9.1 preliminary topic - nature of business

9.1 Preliminary Topic - Nature of Business: Role of Business: The Nature of Business: Producing goods and services: What is a business? the organised efforts of individuals to produce and sell (for a profit), products that satisfy an individual's needs or wants Products can be broken up into two categories: → Tangible: A product of physical nature e.g. goods (phones, food etc.) → Intangible: A product of non-physical nature e.g. services (healthcare, education etc.) Importance of the business to the economy: → provides good and services as well as diversity and convenience → injections of money into the business cycle (leakages through household sector paying for products → stability as there is a balance.) reduces unemployment → less reliance on tax money and a higher standard of living Profit: → return or reward that businesses and owners receive for producing products for consumers sales revenue - operating expenses = profit Employment: → the numbers of employees hired by a business will depend on the nature of the products and the number of consumers that wish to purchase the products e.g. the more that is sold, the more employees are needed → larger business need more employees and vice versa Incomes: → income is the amount of money a person receives for their labour (wage/salary) → the remainder of money after deductions is the ‘business profit’ and becomes ‘business owner profit’ and consequently ‘owner income’ → the part of a business’s profits that are shared among shareholders is called a ‘dividend’ Choice: → the act of selecting amongst other alternatives → ‘freedom of choice’ → businesses compete with each other to provide the most product selection available Innovation: → improvements on an established product: aim to satisfy cont. society → new technological developments lead to: new products, new markets and new business opportunities Entrepreneurship and risk: → individuals who transforms their ideas into a business that develops, produces and provides a certain product in an untapped markets → risky through no previous history of customer demand or guaranteed returns

Wealth Creation: → the more that is produced, the more wealth is generated into the economy → profit created due to business activity → which is distributed to society through taxes etc. Quality of Life: → ‘the overall well being of an individual, that is a combination of material and nonmaterial benefits’ Types of Businesses: Classification of business: Legal Structure: e.g sole trader, partnership, private company, public company, government enterprise Location: Local: businesses in immediate environment → usually SME’s e.g cafe etc. National: operate through Australia e.g Coles and Woolies etc. Global: operate worldwide → not limited to national borders TNC’S: businesses that have production facilities in various countries Size: Small: fewer than 20 employees for non-manufacturing, independently owned, owners contribute most of funds Large: more than 20 employees for non-manufacturing, owned by many people, shared control etc. Industry: Primary: provide raw materials needed in other industries e.g iron ore, timber Secondary: use raw materials to produce goods e.g manufacturing steel Tertiary: provide services → Quaternary: provide service in the fields of IT and telecommunication/media → Quinary: provide domestic services e.g child care, tutor etc. Legal Ownership: Incorporated: legal business/separate entity from owners e.g companies

Public companies Private companies

‘Ltd’ ‘Pty Ltd’

Unlimited number of shareholders 1-50 shareholders

Limited liability Limited liability

Unincorporated: hasn’t undergone legal process, affairs of owners may be separate, but must still pay debts etc. e.g sole traders

Sole Trader Partnerships Limited Partnerships

Govt Organisations

One owner Two or more owners Used for risky business ventures

Owned by government

Unlimited liability Unlimited liability Money is given through investments by a silent partner

GBE’s (Govt Business Enterprise)

Complete control Possibility of control disputes

Limited partner role is to just invest

Privatisation → selling of GBE’s to private sector

No perpetual succession

Shared workload Unlimited liability E.g Qantas, Telstra

All P/L kept by owner

Shared P/L

Factors influencing the choice of legal structure:

Size Ownership Finance Privatisation

If the business is small, it might consider a sole trader or where more appropriate

Ownership and control are a factor as sole traders have more control, whereas it is split with business that have more owners

The amount of funds readily available to the business influences the legal structure e.g more funds = larger business

Governments also have to decide on the most appropriate entity as in the past they have sold off GBE’s e.g Telstra

Influences in the business environment: External Influences: factors that are outside the business, which the business has little control over Economic Influences:

Availability of Credit

Levels of Disposable Income

Interest Rates Inflation Rates

Determines the spending patterns of consumers

Influences spending patterns → money left over after paying liabilities

Influences the cost of borrowing

Determines the price levels of goods and services

Economic Cycles: → fluctuation in economy due to varied levels of consumer spending Upswings: Boom: high levels of consumer confidence, higher inflation and unemployment is low Expansion: assets are increasing, consumer confidence is growing, decreasing unemployment Contractions: Depression: lowest level of consumer confidence, low economic activity, high unemployment

