The shock is not the interesting part

This topic arrives as two lists. External influences: the economy, technology, the law, the environment, globalisation. Internal influences: the business's own size, finances, staff and aims. Most students learn both lists and then meet a question they cannot answer. ⚠️ BECAUSE THE QUESTION IS ALMOST NEVER "WHAT IS AN EXTERNAL INFLUENCE". IT IS "TWO BUSINESSES FACED THE SAME CHANGE AND ONE CLOSED. EXPLAIN WHY." ⭐⭐ AND THE ANSWER IS NEVER THE CHANGE ITSELF. THEY BOTH HAD THE SAME CHANGE. Start again with one idea instead of two lists. ⭐ EVERY EXTERNAL INFLUENCE IS THE SAME PROBLEM WEARING DIFFERENT CLOTHES: SOMETHING CHANGED THAT THE BUSINESS DID NOT CHOOSE. Borrowing got dearer. A competitor arrived from another country. A new rule raised the cost of employing someone. Customers began to care about something they did not care about last year. ⚠️ THE CLOTHES ARE DIFFERENT EVERY TIME. THE PROBLEM IS ALWAYS THE SAME SHAPE. ⭐⭐ SO WHAT DECIDES THE OUTCOME? WHAT THE BUSINESS WAS ALREADY LIKE WHEN THE CHANGE ARRIVED. And that is what the internal influences actually are. ⚠️ THEY ARE NOT A SECOND LIST OF THINGS THAT AFFECT A BUSINESS. THEY ARE THE REASON THE SAME SHOCK PRODUCES DIFFERENT OUTCOMES, which is why your specification puts both in one topic rather than two. Four things about a business decide how a shock lands, and none of them is about the shock. ⭐ HOW MUCH IT OWES. A firm with large repayments to make has less room to absorb anything. ⭐ HOW MUCH OF ITS SPENDING IT CANNOT SWITCH OFF. Rent and salaried staff carry on whether trade is good or not. ⭐ HOW CONCENTRATED IT IS. One big customer, or one supplier, or one product, means one thing going wrong is everything going wrong. ⭐ AND HOW FAST IT CAN CHANGE WHAT IT DOES. Some businesses can be doing something different next month. Others have spent years and a great deal of money becoming very good at one thing. One question to carry through everything that follows: two firms, one shock, different outcomes. What was already different?

What the business was already like

The four things that decide how any shock lands. None of them is about the shock, and all four are inside the business.

Tap what this way of looking claims

Tap the TWO statements that follow from the outcome being decided by what the business was already like.

When two firms face the same change and fare differently, the explanation has to be something that was already different between them
Internal influences are not a second list of causes but the reason one shock produces several outcomes
How badly a business is affected depends mainly on how severe the external change was
Spreading across several products and customers is simply good practice with no cost attached

Two shops, one change

Borrowing becomes considerably dearer. Two similar shops on the same street are affected: one closes within months, the other carries on much as before. What should an answer concentrate on?

What was already different between them before the change, such as how much each had borrowed and how much of its spending it could reduce when trade fell
How large the rise in borrowing costs was, and what rising rates do to businesses generally
That business outcomes often come down to luck and timing
That the surviving shop must simply have been better managed

Five terms this topic turns on

Five terms, each defined by what it is. How they interact, and which ones decide an outcome, is the work of the steps that follow.

One shock, five businesses

A firm that borrowed heavily last year to expand
A workshop where one client provides most of the work
A small firm whose costs rise and fall with its sales
A maker with costly machinery that does one job superbly
A firm that agreed in advance what it would do if trade fell

Has already spent the room it would have needed, because the repayments continue whatever happens to sales
Is one decision by somebody else away from losing almost all its income at once
Can shrink to fit a worse month, because most of what it spends stops when the work stops
Cannot easily turn to something else, because the very thing that made it efficient also fixed it in place
Acts immediately rather than spending the first weeks deciding, which is often the difference

Two that follow from the four

Select the TWO statements that follow from the outcome being decided inside the business.

Being very good at one thing and being able to change quickly pull against each other, so a firm cannot simply have both
Most of what determines how a business copes with a shock was decided long before the shock arrived
The main thing determining the damage is how severe the external change was
Since external influences cannot be controlled, a business can do little about them in advance

Answering the question that compares two firms

The highest-value questions on this topic almost all have the same shape, and once you see it you can plan the answer before you have finished reading. ⭐ A CHANGE IS DESCRIBED. TWO BUSINESSES ARE DESCRIBED. YOU ARE ASKED TO EXPLAIN, ADVISE OR JUDGE. ⚠️ THE CHANGE IS NOT THE ANSWER. THE QUESTION HAS ALREADY TOLD YOU ABOUT IT, AND IT IS THE SAME FOR BOTH FIRMS. Every sentence spent explaining what happens to businesses generally when borrowing gets dearer is a sentence that could have been earning marks. A shape that works on nearly any stem here: NAME THE CHANGE IN ONE LINE, and say what it does to this kind of business. One line, not a paragraph. THEN GO STRAIGHT TO WHAT WAS ALREADY DIFFERENT. ⭐ Use the four: what each firm owes, how much of its spending it cannot switch off, how concentrated it is, and how quickly it could do something else. SAY WHICH OF THOSE MATTERS MOST HERE, because they are not all relevant every time, and choosing is part of what is being marked. THEN GIVE THE OUTCOME FOR EACH FIRM, AND MAKE THEM DIFFERENT OUTCOMES. If your answer would fit both businesses equally, you have not answered the question. ⚠️ AND IF YOU ARE ASKED TO ADVISE, REMEMBER THAT EVERY OPTION COSTS SOMETHING. ⭐ Spreading into new products reduces the risk of relying on one and makes the firm less good at each. Keeping cash back for emergencies means not spending it on growing. SAYING WHAT THE ADVICE COSTS IS WHAT TURNS A SUGGESTION INTO A JUDGEMENT. ⚠️ TWO HABITS THAT COST MARKS ON THIS TOPIC IN PARTICULAR. ⚠️ THE FIRST IS THE VERDICT WITH NO MECHANISM. "The second firm was better managed" explains nothing until you say what the management consisted of. ⚠️ AND THE SECOND IS REACHING FOR A FIGURE YOU DO NOT HAVE. A market share, a rate, a turnover: if the question did not give it to you, do not invent it. Use what the question did give you, which is usually more than students notice.

