Causes & Effects of Change (Edexcel A Level Business)
Revision Note
Written by: Lisa Eades
Reviewed by: Steve Vorster
Causes of Change
Businesses operate in a continuously changing business environment
Changing internal factors such as business growth, new business ownership or internal restructuring
Changing external factors such as changes to the market or technological advancements
Whilst consistency or a lack of change might be an easy option most businesses will find it difficult to maintain a competitive edge without planning for and responding to change
Internal Causes of Change
Cause | Explanation |
---|---|
A change in business size |
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Poor performance |
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New ownership |
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Transformational leadership |
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Business restructuring |
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External change happens all the time and in many cases businesses can make plans to respond if they keep a close eye on PESTLE factors (see sub-topic 3.1.4)
External Causes of Change
Cause | Explanation |
---|---|
Changes in the market |
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Social change |
|
Political change |
|
Economic Change |
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Technological Change |
|
Legal Change |
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Environmental Change |
|
Possible Effects of Change
Change can have significant effects in the business on the following:
competitiveness
productivity
financial performance
stakeholders
Possible effects of change on competitiveness
Change as a result of some internal factors (e.g. following poor performance or the arrival of a new leader) can be rapid and can lead to swift improvements in competitiveness
Change as a result of external factors is more likely to be gradual and involve a business carefully selecting and pursuing an appropriate long-term competitive strategy ( see Porter sub-topic 3.1.2)
Research suggests that change has an overall positive effect on business competitiveness when it brings management and engaged employees together and their efforts are coordinated
Possible effects of change on productivity
In the short-term, as change is being implemented and employees get used to new processes, surroundings, leadership or a new product, productivity is likely to be reduced
Once changes are embedded, productivity is likely to return to earlier levels and possibly improve , especially if new technology is part of the change
During periods of external change, businesses may endure a period of unstable levels of productivity and must take steps to manage capacity utilisation and unit costs
Possible effects of change on financial performance
In the short-term, the implementation of change can be very expensive for several reasons
Organisational restructure may involve significant redundancy payments as well as recruitment and training costs
Market research and product development require investment
Attracting transformational leadership to key roles will require attractive salaries to be offered
Public relations and promotional activity may be needed, especially where change is implemented a result of poor performance
New strategies are likely to involve capital expenditure
In the longer term, financial performance is likely to improve as change becomes the new way of working and teething problems are overcome
Possible effects of change on stakeholders
Change can have predictable as well as less obvious impacts on the range of stakeholders
Some changes such as seasonal fluctuations or cyclical economic factors can often be planned-for and their impacts on stakeholders considered in advance
E.g. increased orders for barbecue products are very likely to be placed during the warmer summer months which a supermarket will be able to liaise with suppliers ahead of time
A sudden 'cold snap', on the other hand, is likely to be difficult for many fashion retailers as they operate on a seasonal basis - customers may well be disappointed if they are unable to source warm clothing
Significant long-term change is likely to involve a wide range of stakeholders at some level
E.g. following its takeover by Frasers Group Plc, Debenhams stores were closed and the brand moved online
This had far-reaching impacts on Debenhams' product range, organisational structure and supply chain
Thousands of employees were made redundant, rapid changes were made to the management structure, existing supply agreements were cancelled and new suppliers appointed
Local councils were faced with large empty premises in prominent high street locations, impacting on the retail environment in their towns as well as reducing income from business rates
Examiner Tips and Tricks
The concept of change is rarely examined as a topic in its own right, yet understanding its implications and understanding how businesses and their stakeholders plan and respond to change is vital.
Some of the following questions may be useful when considering changing external factors or strategic change coming from within the business
Does the change pose a threat or present an opportunity to the business?
What can the business do to manage the threat or exploit the opportunity?
How can competitive advantage be retained or created as a result of change?
How are stakeholders likely to respond to the change?
How may the problems changes cause to stakeholders be mitigated?
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