Year 11 Business Studies Study Notes PDF

Year 11 - Business Studies - Study Notes Topic 1 - Nature of Business 4 Role of Business 4 The nature of a business...

Year 11 - Business Studies - Study Notes Topic 1 - Nature of Business 4 Role of Business 4 The nature of a business 4 - Producing goods and services 4 - Profit, employment, incomes, choice, innovation, entrepreneurship and risk, wealth and quality of life 4 Types of Businesses 6 Classification of business 6 - Classification by size - small to medium enterprise (SMEs), large 7 - Classification by Geographical spread - Local, national, global 7 - Classification by Industry - Primary, secondary, tertiary, quaternary, quinary 8 - Classification by Legal structure - sole trader, partnership, Private company, public company, Government enterprises 8 Factors influencing choice of legal structure 11 - Size, ownership, finance 11 Influences in the business environment 12 External influences 12 - Economic, financial, geographic, social, legal, political, institutional, technological, competitive situation, markets 12 Internal influences 17 - Products, location, resources, management, and business culture 17 Stakeholders 18 - Owners/shareholders, managers, employees, customers, society, environment 18 Business growth and decline 19 Stages of the business lifestyle 19 - Establishment, growth, maturity, post maturity 20 Factors that contribute to business decline 23 Voluntary and involuntary cessation - Liquidation 23 Topic 2 - Business management 26 Nature of Management 26 Features of effective management 26 Skills of Management 26 - interpersonal, skills, strategic thinking, vision, problem-solving, decision making, flexibility, adaptability to change, reconciling the conflicting interests of stakeholders 26 Achieving business goals 28 - Profits, market share, growth, share price, social goals, and the environment 28 - Achieving a mix of business goals 29 - Staff involvement - Innovation, motivation, mentoring and training 29 Management approaches 30  Classical approach 30 - Management as planning, organising, and controlling 30 - Hierarchical organisational structure 30 - Autocratic leadership style 31 Behavioural approach 31 - Management as leading, motivating and communicating 31 - Teams 31 - Participative/democratic leadership style 32 Contingency approach 32 - Adapting to changing circumstances 32 Management processes 32 Coordinating key business functions and resources 32 Operations 33 - Goods and/or services 33 - The production process 33 - Quality management 33 Marketing 34 - Identification of target market 34 - The marketing mix 35 Finance 36 - Cash flow statements 36 - Income statement 37 - Balance Sheets 37 Human resources 38 - Acquisition 38 - Development and Training 39 - Employee contracts 39 - Separation 40 Ethical business behaviour 40 Management and change 41 Responding to internal and external influences 41 Managing change effectively 41 - Identifying the need for change 42 - Business information system 42 - Setting achievable goals 42 - Resistance to change 42 - Management consultants 42 Topic 3 - Business planning 44 Small to Medium enterprises 44 Definition 44 Role 44 Economic contribution 44  Success and/or failure 44 Influences in establishing a Small to Medium enterprise 45 Personal Qualities 45 - Qualification, skills, motivation, entrepreneurship, cultural background, gender 45 Sources of information 46 The business idea 46 - Competition 46 Establishment options 46 - New, existing, franchise 46 Market 47 - Goods and/or services, price, location 47 Finance 48 - Source, cost 48 Legal 49 - Business name, zoning, health and other regulations 49 Human resources 50 - Skills 50 - Costs - wage and non-wage 50 Taxation 50 - Federal and state taxes, local rates and charges 50 The business planning process 51 Sources of planning ideas 51 - Situational analysis 51 Vision, goals and/or objectives 52 - Vision 52 - Business goals 52 - Long-term growth 52 Organising resources 52 - Operations 53 Forecasting 53 - Total revenue, total costs 53 - Break-even analysis 54 - Cash flow projections 54 Monitoring and evaluations 54 - Sales 55 - Budget 55 - Profit 55 Taking corrective action 55 … 56 Writing a Business Report - Tips 56 McDonald's research task 56  Topic 1 - Nature of Business Role of Business The nature of a business The nature of a business A business is a coordinated effort by individuals to combine resources in order to produce goods and services that satisfy consumer needs and wants for the ultimate goal of making a profit. Producing goods and services - Producing Goods - items that can be seen and touched goods and ○ Eg. clothes, food, and cars services Services -things that are done for you by others ○ Eg. Coles delivering food, airlines, banks, law firms, plumbing repair Finished product - a good or service that is ready for customers to buy and use SME - Small to Medium Enterprise - 98% of businesses in Australia The most important of all these activities is production. ○ Production - activities are undertaken by the business that combines the resources to create products that satisfy customers’ needs and wants. A business is an entity that creates value by acquiring, combining and transforming inputs to create outputs. It produces and sells (for a profit) the products (goods and services) that satisfy an individual's needs and wants. Inputs - land, capital, labour, and enterprise Outputs - goods and services Profit, employment, incomes, choice, innovation, entrepreneurship and risk, wealth - Profit, and quality of life employment, incomes, Businesses perform a number of social and economic roles in the Australian economy. choice, innovation, The economic role of business is concerned with the financial impact that the