Recession: consumer confidence decreasing, lowering activity, rising unemployment Macroeconomic policies: → influence demand in economy as Governments do not allow the economy to be increased booms/contractions as it isn’t beneficial for the environment Monetary policy: influence that the government has on interest rates to stimulate/regulate/ decrease economic growth Fiscal policy: influence economic growth through influencing government spending and taxation Financial Influences: → Deregulation: began in 1983 and is the removal of government restrictions on financial markets, e.g. privatisation of CBA → Financial Deregulation: opened up the financial industry to greater competition e.g allowed businesses to source funds from intl. Banks Geographical Influences: → Demography: businesses target various demographics e.g. Australia’s aging population → Globalisation: the removal of barriers between nations → allowance of trade globally, increase of competition on a wider scale due to exporting opportunities Social Influences: → Multiculturalism and Product diversity → widens and diversifies entrepreneurial opportunities through businesses that relate to ethnic groups e.g Lebanese restaurants → Also allows for the unrestricted overseas exportation of products to overseas stakeholders Legal Influences: → Governments make laws that regulate business operations → done to protect consumers and encourage workplace health and safety through compensation

Cover areas such as: WHS, Taxation, Worker’s Compensation, Industrial Relations, Discrimination, Equal Employment - ‘Competition and Consumer Act 2010’ (administers and enforces competition and consumer protection laws) Political Influences: → Taxation: GST, Social Reforms: paid parental leave, Labour Market Reforms: Australian Workplace Agreements (AWA’s) and Environment Management: Carbon Tax Role of Government: set the ground rules on how a business should conduct their operations as well as the production of goods and services in accordance to regulating and minimising pollution, wastage of resources, etc.

Local Govt State Govt Federal Govt

Zoning: concerned where the business activities take place

‘Fair Trading Act 1987’ Protects consumers from unfair business practices

Taxation: tax businesses on their earnings as well as base taxing off of GST

Health regulations: Inspectors regularly check businesses to ensure that health standards and sanitary practices are being upheld e.g restaurants to protect the local community

Dept. of Fair Trading: enforces the law and provides information for consumers and businesses on various issues

Corporations Law: regulates business behaviour, Protects consumers, ensures competition and fair dealings with businesses

Institutional Influences: Regulatory bodies: a body that has been set up to monitor the actions of businesses and consumers e.g. Department of Fair Trading (promotes a fair marketplace for consumers and businesses by maximising trader compliance with policies through education) , Australian Securities and Investment Commission (ASIC, is a corporate markets and financial services regulator) Australian Competitive and Consumer Commission (ACCC, maintain and promote competition and remedy market failure ) Competitive Situation Influences: → competition has positive effects on the market e.g increased variety and price-skimming Number of Competitors: Monopoly: usually GBE’S → only one seller of a particular product e.g Sydney Water Oligopoly: only a few businesses provide the same product to the whole market e.g. increased competition and globalisation on petrol has meant there are more competitors Perfect Competition: where a large number of businesses provide the products e.g hairdressers Local and Foreign Investors: overseas markets provide opportunities for Aust. businesses in the same way that the Aust. markets provide opportunities for foreign businesses Marketing Strategies: allow the business to increase market share → more competitive Substitutes: can increase the level of competition as a ‘substitute product’ is two different products that have the same function

Changes in Markets Influences:

Financial Labour Consumers

More mobile and flows easily between countries

Political and demographic barriers → trend will continue due to restrictions on unskilled labour

Countries are not achieving cost savings specialising in effectively produced products → results in cheaper prices and increased sales revenue

International financial flows have increased rapidly → investment opportunities and access to international share markets

Trend 1: Movement of large numbers of people of temporary skilled migrant workers → important especially to Australasia

Improved technologies and communication also influence consumer markets

GFC and contractions cause a constantly revitalised market and changes

Trend 2: Growing demand for highly trained employees → increased mobility and increased price for trade-related services

Emergence of internet and innovative methods and businesses → taking advantage of economies of scale

Internal Influences: Product Influences: → range of goals provided and core product will impact size of operations and varied business structures to achieve maximum productivity → the size of the business, product range, volume of sales and technology utilised will all impact on the structure chosen → Three main factors: types of good and services produced, the type of business, and the size of business Location Influences: → Factors: Visibility, Cost, Proximity to suppliers, Proximity to customers, Proximity to support services. → Prime location: customer convenience + visibility. → If the business is not convenient and visible, customers may not make the effort to find it and optimum customer flow is achieved. → Must consider: costs of obtaining premises and inventory, cost of employment, marketing costs, utilities etc. and the cost of interest on finances

