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managing change (exam tip:
change of management questions need to be…
managing change
exam tip:
change of management questions need to be approached with care as it can incorporate all aspects within a business.
use a systematic approach and examine all effects of change, ex. what factors would determine the success?
causes of change - organisational size:
the size of an organisation will naturally change as it grows. this requires the business to restructure and adopt policies and procedures to manage expansion. sometimes a business will grow externally through a takeover or a merger. it may expand by moving overseas, whereby culture is a key issue to overcome
causes of change - poor business performance:
can be measured using different indicators, ex.
- poor sales figures
- lower profits
- increased costs
- slower expansion than planned
as a result, the business will go through a period of change as it implements strategies to improve performance
causes of change - new ownership:
this may result as the business grows. for example, if it changes from a private limited company to public, the business will raise finance by selling shares on the stock exchange. consequently, the business may now be owned by institutional investors, ex. pension funds and banks. alternatively, if a business goes through the process of a merger / takeover - new owners are introduced
causes of change - transformational leadership:
this occurs when a new chief executive is appointed. the new leader is often appointed as a result of poor business performance. he / she will be expected to transform the performance of the business by implementing a new vision or strategic direction for the business
effects of change - competitiveness:
businesses that are slower to respond to change than their rivals will become less competitive. on the other hand, if a business is the first to innovate or adapt a new technology, responds fastest to changing consumer needs or implements policies that adhere to new legislation can gain a competitive advantage
effects of change - productivity:
high levels of productivity is a key contributor to business success.
effects of change - financial performance:
changes in organisational size either through growth or mergers / takeovers will often incur additional borrowing costs. this can increase the gearing level and financial risk. however, in the long run the investment could lead to improved financial performance
similarly, PESTLE factors can lead to increased costs, ex. adapting packaging to meet new consumer legislation and investing in new technology - can lead to short-term drops in profitability
effects of change - stakeholders:
can be affected both positively and negatively by change. for employees, business growth may provide more promotion opportunities but also alienation as the business becomes more impersonal. mergers and takeovers can also result in low morale due to clashes in culture. they may also upset customers as the product changes
shareholders will suffer as a result of poor business performance through lower dividends and a falling share price. as a result, shareholders will appoint new leaders to improve business performance. long-term shareholders benefits may be seen if the change is carried out effectively
key factors in change - organisational culture:
culture can be simply described as 'the way things are done around here'. it is the norms, values and beliefs of the organisation. changing the culture of an organisation can be difficult and take a long time. it is often a reason why employees resist change as they may feel threatened by changes in the workplace. furthermore, clashes of culture as a result of merger / takeover can be a significant reason for business failure
key factors in change - size of the organisation:
the larger the organisation the less adaptable / flexible it becomes. this is because decision making takes longer due to a longer hierarchy and more complicated organisational structure. consequently, it is usually more difficult to implement change in larger organisations. when introducing change, a business may decide to alter its organisational structure. for example, it may decide to decentralise decision making to local / regional managers
key factors in change - speed of change:
in stable markets, change can be planned for and implemented over a period of time.
by contrast, other businesses have to go through change very rapidly. fashion is an example of an industry that constantly has to anticipate and respond to changing consumer tastes
key factors in change - managing resistance to change:
generally, the stakeholders in a business resist change for any of the following reasons:
- disagreement with the reasons for change
- fear of the impact, ex. job losses
- lack of understanding
- lack of involvement
in order to overcome this resistance, it is important that stakeholders understand the need for change through effective communication and consultation
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transformational leadership: where new leadership brings about change with the purpose of improving business performance
scenario planning: or contingency planning is the process of anticipating possible changes in a business's situation and devising ways of dealing with them.scenario planning helps to:
- clarify future uncertainties, identify risks and opportunities and prepare their eventuality
- teach managers how events may transpire, develop and affect the business
- understand the causes and effects of change in business and how to manage it
natural disasters:
floods, hurricanes, earthquakes and fires can cause severe damage to buildings, machinery and infrastructure. this can disrupt production and distribution
IT systems failure:
IT systems are used for data storage, email communication, research and website display. as more business transactions are conducted electronically, IT systems failure can have a catastrophic effect upon every business function. increasingly business's are coming under cyber-attack from hackers trying to break into IT systems in order to steal sensitive information
loss of key staff:
losing key members, particularly senior managers can create difficulties particularly if its unexpected. this is especially true when the employee plays an integral part in the success of the business.
planning for risk mitigation:
risk mitigation means taking actions that will reduce the negative impact of any unexpected events:
- risk acceptance: where the full cost of mitigation is greater than the cost itself. this is often the case for small businesses
- risk avoidance: the opposite of risk acceptance. it involves trying to eliminate the potential risk, ex. withdrawing from a politically unstable country
- risk limitation: most commonly used. the business recognises the potential danger of a risk and has a back up plan to deal with it
- risk transference: handing risk to another business, ex. a concert promoter will outsource security arrangements to specialist business
business continuity:
this aims to minimise disruption to business activities as a result of an unexpected event. for ex. the business should have an alternative location to operate from if its office / factory is damaged by a natural disaster. alternatively, the business has a data back up to store information if there is a failure