3.3.4 - Influences on business A2 decisions
- Syllabus
- 2017
- Topic
- 3.3.4
- Level
- A2
Learning objectives
3.3.41a - Strong and weak culturesCompare strong and weak corporate cultures.3.3.41b - Culture classificationClassify company cultures as power, role, task or person cultures.3.3.41c - Culture formationExplain how corporate culture is formed.3.3.41d - Changing cultureEvaluate difficulties in changing an established culture.3.3.42a - Internal and external stakeholdersDistinguish internal from external stakeholders.3.3.42b - Stakeholder objectivesAnalyse stakeholder objectives.3.3.42c - Stakeholder and shareholder influencesCompare stakeholder-focused decisions with shareholder-return-focused decisions.3.3.42d - Stakeholder conflictAnalyse conflict between profit-based shareholder objectives and wider stakeholder objectives.3.3.43a - Ethics and strategyEvaluate trade-offs between profit and ethics in strategic decisions.3.3.43b - Pay and rewards ethicsAnalyse ethical issues in pay and rewards.3.3.43c - Corporate social responsibilityEvaluate corporate social responsibility.
Culture is strong when shared values consistently guide behaviour
Corporate culture is the shared values, assumptions and accepted ways of working that influence decisions and behaviour. Its strength describes how widely and deeply those expectations are shared, not whether they are desirable.
| Feature | Strong culture | Weak culture |
|---|---|---|
| shared understanding | employees broadly know and accept core values | values are unclear, inconsistent or not widely accepted |
| behaviour | norms guide decisions without constant instruction | behaviour depends more on local managers, rules or individual preference |
| consistency | customer and employee experience is more uniform | departments or sites may act differently |
| likely benefit | alignment, identity and commitment can improve coordination | flexibility and varied viewpoints may be easier to preserve |
| likely risk | resistance to change, conformity or harmful norms become entrenched | uncertainty, conflict and weak strategic focus may increase |
A strong culture can support success when its values fit the strategy and are reinforced by leaders, recruitment and rewards. Growth, different sites or subcultures may weaken consistency, while market demand and operational competence still matter alongside culture.
Strong does not mean ethical, friendly or successful, and weak does not mean employees have no values. Strength is the degree of shared commitment and behavioural consistency; judge the content and strategic fit separately.
Four culture types differ in where authority and coordination sit
Power, role, task and person cultures classify the dominant way authority, work and individual interests are organised. Classify from evidence rather than from the business's size or industry alone.
| Culture | Main organising principle | Typical evidence | Possible strength and risk |
|---|---|---|---|
| power | authority concentrated around a founder or small central group | few key decision-makers, personal influence, rapid central decisions | speed and direction; dependence on the centre and limited challenge |
| role | defined jobs, hierarchy, rules and procedures | formal responsibilities, reporting lines and standard processes | consistency and control; bureaucracy and slow response |
| task | expertise assembled around projects or problems | teams, flexible roles and influence based on skill | innovation and adaptability; competing teams or unclear authority |
| person | individual members are the central purpose of the organisation | professionals retain autonomy and organisation supports their work | independence and expertise; difficult collective control |
A firm may contain a role culture in compliance, task culture in product development and power culture around its founder. Identify the dominant pattern for the decision or unit being analysed and explain the evidence.
These are analytical classifications, not four mutually exclusive boxes. A business can combine cultures or develop subcultures, and a structure chart alone does not prove how influence works in practice.
Culture forms through repeated signals about what the business values
Culture develops over time as leaders and systems repeatedly signal which behaviour is expected, rewarded and tolerated. Employees learn it from decisions and daily practice as well as formal statements.
| Influence | How it shapes culture |
|---|---|
| founders and owners | early priorities, stories and decision habits establish core assumptions |
| leaders and managers | visible behaviour shows whether stated values are real |
| recruitment, promotion and training | selects and develops people who reinforce particular norms |
| rewards and controls | measures, pay and sanctions make some behaviours more attractive than others |
| product, customers and working patterns | the nature of the work shapes service, risk, pace and collaboration |
| history and external environment | past success, crisis, regulation or competition reinforces or challenges habits |
| growth, merger and location | new groups bring different routines and create subcultures |
If a founder prioritises customer service, recruits for empathy, trains staff to solve complaints and rewards retention, the same value is reinforced through several systems and may become a shared assumption.
A mission statement does not create culture by itself. When leaders, workload or rewards contradict the stated value, employees are more likely to learn from the repeated behaviour than from the published words.