activities entrepreneur of business have on various groups in the business environment. ship and risk, The social role of business is focused primarily on the impact of business on the wealth and community. quality of life PIECEWIQ - 8 ROLES Profit (Economic)  Profit is what remains after all business expenses (operating costs) have been deducted from sales revenue. The chance to earn profit encourages people (entrepreneurs) to take the risk of opening a business. The business’s profit becomes the business owner’s property and their income Profit = sales revenue - expenses Income (Economic) Income is money received from a person for providing their labour/work. Income can also be from a return on investment. Employees provide their labour and in return, they receive an income either as a wage or salary. A business owner's income is the amount it earns after covering all expenses When a company has many owners they are called shareholders and when the company makes a profit this is divided between them. ○ This is called a dividend. Employment (Economic and Social) Businesses provide employment opportunities, which keeps the economy healthy through the purchasing of products by consumers The number of employees depends on the nature of the products and the number of customers who wish to purchase the product. As a result of business growing internationally and competition, many businesses have had to reduce their workforce and lower costs to remain competitive. Choice (Social) Choice is the act of selecting alternatives The growth of business internationally has allowed businesses to provide consumers with choice through innovation and competition. ○ Eg. cereal, soft drinks, fast food… Entrepreneurship and risk (Economic) Entrepreneurship is the ability and willingness to start, operate and assume the risk of a business venture in the hopes of making a profit. ​Prepared to take a risk of starting and operating a business venture. Lose money if the business fails. Entrepreneurs are willing to start a business, develop innovative ideas, and take risks in the hope of making a profit. ○ Eg. Bill Gates, Elon Musk Wealth (Economic) Wealth - the net amount a person or business owns Businesses generate income and also generate wealth Wealth often comes in the form of property ownership Business creates wealth for stakeholders in the following ways: ○ Lenders - Loan repayments ○ Governments - Taxes  Eg. income tax, payroll tax, goods and services tax, fringe benefits tax. ○ Business owners/shareholders - profits and or dividends ○ Employees - Salaries, wages, and other employment benefits. ○ The business itself - Can be reinvested to further expand the business. Innovation (Economic) Innovation is a new or improved product or process. Businesses use innovation to maintain their competitive edge by undertaking research and development (R & D). The main reason for this is so businesses can improve products, develop new products and improve production. This can result in a greater choice for consumers, increased market share, and increased profits. ○ Eg. Airpods vs AirPods pro vs Airpods 3 Quality of life (social) Quality of life refers to the overall standard of living and well-being of an individual. Businesses offer a vast array of products that improve our standard of living. Businesses provide people with jobs or employment and pay people incomes, which directly improves their quality of life. Positive Impacts: ○ Improved standard of living ○ Variety of goods and services ○ Increase in leisure time Negative Impacts: ○ Depletion of natural resources ○ Impact on environment Types of Businesses Classification of business Classification of business Classification By Size - Classification 98% of businesses in Australia are small to medium enterprises by size - small There are a number of quantitative and qualitative measurements that can be used to to medium determine the size of a business. enterprise Micro Businesses (SMEs), large A business with fewer than 5 employees ○ Eg. Lawn mowing service Small Business A business with 5-19 employees. Owned by 1-2 people Sole trader or partnership Owner is responsible for decision making Source of finance comes from owner/savings or a loan. Small market share usually located in a local area. ○ Eg. Corner store, Hairdresser, fish and chip shop Medium Business A business with 20-199 employees. Owned by a few people and/or private sharers. Ethier a partnership or private company Owner is responsible for decision making Source of finance comes from owner or partner's own savings, private shareholders Medium market share, due to dominance in a geographic region. ○ Eg. Hotel/Motel, restaurant Large Business 200 or more employees Owned by thousands of public shareholders Public company Decisions are made by directors, senior and middle management Source of finance comes from cash reserves, sales of shares, and loans. Large market share, especially for multinational corporations. ○ Eg. Woolworths, Coles, Aldi Business size by employee numbers - 0 employees - 62.1% 1-4 employees - 27.1% 5-19 Employees - 8.5% 20-199 Employees - 2.2% 200+ employees - 0.2% Classification by Geographical spread - Classification by Local Geographical Businesses that have restricted geographic spread spread - Serves the surrounding area. Local, Tend to be small to medium in size national, ○ Eg. newsagent, local garden service, corner store global National A business that operates within a country. Will have a greater range of products and services in a wider area. ○ Eg. Coles, bunnings, fitness first Global Large company with branches in different countries Called a Multinational corporation An expansion of a national business through increase in sales can result in limited new  customers due to