, innovative changes to a firm. A transformational leader can also change the business ethos. They often have a vision for change and will motivate employees to make changes.
Why are transformational leaders often recruited?
Transformational leaders are often recruited when a firm has had a period of poor performance. The business often hopes that the leader will improve the competitiveness, productivity and financial performance of the business, but how well these factors improve are dependent on the leader, the business and the circumstances.
Who will be affected by transformational leaders?
The recruitment of transformational leader could affect employees and they may be resistant to change
Sometimes shareholders push for a change of leader if the firm is not meeting its objectives.
The External Environment Can Create a Lot of Change for a Business:
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What are some external factors that can create change for a business?
Political, economic, social, technological, legal and environmental factors can all cause change for a business.
How can political changes cause change for a business?
A change in government policy can affect how firms behave. For example, after government legislation introduced a 5p charge on single use plastic carrier bags, TESCO decided to remove the bags from stores.
How can economic changes cause change for a business?
If the economy enters a recession, the amount of disposable income people have reduces and firms may need to reduce prices to maintain sales levels
How do changes in social factors cause change for a business?
Changing social trends can lead to a business needing to alter its product range to fit in with changing demand. For example, food producers might reduce the fat content of their products to meet the growing demand for healthier food
How do changes in technological factors cause change for a business?
Firms may change their production process if new technology allows production to be faster or cheaper, this could lead to increased productivity and efficiency so the business could charge lower prices to its customers. This could help improve the financial performance of the business.
How do changes in legal factors cause change for a business?
Changes in legislation can affect businesses. For example the release in 2018 of the general data protection regulation meant that some businesses needed to alter the way they collected and stored customer data.
How do changes in the environment lead to change?
Some firms may have to alter production processes to reduce their emissions due to an increased concern for the environment. This would help to prevent customers refusing to do business with the firm due to their ethical concerns.
What is another key external factor that can affect a business?
The market is another key external factor that can affect a business. The market and the competitive forces surrounding it are a major cause of change.
What impact will new entrants to the market have?
New entrants to the market can cause a loss of market share for a business already in the market and reduce its competitiveness. Managers of the business already in the market may need to adapt to the presence of new competitors by developing new strategies.
What impact will the removal of competitors have on a business?
The removal of competitors from the market can improve a firm's financial performance in the long term as it means that the firm will have a larger market share.
Why should businesses react quickly to external changes?
It is often advantageous for firms to react quickly to external changes. For example, the first firm to supply new products or adopt new ways of working often obtains a competitive advantage. Or if a firm reacts quickly to an increase in demand or a competitor leaving the market, it may be able to increase its market share and profit level.
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