Resources:

Human Financial Information Physical

The employees of the business and are generally the most important

The funds the business uses to meet its obligations to various creditors

The knowledge and data required by the business e.g market research & forecasts

The equipment, machinery, buildings and raw materials

Management: → As the business environment is more dynamic, management structures must change → Flatter Organisational Structures (FOS) → giving more responsibility to employees → Collaborative workplaces allow for a more inclusive and flexible structure

Less Fluid Structure: Traditional structure

More Fluid Structure: New/emerging structure

Task centralised Decentralised

Division of labour: specialisation Division of labour: multitask-skilled

Rigid Structure and Style: hierarchical, autocratic

Flexible Structure and Style: flat, monolayered, democratic/participative

Performance appraisal: ‘do it our way’ Performance appraisal: ‘do it the best way’

Span of control/delegation: narrow, with workers controlled and dependent, top-down

Span of control/delegation: wide, communication and delegation by consensus and agreement

Traditional and conservative Modern and contemporary

Business Culture: → refers to the values, ideas, expectations, and beliefs shared by members of the organisation → directly impacts upon the relationship between management and employees

Values Celebrations Symbols Heroes

Businesses shared basic beliefs

Routine behaviour patterns in a business’ life

Consist of events/ objects that are used to represent business’ beliefs

Are the business’s successful employees who reflect values

Include: honesty, teamwork, employee participation and innovation etc.

Include: social gatherings which provide a sense of belonging

Include: competitive sports, employee development through training

Provide an example to other employees

Stakeholders: → any group or individual who has an interest or is affected by the activities of the business RIGHTS AND RESPONSIBILITIES OF and TO STAKEHOLDERS:

Shareholder Managers Employees Consumers Society Environment

Provide info about business performance

Support the actions of management

Fair pay and conditions

Quality products at fair prices

Fair and honest business practices

Care and preservation

Produce an annual report and hold general meetings

Provide adequate resources such as training and communication

Provided a safe working environment and elimination of discrimination and/or harassment (abuse)

Service during and after sales

Ethical business decisions

Responsible environment management

Manage funds to ensure dividends

Provide top-level commitment and support through corporate policies

Access to training and development

Safe environment and protection from deception

Return to the community for support through profits

Adoption of ecologically sustainable practices and implementing policies

Business Growth and Decline: Stages of the business cycle:

1. Establishment:

Main Characteristics Main Challenges

Scarce buyers Choosing an appropriate product

High production costs Differentiating products from competition

Limited production capacity Choosing right size/location of premises

Technical problems Working out the best marketing strategies

Customer resistance Forecasting business financial requirements

Expenditure greater than revenue Developing plans and strategies

Investing heavily to build sales

Negative profit margins until growth begins

2. Growth:


Increased market awareness Maintenance of product/service quality as output grows

Introduction of new products Developing accurate accounting and financial systems

Improved product quality and distribution Managing cash flow and forecasting future

Need for capital caused by expansion Improving economies of scale

High investment requirements Sustaining growth

Increasing sales volume and profit margins Recruiting employees and delegating responsibility

Increased specialisation Redefining the role of management

Greater inventory control

INFORMAL MANAGEMENT STRUCTURE

3. Maturity:


Levelling off of sales Staying responsive to changes in consumer demand

More market competitors Identifying opportunities for innovation

A focus on productive efficiency to maintain profit margins

Sustaining motivation of staff and management

A drop in investment requirements Rationalising business operations and minimising costs

Pricing competition becomes more severe

Professional managers give business a more formal structure and allow for preservation of market share

Departments are developed and people with specialist skills are placed accordingly

4. Post Maturity: → Generally three possibilities for a business, it could:

1. Remain in a steady state 2. Experience renewal 3. Experience a decline or cessation

1. STEADY STATE:


Sales continue to be profitable Understanding the changing tastes and preferences of the customer bases

2. RENEWAL:


Introduction of new products and services Shifting into new or related markets where there are greater growth opportunities

New acquisitions via merger or takeover Orienting the management and staff towards change

Discovery of new markets

3. DECLINE:

Main characteristics Main challenges

Loss of market share Sustaining profit and market share

Profits fall

Products become obsolete

FINAL STAGE: CESSATION Cessation: → reasons for business failure may be internal or external factors to the business:

