Corporate Influences (Edexcel A Level Business)

• Business decisions can have long-term and short-term implications
  • Long-term decisions are likely to affect the long-term mission and vision of the business over a period of anything up to ten years
  • Short-term decisions are more likely to impact on objectives and tactics over the next few years at most

• Many businesses focus on decision-making for the short-term  

• • This is especially influenced by pay structures, e.g. where executives' pay is linked to short-term success such as increase in the share price

Strategies likely to be adopted by a business with a short-termist approach to decision-making

• Businesses that adopt a short-termist approach may face a range of problems
  • Loss of profitability and competitive edge as lucrative long-term opportunities are ignored in favour of short-term priorities
  • The need to produce and analyse very regular financial reports means that managers lack time to consider longer-term corporate strategic direction
  • Reliance on short-term contracts with suppliers and workers is likely to lead to higher than necessary costs as benefits such as bulk buying discounts cannot be achieved

• It is argued that short-termism is an entrenched feature in British businesses and some commentators consider that it is a key reason for sluggish productivity and a lack of willingness to invest in research, training and skills 
  
  

• Some businesses are more likely to engage in those activities that will allow them to take advantage of opportunities that improve productivity and provide a competitive edge in the future
  
  

• This long-term approach may include a business 

• • Conducting ongoing investment in research and development, innovation and new product development
  • Adopting a long-term outlook with less emphasis on frequent financial reporting
  • Valuing and investing significant resources into the recruitment, training and retention of staff
  • Establishing and nurturing meaningful and lasting relationships with suppliers

• Evidence-based decision-making involves taking a systematic and facts-based approach when determining objectives, strategy and tactics

The evidence-based approach to business decision making
 

• Firstly a business identifies the measurable objective it wants to achieve and determine the criteria against which success will be measured

• Data is then gathered and analysed to consider the range of available decisions 
  • Internal data may be gathered from sales records and market research
  • External market data and economic forecasts are also often used
• The appropriate evidence-based strategic and tactical decision is made and communicated with those required to carry out the range of tasks involved
• The decision is implemented and carefully monitored and reviewed
• The outcome of the decision can be used to inform future decision-making 

• Subjective decision making is guided principally by the personal opinions and experience of key decision-makers
  • Subjective decision-making is often more risky than an evidence-based approach but there are some circumstances where it may be more appropriate
     

Situations where Subjective Decision Making may be Appropriate

Situation	Explanation
Where quick decisions need to be made	Sometimes a swift decision needs to be made to counter rapidly-changing market conditions E.g. the entry of a new competitor may require an immediate response to avoid losing sales
Where the nature of the industry means that subjective decisions are normal	In some industries subjective decision-making provides the key element of competitive advantage E.g. the fashion industry relies on the instincts and personal style choices of designers and buyers who are likely to have a 'gut feeling' that guides their decisions
Where there is a lack of data to support evidence-based decision-making or where data conflicts	In some instances there may be a lack of up to date and accurate data to support an evidence-based decision so a well-placed 'hunch' may be the best option a business has E.g. choosing a new supplier with whom a business has no previous trading relationship may rest upon the instinct of the purchasing manager
Where a persuasive and single-minded leader runs the business	Some businesses are dominated by powerful leaders who make key strategic decisions without consultation and with limited data This is an appropriate decision-making approach where leaders are experienced and trusted and have a good track record