Two coffee shops, one change

Two independent coffee shops, a few streets apart in the same town. Neither chose what is about to happen to them. A large chain opens a branch between them, selling at prices neither can match. ⚠️ THE CHANGE IS IDENTICAL FOR BOTH. WATCH HOW DIFFERENTLY IT LANDS, AND NOTICE THAT EVERY REASON WAS IN PLACE BEFORE THE CHAIN ARRIVED. THE FIRST SHOP SPENT HEAVILY LAST YEAR FITTING OUT A SECOND ROOM, AND IS STILL REPAYING IT. It has a long lease, three salaried staff and a large espresso machine bought for the volume it expected. Almost everything it spends continues whether anybody comes in or not. ⭐ AND IT SELLS ONE THING: COFFEE, TO PASSING TRADE. When trade drops by a quarter, nothing that it spends drops by a quarter. ⚠️ THE GAP OPENS IN THE FIRST MONTH AND THERE IS NOTHING IT CAN TURN OFF. It can cut hours, which makes the shop worse, which loses more trade. THE SECOND SHOP LOOKS LESS IMPRESSIVE AND IS BUILT DIFFERENTLY. It rents month to month, employs two people paid by the hour, and owns equipment it could sell. It also sells sandwiches it makes itself, supplies cakes to two nearby offices, and hosts a book group on Thursdays that fills the room on the quietest evening of the week. ⭐ WHEN THE SAME QUARTER OF ITS PASSING TRADE DISAPPEARS, MOST OF WHAT IT SPENDS DISAPPEARS WITH IT, and a good deal of its income was never passing trade in the first place. And it had already talked about this. When a chain opened in the next town two years ago, the owner worked out what she would do if one came here: stop competing on price, push the food, ask the offices for more. ⚠️ SO THE FIRST FORTNIGHT WAS SPENT ACTING RATHER THAN DECIDING, WHICH IS OFTEN THE WHOLE DIFFERENCE. ⚠️ NOTICE WHAT NONE OF THIS WAS ABOUT. IT WAS NOT ABOUT THE CHAIN, ITS PRICES, OR HOW COMPETITIVE THE MARKET HAS BECOME. ⭐ EVERY REASON THE SECOND SHOP SURVIVED WAS A DECISION TAKEN BEFORE THE PROBLEM EXISTED, AND EVERY REASON THE FIRST STRUGGLED WAS TOO. And the honest part of the comparison, which a top answer includes: the first shop's choices were not stupid. The second room, the machine and the staff were all bets on growth, and if the chain had opened somewhere else they would have paid off. ⭐ RESILIENCE COSTS SOMETHING TOO, AND WHAT IT COSTS IS THE GROWTH YOU DID NOT CHASE.

Order how to answer a two-firm question

Put these six moves into the order that turns a comparison question into an answer that earns marks.

Name the change in one line and say what it does to this kind of business
Identify what was already different between the two firms before it arrived
Decide which of those differences matters most in this case
Give a different outcome for each firm, following from that difference
If advising, say what the recommended action would cost the business
Reach a judgement that follows from the comparison you have just made

Build the sentence that explains a difference

This is the sentence the comparison question is waiting for. Assemble it.

The influences run

Five questions on why the same change produces different outcomes. Three lives.

Complete the influences on business facts

A change affecting a business that its managers did not choose and cannot control is an _____. A feature of the business itself that shapes what it is able to do is an _____. Spreading activity across different products, customers or markets is _____. A plan prepared in advance for a change that may or may not happen is a _____.

external influence internal influence diversification contingency plan fixed cost stakeholder business aim competition

Three answers to sharpen

Three student answers about businesses meeting change. In each case the mark is in the reasoning, not the verdict.

Asked why one of two similar firms closed after a rise in the cost of borrowing, an answer spends most of its length explaining what happens to businesses when rates rise. Why does it score poorly?
A student advises a firm that depends on one large customer to "diversify and reduce its risk", and stops there. How would you improve it?
An answer concludes that a surviving firm "was just better run" than one that failed under the same conditions. What needs changing?

Explain why one survived and one did not

Think of two businesses of a similar kind, real or imagined, that both faced the same unwelcome change. Explain why it affected them differently, and advise the weaker one.

Name the change in one line, and resist explaining it at length, since it was the same for both
Explain what was already different about how much each business owed, or how much of its spending it could reduce
Explain what was already different about how concentrated each one was, in customers, suppliers or products
Explain how quickly each could have started doing something different, and why that differed
Advise the weaker business on one change it could make, and say what that change would cost it
Finish by explaining why being prepared for a shock is not free, and what a business gives up to be resilient

Influences on Business

Use it, the way the marks are given

What you'll cover