Internal Factors: External Factors:

Poor management Red tape and government bureaucracy

Inadequate planning Excessive competition

Inadequate cash and debt recovery Natural disasters

Weak location

→ or voluntary or involuntary:

Voluntary Factors: Involuntary Factors:

Requirements of the owner Death of an owner

Inability to make profits/break-even Bankruptcy

Business has served its purpose Insolvency

Change in owner’s investment focus

Involuntary Cessation: → most businesses finish involuntarily (owner forced to cease trading and ‘cut its losses’ by the creditors of the business) Includes:

- Bankruptcy: declaration of inability to repay debts and is usually involuntarily by the business creditors who apply for a bankruptcy order, where if approved the remaining assets of the business are sold and divided → realisation: process of converting assets into cash

- Voluntary Administration: when an independent administrator is appointed to operate the business out of its financial problems and affairs, if successful: may resume normal trading, if unsuccessful: the business goes into liquidation

- Liquidation: occurs when a company is in financial strife and a liquidator is appointed to take control of the business with the intention of selling company assets

to pay creditors → liquidator: take possession and realise company assets to pay creditors, investigate and report possible offences, scrutinise reasons for failure, finally dissolve company → can also be in receivership: business has a receiver take charge (business not wound up necessarily) → insolvency: occurs when a company is not able to pay debts when they fall due Two types of insolvent liquidation: → creditors (voluntary) liquidation: 1. Creditors vote for liquidation following vol. admin or 2. Company’s shareholders agree to liquidate → court (involuntary) liquidation: court appoints a liquidator to close up the company after an external application/complaint

9.2 Preliminary Topic - Business Management: Nature of Management: → manager is an individual who coordinates business resources in order to achieve goals → process of working with and through other people to achieve business goals in a changing environment Features of Effective Management: → Management has four functions: POLC → Important to economy because: key to competitive market and job creation dependent on better management skills → Important to individual businesses: provide direction and vision, implement change, make decisions, coordinate activities, largely determine success

PLANNING ORGANISING LEADING CONTROLLING

Setting up strategic, tactical and operational plans, establishing roles and allocating resources

Using an organisational structure and set of procedures to implement plans

Motivating employees to work hard by example to achieve goals

Monitoring and evaluating performance and making adjustments to plans/procedures to achieve goals

→ achieves business goals through implementing right change at the optimal time: → goals include: increase profits, market share, share price and growth, improve society and the environment → efficiency: relates to achieving maximum output with minimum levels of input (smart allocation of resources, time, finance etc.)

Skills of management:

Skill Definition Characteristics Application

Interpersonal Skills needed to work and communicate with others to understand their needs

→ communication, motivation, leadership, inspiration

→ resolving issues, developing business culture, appreciating needs of others and providing welcoming environment

Communication Exchange of information between people: sending and receiving messages

→ concisity, body-language, friendly, charisma

→ emails and calls, resolving conflict, proposing strategies and leading/instructing

Vision Clear and shared sense of direction that allows people to attain common goals

→ leadership, communication, motivation, inspiration

→ instructing employees, fulfilling business goals, leading by example

Problem-solving Broad set of activities involved in identifying and then implementing courses of action to problem

1. Identify, 2. Gather info, 3 and 4. Develop and analyse solutions, 5. Implement, 6. Evaluate

→ solving problems that relate to the business

Decision-making Process of identifying options available and choosing the most effective

→ problem-solving skills, quick-thinking

→ making decisions that relate to the business

Flexibility Ability to change according to circumstances

→ proactivity and reactivity

→ changing circumstances, rapidly evolving environment

Reconciling the conflicting interests of stakeholders

Ability to satisfy as many stakeholders are possible

→ align with the interests and expectations of stakeholders

→ being able to satisfy as many people as possible will lead to increased profit and morale

Stakeholder engagement

Ability to attract various and significant numbers of stakeholders to the business

→ communication, ethically moral and safe practices

→ acknowledge that a positive business image will be maintained through satisfied stakeholders

Achieving Business Goals: Definition: desire outcome that an individual or business intends to achieve Importance: serve as targets, measuring performance, motivation and commitment. Setting goals: SMART: specific, measurable, achievable, realistic and timebound

Financial goals:

Maximise profits Increase market share Maximise growth Increase share price

Occurs when there is a maximum positive difference between total revenue and expenses Revenue - Expenses = Profit

Refers to he business share of the total industry sales which is measured in % Dominating market share correlates with large profits