saturation in the marketplace. ○ Examples; McDonald's, Apple, Nike, amazon, Geographical spread: the presence of a business and the range of its products across a suburb, city, state, country or the globe. Classification by Industry - Classification by Industry - Businesses can be grouped according to their industry or what type of production they Primary, undertake. (There are 5 main industry sectors). secondary, tertiary, Primary Includes all businesses which involve the collection of natural resources quaternary, ○ Eg. Farming, fishing, mining, forestry quinary This sector includes only 4.7% of the labour force and approximately 60% of our exports. Secondary Includes the businesses that use raw minerals (output of primary industries) plus labour and capital to transform these minerals into a finished or semi-finished product. ○ Eg. Iron ore + limestone are turned into steel (semi finished product) ○ Steel is then used to manufacturer a car (finished product) Tertiary Includes businesses performing a vast range of services for individuals and other businesses. ○ Eg. retailers, dentist, banks, entertainment, tourism, restaurants, clerical services. Tertiary industry employees about 75% of the Australian workforce, which can be divided into two further categories known as the quaternary and quinary industries. Quaternary Includes businesses that provide services which transfer and process information and knowledge. ○ Eg. telecommunications, education, finance, software engineering, financial planning, libraries, legal and accounting services. Quinary Includes businesses that provide services that are traditionally performed in the home. ○ Eg. hospitality, tourism, childcare, cleaning, lawn-mowing, ironing, Restaurants and fast-food places that sell breakfast, Meal delivery services Classification by Legal structure - Classification by Legal structure - sole trader, partnership, Private company, public company, Government Unincorporated Incorporated enterprises The business has no legal existence from its Refers to when the business exists in its owner/s and will either be a sole trader or separate legal entity from the owners. partnership. - Unlimited liability (no limit to - Limited liability (owners are not liable  owner's responsibility and they may for debts beyond the amounts they have to sell personal assets to pay have already invested- not forced to business debts) sell personal assets - Owners pay tax not the business - Succession of business beyond - Life of the business is linked to the changes in ownership owner. - The business pays tax Pty Ltd (private), Ltd (public) Sole Trader Owned and operated by 1 person Unincorporated entity Most common legal structure Owner makes all decisions and takes all responsibility Unlimited liability: When the business owner is personally responsible for all the debts of their business and must sell personal assets if required Advantages - Disadvantages - - Low cost to set up - Unlimited liability - Owner has full control of operations - Business will no longer continue - Owner receives all profit of the when the owner dies (perpetual business succession) - Only a few government and legal - Not paid when they go on holidays or requirements. are sick/unwell. - Difficulty in raising finance for expansion. - Owner's sole responsibilities for a range of tasks and management. Partnership 2-20 owners Unincorporated entity All partners act as an agent for the business and are bound by lawful actions of each other (partnership agreement) Unlimited liability: When the business owner is personally responsible for all the debts of their business and must sell personal assets if required Advantages - Disadvantages - - Low cost to set up - Personal unlimited liability - Shared responsibility - Liability for all debts, including - Poole functions and talents partner's debts prior to the - Minimal government regulations partnership. - Partnerships can use the strengths of - Divided loyalty and authority individual partners to specialise the - Possibility of disputes between business functions. partners Partnership Agreement - covers the name of partners, percentage owned by each partner, distribution of profits, process of selling, and conflict resolution. Limited Partnerships - allows a partner to invest capital into business without losing all personal assets (limited liability). Referred to as a silent partner as not involved in management or decision-making. Private Business (Pty Ltd)  2-50 owners Incorporated entity Must have Pty Ltd in the name Most common type in Australia Have restrictions on share transfers - (must be approved by the other directors) Tend to be small or medium-sized businesses Limited liability: each owners financial liability is limited to the amount of money they paid for the business shares and is not personal Owners create private companies because they have a legal structure that is separate from them as owners, which limits personal liability Advantages - Disadvantages - - Limited liability - Limited number of shareholders - If the owner dies the business will go - High cost to start up on (perpetual succession) - Not listed on the stock exchange - Easier access to finance - Complex to shut down business - all - Tax paid at the company tax rate shareholders must agree. - Risk is spread over a number of people - Managed by a board of directors - Do not have to publicly disclose their financial data Public Business (LTD) 5 or more owners - no maximum Incorporated entity Must have LTD in the name Run by a board of directors Must issue a prospectus to invite people to purchase shares - a formal legal document providing information and full details about an investment offering for sale to the public. Limited liability: each owner's financial