Established culture resists change because its parts reinforce one another
Changing culture requires more than announcing new values. Existing goals, roles, processes, rewards, communication, attitudes and assumptions form an interlocking system that can pull behaviour back toward the old pattern.
| Difficulty | Causal effect |
|---|---|
| employee identity and habit | people may see the change as a threat, resist it or lose motivation |
| leadership credibility | old behaviour by senior managers contradicts the new message |
| systems and incentives | targets, promotion or pay still reward the previous behaviour |
| strong culture and history | long-standing success makes the need for change less convincing |
| subcultures and scale | sites, functions or acquired teams interpret the change differently |
| time, cost and disruption | training, redesign and consultation consume resources and may temporarily reduce control or productivity |
Change is more credible when the business explains the strategic need, involves affected employees, aligns leaders and rewards, develops new capability and reinforces consistent behaviour over time. The appropriate pace depends on urgency, workforce trust and how deeply the old culture is embedded.
Visible changes such as informal dress, a new logo or flatter titles may signal intent but do not prove underlying assumptions have changed. Benefits such as autonomy and creativity also depend on communication, capability and employee response.
Stakeholders are classified by their relationship to the business
A stakeholder is an individual or group with an interest in, involvement in or influence over a business's decisions and outcomes. Internal stakeholders operate within or own the organisation; external stakeholders are outside it but are affected by or can affect it.
| Internal stakeholders | Typical relationship or interest | External stakeholders | Typical relationship or interest |
|---|---|---|---|
| employees | pay, security, conditions and development | customers | price, quality, choice and service |
| managers and directors | performance, authority, reward and reputation | suppliers | orders, prices, payment and continuity |
| owners/shareholders | profit, dividends, share value and risk | government | tax, employment, compliance and economic effects |
| lenders | repayment, interest and financial security | ||
| local community and pressure groups | jobs, environment, congestion and social impact |
Classification is only the first step. Identify each group's interest, power and ability to influence objectives—for example through purchasing, voting, negotiation, finance, employment decisions or public pressure.
Stakeholders are not only shareholders, and a group is not important merely because it is internal. Power and interest vary by decision and over time; competitors may influence a business even though they do not share its objectives.
Stakeholder objectives reflect what each group gains or risks
Stakeholder objectives are the outcomes a group wants from the business. They arise from the group's relationship, exposure to risk and ability to influence the decision.
| Stakeholder | Common objectives | Possible influence |
|---|---|---|
| shareholders | dividends, share-value growth, controlled risk and governance | vote, sell shares or challenge directors |
| employees and managers | pay, security, conditions, progression and influence | productivity, retention, negotiation or industrial action |
| customers | value, quality, safety, service and choice | buy, switch, complain or recommend |
| suppliers | reliable orders, fair price and prompt payment | terms, quality, capacity or continuity of supply |
| lenders | interest and repayment with acceptable risk | price, restrict or withdraw finance |
| government and community | tax, lawful conduct, jobs and limited social/environmental harm | regulation, permission, campaigning or reputation |
Objectives can complement one another: investment in quality may help customers, employees and long-term shareholder returns. They can also conflict when one group's gain changes prices, costs, risk or control for another. Stakeholder mapping compares each group's power and interest so attention matches the decision.
No stakeholder group has one fixed objective. Employees may prioritise security over pay during a downturn, while long-term shareholders may support current investment rather than immediate dividends. Apply the specific evidence.
Stakeholder and shareholder models set different decision priorities
A stakeholder model considers the effects of objectives and decisions on all relevant stakeholder groups. A shareholder model focuses the business on returns to its owners, particularly dividends and increasing share value.
| Feature | Stakeholder model | Shareholder model |
|---|---|---|
| primary question | how is value and harm distributed among affected groups? | how does the decision improve owner returns? |
| typical evidence | employee, customer, supplier, community and environmental outcomes as well as finance | profit, cash, dividends, risk and share value |
| possible benefit | trust, legitimacy, cooperation and long-term resilience | clear accountability and disciplined use of owners' capital |
| possible difficulty | objectives conflict and trade-offs can slow or blur decisions | other groups may bear costs, damaging reputation or long-term performance |
The models need not always prescribe opposite actions. Better employee conditions or responsible sourcing can serve wider stakeholders and strengthen long-term profit; the distinction lies in whose interests are treated as ends rather than only as routes to shareholder return.
Considering stakeholders does not mean satisfying every demand equally, and shareholder focus does not necessarily mean maximising this year's profit. Time horizon, ownership, stakeholder power and strategic context determine the practical influence.
Stakeholder conflict arises when value, cost or control cannot satisfy everyone
Conflict occurs when a profit-based shareholder objective and a wider stakeholder objective require incompatible resource uses or distributions of costs and benefits.
| Decision | Shareholder interest | Wider stakeholder interest | Source of conflict |
|---|---|---|---|
| increase wages or executive pay | profit and dividends may fall unless performance rises | employees or executives seek fair and motivating reward | who receives created value and whether reward is justified |
| raise prices | margin may rise | customers want affordability and value | benefit depends on demand and service improvement |
| close a site | cost and risk may fall | employees and community lose income and jobs | efficiency versus social and transition cost |
| invest in cleaner production | current cash and profit may fall | community and environment gain; customers may value responsibility | short-term cost versus long-term risk and reputation |
Trace both sides through time. Lower current dividends may protect long-term shareholder value through trust, staff retention or lower risk; an expensive initiative with little impact may simply transfer value from owners.