Internal growth: employing more people, increasing sales, innovation, new equipment or more outlets External growth: achieved by mergers and takeovers

Ownership of a business 1) purchased for profit 2) entitles an investor to part of a company’s profits (dividends) Companies must maximise returns to shareholders

Non-financial goals:

Social Personal Environmental

Benefiting the community through community service (events), provision of employment (employing family members) and social justice (abiding by legislation and treating people right)

May include higher income, improved financial security → not usually made public Motivate the owner and underpin the liability of the business

Economic growth must be achieved sustainably and there must be a balance between economic and environmental concerns such as sustainable development

Achieving a mix of business goals: → difficult for a business to achieve all financial goals simultaneously with each other as well as non-financial goals due to incompatibility e.g. emphasis on ecological goals may be viewed as unrealistic when achieving financial goals due to the associated expenses are often higher than regular practice → management must decide on which goals to prioritise in order to satisfy as many stakeholders as possible Staff Involvement: → Staff involvement means involving employees in the decision-making process and giving them the necessary skills and rewards. → A work environment that maximises employee involvement and satisfaction has high levels of labour productivity. Innovation: → Businesses should encourage an innovation business culture by recognising and encouraging one of the most important sources of innovation ideas: employees. → An entrepreneur is an innovation employee who takes on the entrepreneurial roles within a business.

Motivation: → Motivation refers to the individual, internal process that directs, energises and sustains a person’s behaviour. → Individual employees respond differently to various motivational techniques. → Good managers should also be good motivators, encouraging employees and using positive reinforcement to influence behaviour. Mentoring: → Mentoring is the process of developing another individual by offering tutoring, coaching and modelling acceptable behaviour. → Teaching new employees what the business expects of them helps strengthen their dedication and commitment to the business. Training: → Employee training generally refers to the process of teaching staff how to perform their job more efficiently and effectively by boosting their knowledge and skills. → The goal of training is to improve employee productivity. Management approaches: → Knowledge about management today is the result of a long and continuing innovation process as ideas evolved over time. → The business’s management approach will have an enormous impact on all aspects of the business’s operations.

1) Classical Approach: Organisation/Allocation of tasks: staff perform same tasks (task specialisation), time and motion studies to reduce inefficiencies, division of labour into function-related units (strict control of tasks), appraisal/rewards based on production standards Organisational Structure: hierarchical, linear flow of info (greater chain of command), strict channels of top-down responsibility (narrow span of control), grouped into specialised activities based on functions, products, and supervisory control Levels of management: many levels with outlines roles, responsibilities and positions, courses of action decided by management, bureaucratic authority (effective means of controlling workforce) → intrinsic and extrinsic motivation to motivate employees due to repetition of tasks (prone to laziness and lack of commitment) Management styles: Autocratic (do it this way) Characteristics include: → High degree of direction, reliance on authority and obedience → Little participation in decision making and freedom for employees → Simple and repetitive tasks Includes POC: Planning – setting goals and working out the best ways of achieving the goals in a changing environment by using a strategy for example: Strategic planning – Long term planning (5- 10 years),

Tactical – mid term planning (2-5 years) and Operational – day to day running of the business Organising – designing a framework, actions taken by management to make the plan work such as: determining the work that needs to be done, allocating resources, assigning work to staff members Controlling – ways to measure what is happening in the business, comparing what is happening with what was planned by the managers.

2) Behavioural Approach: Organisation/Allocation of tasks to staff: recognition that workers have social and economic needs, teamwork and informal work groups → productivity Includes LMC: Management as leading, motivating, communicating Leading: directing people, communicating, resolving conflict involves: managing change, guiding and directing, motivating and inspiring, solving problems, getting the job done Motivating: giving workers desire to work at a high standard this is done by: → Non monetary rewards eg. awards and recognition → Monetary rewards eg. cash bonuses Communicating: management role are carried out by interacting and communicating with others. Organisational structure: hierarchical → more consultation with workforce but still not participative partnership Levels of management: less management levels. Development of people and management skills, communication and motivation skills Teams: productivity and efficiency is claimed to be higher when people work in a team structure, a feature of modern business. Team structures: eliminate middle management, short chain of command, wide span of control, increased job satisfaction from feeling apart of a team, each team responsible for production functions Management style: participative and democratic leadership style (‘do it the best way’) → Managers encourage employee participation in decision-making and open communication channels → Authority will be shared + effective when business environment is undergoing rapid change

3) Contingency Approach: → flexibility and adaptation of a variety of ideas and theories that best suits the changing business environment and the business’s requirements Adapting to changing circumstances: → All aspects of the business environment should be considered and prepared for uncertain future when making a decision. → Reacting quickly to change by thinking strategically about the future → Be responsive to changes in the environment and adapt to suit situations → The nature of work can change due to technology → Managers need to borrow and blend from a wide range of approaches

Management Process: Coordinating key business functions and resources:

- Division: separation of 4 business functions to improve efficiency and effectiveness - Interdependence: mutual reliance on each other to work effectively - Synergy: interact with another/work as a team to achieve goals - There is a constant flow of information

1. Operations: - Business processes that involve transformation and the production - Operations Management: activities managers engage to produce a good/service

→ Goods and/or services

- Goods and/or Services: manufacturer transform inputs into goods/services → tangibles/intangibles

- Businesses account for both → service for a good = satisfaction = more money = competitive edge

→ The Production process Inputs: resources used in the production process (materials, etc)

- Transformation: conversion of inputs (resources) into outputs (good/service) PROCESS Elaborately Transformed Manufactures (ETMs)

- Highly processed and valued (complex) products → phone/car Simply Transformed Manufactures (STMs)

- Small amount of value added - Ability to be further processed

Value Added

- Transformation of inputs for consumer’s benefit - Raw materials are transformed into intermediate or finished products through the

various stages of production = adding value to end product - Applied during process to both ETM’s and STM’s

Outputs: end results of a business’s efforts → good/service

- Must be responsive to consumer demand. They are paying for it → expectations - If expectations met = satisfaction

→ Quality Management

- Quality: degree of excellence of goods/services and its fitness for a stated purpose → eg. reliable, durable, easy to use, well-designed, delivered on time

- Quality Management: strategy to ensure business’s products meet consumer expectations → eg. minimise waste/defects, strictly conform to standards, reduce variance in final output

- Quality Control: use of inspections during the production process at various points to check for problems/defects (reactive strategy)

Strategies to maintain quality control in a manufacturing business

Strategies to maintain quality control in a service-based business

- Ensuring standards are met - Specifications/benchmarks are set before

physical checks - Actual performance compared with criteria

- Inspection of employee performance

- Quality Assurance: setting standards in a business and meeting them → proactive strategy

- Total Quality Management (TQM): on-going commitment to excellence applied in every aspect of the business’s operations. → create defect-free production process and maintain customer focus in operations

TQM APPROACH Main Description Impact on TQM

Employee Empowerment

- problems solved by employee involvement and quality circles Quality Circles: team of max. 10 workers meet regularly to solve problems regarding quality.

- saving costs for businesses

Continuous Improvement “Kaizen”

- On-going commitment to perfection - Improvement of ways things are done

- Emphasises continuous improvement within business e.g culture

Customer Focus - Consider customer requirements and demands

- Higher standards: team realise they are serving a customer

2. Marketing: → Identification of the target market

- Marketing Concept: Customer satisfaction is the key objective of business operations - Mass Marketing: large range of customers - Target Market: group of people with similar characteristics - Market Segmentation (niche): division of total market into smaller markets based on

certain characteristics. → demographic, geographic, lifestyle and behavioural

→ Marketing mix:

1. Product: developed good/service to meet needs of customer

- Tangible benefits: physical attributes of product (design/style of product) - Intangible benefits: indirect benefits consumer gains (prestige, after-sales service) - Branding: use of names/terms/symbols to identify particular product →

distinguishable → Assurance of Quality: increases loyalty and firms can sell their products if customer brands

- Packaging: development of product’s container 1) Functional Role: protects/stores products while transported and displays basic info. 2) Branding Role: create positive image and communicate brand’s attributes → Packaging Considerations: environmentally responsible packaging

- Positioning: perceptions customers have about a product relative to competitors 1) Product Users: image in consumer’s mind about types of people using product 2) Product Usage: image in consumer’s mind about how product can be used by them 3) Competition: openly positioning a product in relation to its competitors

2. Price: amount business charges for product → takes into account production cost and position in market → Pricing Strategies:

Penetration Policy: fast sales - Gain large amount of market share by offering low prices compared to competitors. Encourages consumers to switch over.

Loss Leader: fast sales - Providing limited number of goods at price that generates minimal profit or a loss. Encourage to enter store → buy other products

Price Skimming: greatest financial return - setting product’s price at a high level and reducing it over time (new products). Successful = little/no competition in market

Price Points: greatest financial return - set different prices for similar products. - create slightly differentiated versions changing the price for each version.