The balance depends on stakeholder power and interest, the size and reversibility of effects, constraints and whether compromise creates durable value. Consultation can reveal trade-offs but cannot make incompatible objectives disappear.
Conflict is not proved merely because groups have different objectives. Show the mechanism by which satisfying one group reduces another's outcome, and distinguish a temporary trade-off from a long-run complementary effect.
Ethical strategy weighs moral consequences against commercial outcomes
Business ethics concerns the moral rights and wrongs of strategic decisions. A trade-off exists when improving an ethical outcome may reduce profit or when pursuing profit imposes harm on people, animals or the environment.
| Ethical choice | Possible current commercial cost | Possible commercial benefit |
|---|---|---|
| responsible materials or waste treatment | higher inputs, investment or lower short-term margin | differentiation, trust and lower future risk |
| stronger labour or supplier standards | monitoring cost and potentially higher prices | quality, continuity, recruitment and reputation |
| reject a profitable harmful product or practice | lost sales or inventory value | reduced criticism, legal exposure and brand damage |
| transparent claims and reporting | exposes weaknesses and requires verification | credibility and better stakeholder decisions |
There may be no lasting trade-off if customers value the ethical choice, employees become more committed or costs fall over time. Conversely, ethical claims can fail commercially when target customers prioritise price, the action is costly or rivals gain an advantage.
Assess the scale of harm and cost, stakeholder values, demand response, competitive position, time horizon and whether the action is genuine and measurable. Strategic ethics concerns organisation-level choices, not an isolated employee's conduct.
Legal compliance is not the same as ethical acceptability, while a profitable outcome does not prove an action was ethical. Avoid assuming ethics and profit always conflict or always reinforce one another.
Ethical reward systems test fairness, incentives and accountability
Pay and rewards become ethical issues when the distribution or conditions of reward appear unfair, discriminatory, misleading or disconnected from contribution and consequences.
| Issue | Ethical concern | Business consideration |
|---|---|---|
| executive-worker pay gap | extreme inequality may be seen as unfair or demotivating | scarce leadership skill, responsibility and performance may justify a premium |
| equal reward for comparable contribution | bias or discrimination undermines fairness | roles, hours, skills and results must be compared consistently |
| performance bonuses | targets can encourage excessive risk, manipulation or short-term decisions | well-designed measures can align effort with objectives |
| reward during weak performance or job cuts | recipients may gain while others bear loss | contracts, retention and past performance may still matter |
| low or insecure pay | workers may bear hardship and risk | affordability, productivity and competitive labour markets constrain choices |
Evaluate who sets the reward, what evidence links it to performance, whether affected stakeholders can challenge it, and how it changes motivation, retention, reputation, cost and risk. Transparent criteria can improve legitimacy without resolving every disagreement.
A high salary is not automatically unethical and equal pay does not mean identical pay for every job. The ethical judgment depends on fair process, relevant differences, proportionality, outcomes and stakeholder impact.
CSR makes social and environmental responsibility part of strategy
Corporate social responsibility (CSR) is voluntary business action and self-regulation that considers stakeholder, social and environmental effects beyond a narrow short-term profit focus.
| Potential strength | Mechanism | Potential weakness or condition |
|---|---|---|
| stronger reputation and differentiation | credible action attracts or retains customers | customers may prioritise price or doubt the claim |
| employee attraction and commitment | people identify with a meaningful purpose | initiatives may add workload or conflict with reward expectations |
| lower long-term cost and risk | efficiency, waste reduction and early adaptation improve resilience | investment and monitoring raise current cost |
| better stakeholder relations | communities, suppliers and pressure groups gain confidence | shareholder returns may fall if benefits are weak or delayed |
| innovation and market access | responsible products meet emerging demand | complexity and supply-chain requirements can increase |
Compare CSR reports and measurable actions with the mission statement, core operations and resource commitment. Consistent targets, transparent results and willingness to change harmful practice provide stronger evidence than isolated donations or promotional claims.
CSR is most likely to support strategy when it addresses material impacts, fits the business model and matters to powerful stakeholders. Its net effect depends on cost, authenticity, customer response, competitor action and the time horizon.
CSR is not identical to charity or legal compliance, and publicity does not prove responsibility. Greenwashing occurs when claims create a stronger responsible image than the underlying action justifies.