3. Promotion: strategies to attract the attention of consumer → Promotion Mix: endeavours to generate interest and awareness of a particular product/brand

1) Personal Selling: direct communication between firm and customer with intent to sell 2) Advertising: mass communication that gives customers information about product low

cost 3) Below-the-Line: non-media promotion. Inducing product trial for potential customers 4) Public Relations: firm’s image to public by developing/fostering positive relations 5) Sponsorship: purchase of a right to associate a sponsor’s name

4. Place: availability & physical distribution of product (businesses must consider transportation method)

1) Intensive Distribution: saturate market → maximise sales 2) Selective Distribution: limited number of outlets → only good reputation outlets 3) Exclusive Distribution: very few or one outlet in a specific geographical area

→ used to create image & prestige for product

3. Finance: → Internal Sources of Funds: equity finance

- Owners Equity: funds contributed by owner/s - Retained Profits: accumulated profits of a business after ALL costs & expenses

deducted

→ External Sources of Funds: debt finance

Short Term (less than a year) Long Term

- Overdraft: business allowed to withdraw more money than actually available in business from a bank - Bank Bill: business writes bill to bank agreeing to repay amount borrowed after a period of time. Bank distributes money access from other firms, guarantee repayment → Bill of Exchange - Trade Credit: suppliers provide good/service to business on credit with repayment later - Factoring: selling of accounts receivable to a company at a discounted rate to their face value.

- Mortgage: security of a loan is a piece of property. Bank or lender can sell asset to recover money. - Debentures: NO BANKS. Company makes loans to another, promises to pay full amount later, and make regular interest payments. Loan held against asset. - Leasing: ongoing payments by lessee allowing them to use particular asset owned by lesser. Preserves firm’s funds instead of spending a lot to purchase it. - Unsecured Notes: loans not backed by an asset or collateral. Risk to investors → higher interest rate.

Key uses of financial statements: → Provide an opportunity to statistically analyse the successes and failures of business decisions and actions. → Enable management to make informed decisions and allow managers to identify problems, change and plan for the future. → Enable the owners to determine how profitable the business was, evaluate the performance of directors and managers and assess the net worth of the business through the balance sheet. → Investors use the financial statements to guide their decisions on profitability and growth. → A creditor is an individual or organisation owed money by a business because they supplied that business with goods 'on credit' 'On credit' means that the supplier (creditor) supplied goods that were ordered by the business but not yet paid for. 1. Cash flow statement:

- shows movement of cash receipts (inflows such as money from sales) - Liquidity: amount of cash business has access to and how readily it can realise

assets to repay - information about the liquidity of the business - vital as business can asses whether inflows match outflows - can be made for future anticipated cash flows - Inflows: sales, interest and Outflows: payments

2. Income statement (revenue, profit & loss statement, financial performance) → income earned and expenses incurred over a period of time → revenue, expenses, profit: Cost of Goods Sold (COGS): opening stock + purchases - closing stock Gross Profit: Sales - COGS Net Profit: Gross Profit - expenses Selling Expenses: process of selling good/service Administrative Expenses: cost directly related to general running of business Finance Expenses: cost associated with borrowing money from outside sources

Expenses:

3. Balance sheet (financial position)

- Business’s assets and liabilities at a particular time - ALOE: Assets + Liabilities = Owner’s Equity - Current: short term and to be converted into cash or paid within 12 months - Non Current: long term and NOT be converted in cash or paid within 12 months - Assets: Items of value to business that has monetary value - Liabilities: Debts of the business owed to other firms - Owner’s Equity: Funds contributed by owner/s

4. Human Resources: → Recruitment:

- Acquisition: Need to identify staffing needs: → Sales Forecast → determine future sales (quantity of labour) → Job Analysis → evaluate key features of job and necessary skills

- Attracting/seeking potential employees that have skills, abilities and knowledge the business needs

Internal External

- Transfer of employees

- Promotion of employees

- Advertisement - Employment National: federal government service to find candidates for

junior positions - Job Network: federal government funded private employment agencies - Executive Searchers: employment agencies used to fill senior positions - Campus Interviews: large businesses recruit uni students by holding

interviews at universities/schools

→ Development:

Aim of training: increase employee’s abilities and improve their performance. Improve income, productivity, quality and ability to cope with change eg. use new technology for competitive advantage

- Business invests in training, but will receive a great outcome

On the Job Training Off the Job Training

- Hands on experience like apprenticeships, traineeships and supervisory assistance

- Disadvantage: productivity of business will suffer while employee is developing skills

- External courses undertaken by employees (TAFE, university, etc)

- Advantage: trained by professionals - Disadvantage: removed employee from

workplace → no productivity. Also expensive, not developed for specific needs of business

→ Maintenance: → reduces absenteeism, staff turnover and workplace disputes → business needs to ensure employees are happy & satisfied → motivated

Monetary Benefits Non-Monetary Benefits

- Cash payments - salaries/wages - May not motivate workers if

there’s no job satisfaction

- Job satisfaction (utility) - Fringe benefits - Healthy and safe workplace - Flexible hours - Superannuation

→ Employment contracts

- Legally binding formal agreement between employee and employer - Award: minimum conditions. Inflexible → doesn’t suit all employees & same rates for

ALL - Enterprise Agreement: negotiation between an employer and a union or a group of

employees - Common Law Contract: employers and employees have the right to sue for

compensation if either party does not fulfil their part of the contract.

→ Separation - Voluntary/Involuntary

Voluntary Separation Involuntary Separation

- Retirement (65 years) - Resignation → stop work for a

particular season → new job, family, unhappy with current job

→ requires notice (2 weeks), if not, employer doesn’t need to pay out employee wages or entitlements

- Redundancy: skills no longer needed (can be voluntary) → redundancy packages

- Retrenchment: slowdown in sales → business can’t afford employees

- Dismissal: Summary dismissal: misconduct (theft, lying) breaking law = instant dismissal Or for less serious misdemeanours need to be given 2-4 week notice.

Ethical Business Behaviour - Business ethics: is the application of moral standards to business behaviour - Conflict of Interest: occurs when a person takes advantage of a situation or piece of

information for his or her own gain rather than for the employer’s interest. Ethical business behaviour characteristics include:

- fair and honest business practices → laws/regulations as well as being truthful - decent workplace relations → treating staff with respect - conflict of interest situations → no bribes or collusion - accurate financial management → audits = independent check of accuracy of records - truthful communication → advertisement

Management and change: → may be as a result of: changing consumer preferences, changing markets, change in production methods, change in work practices → effective managers can create opportunities for the business by anticipating changes in the business environment Responding to internal and external influences:

- Require continual analysis and rethinking of strategic direction of business

External Internal

- Changing markets - Financial, economic, legal, social,

political, geographical, technological

- New technology - New business culture - Outsourcing - New organisational structure

- Transformational change: complete restructure throughout a whole organisation - Incremental change: minor changes, usually involving only a few employees

Managing change effectively: → Identifying the need for change: influences pressure and requires continual analysis and reevaluation of the strategic direction of an organisation → remain competitive

- Reasons: The business is no longer compatible for the environment, there is no clear vision or strategy for the future, the local environment is changing, the culture of the business is not sufficiently directed at maximising its performance

- A business information system (BIS), also referred to as a management information system (MIS), gathers data, organises and summarises them, and then converts them into practical information to be implemented by managers who use them to make decisions and evaluate results

→ Set achievable goals: must be SMART, and continually monitored/adjusted where appropriate - management must adopt a holistic approach, setting goals in terms of technology, structure and strategy.

- Quantitative goals: sales targets, profit expectations, budgets - Qualitative goals: perception of a business image and staff morale

→ Reasons for resistance to change:

Financial Inertia Staffing

- Lack of funds in adopting new technology - Lack of accessibility to funds - Cost of training employees

- not willing to leave comfort zones - lack of confidence and risk-taking

- resistance to learning new technology - reduction in promotional opportunities - threatened by new procedures → may lead to reduction of staff

- Strategies for overcoming resistance:

→ Creating a culture of change; identify individuals who could act as supportive change agents (positive leadership; encourages and promotes the change)

→ Management consultants: someone who has specialised skill or knowledge within an area of business

- Aim: help businesses improve performance by investigating existing business problems and development plans for improvement → aware of best practices = highest standard practices in industry → Consultants can be especially helpful in providing change management advice - a methodical approach to dealing with change, both from the perspective of a business and on the individual level

- Change agents: must be identified/can be internal or external stakeholders → staff must be convinced for the need for change by raising awareness and sharing vision → power, resources and a team approach must be adopted to implement change effectively

9.1 preliminary topic - nature of business

Documents