liability is limited to the amount of money they paid for the business shares and is not personal Public companies are listed on the ASX where the public may buy and sell shares in those companies Company’s profit is divided among shareholders. This type of income is called a dividend: ○ A dividend is part of a business’s profit that is divided among shareholders Advantages - Disadvantages - - Limited liability - High cost to set up - Experienced management - board of - Legal requirements - must issue a directors prospectus - If the owner dies the business will go - Public disclosure - must report certain on (perpetual succession) information and publish annual - Access to large amounts of equity reports finance (can issue more shares) - Separation of ownership and - No restrictions on the transfer of management shares Government Enterprise Government owned and operated business (GBEs) GBEs participate in commercial activities with the goal of making a profit GBEs cover out government policies while they deliver community services  Although only small in number, they are typically large and include some of the largest employers in Australia GBEs are owned by all levels of government including: ○ Federal, state and local Examples include: ○ Australian rail track corporation limited, NBN Co, essential energy, defence housing Australia, Sydney Water, Australia Post. They are often referred to as public sector businesses and provide essential community services such as ○ Health, education, roads, and welfare. Factors influencing choice of legal structure Factors influencing The 3 most important factors are - choice of 1. Size of business legal 2. Ownership structure 3. Finances Other factors can include: Legal liability Cost and complexity of formation Tax implications Size of Business - Size, If the business is micro or small, it might be appropriate to use a sole trader or partnership as it is less expensive to set up. ownership, If the business expands and enters a growth stage (needs an injection of money) finance ○ A partnership or private company allows for extra finance skills and experience. As the business grows to a large national or multinational corporation. ○ Additional finance is required, which can be shown through the change of legal structure to a public company. Business owners will make personal decisions that best suit the conditions at the time. If a business is financially successful, the legal structure may be altered over time. Ownership Sole trader - If a business owner wishes to have complete control and ownership Partnership/private company - In a partnership and private company the ownership is shared with other people. ○ Owner still has a large degree of control over who becomes a partner in a partnership or a shareholder in a private company Public company - the ownership is divided amongst shareholders ○ If the original owner wants to retain ownership they will need more than 50% of all shares sold. Finance Sole trader - fiance is relatively small - raise finance by getting loans private/public business - large amounts of finance scale of a business increases = capacity to borrow funds increase Revenue raised will be used in business capital ○ Eg. purchase of new equipment, research, and development Other factors -  Liability: Choice of legal structure can place the owner’s personal assets at risk. If the owner wants to avoid unlimited liability they need to use an incorporated legal structure. Cost and complexity in formation: Different legal structures have different set-up costs Unincorporated entity - low set-up cost, few legal requirements - sole trader/partnership Incorporated entity - high set-up cost, many legal requirements - public/private business Tax considerations: Sole trader - personal tax rate Partnership - owner share tax rate Companies - company tax rate Influences in the business environment External influences External influences The factors which a business has little control ○ Eg. government policy, technology, economic conditions, and social attitudes - Economic, Economic influences (external) financial, External factors which are related to economic activity which impacts both businesses geographic, (capacity to compete) and consumer (ability to spend). social, legal, The level of economic activity fluctuates over time through booms and busts. When economic problems occur both nationally and globally, consumers and business political, owners become more cautious about spending and investment decisions. institutional, The economic cycle (business cycle) refers to the period of growth (boom) and recessions technological, (busts) that occur as a result of fluctuations (falling amount) in the general level of competitive economic activity. situation, markets Expansion - - Increasing consumer spending - Business expectations increasingly optimistic - Increasing business investment - Sales and profit rising - Unemployment falling Contraction - - Decreasing consumer spending - Business expectations lower - Decreasing business investment - Sales and profit falling - Unemployment rising Peaks -  - Wages and salaries at high levels - Business operating at full capacity - Sales and profit at highest levels - Low levels of unemployment Troughs - - Wages and salary at low levels - Business operating below full capacity - Sales and profit at lowest levels - Consumer spending at lowest levels - High level of unemployment Covid-19 example - A global recession due to lockdowns - increased unemployment, disruption to many industries, and a decline in consumer spending. Financial influences (external) There have been significant changes in the financial markets over the last 30 years due to globalisation, technology, and deregulation (removal of regulations or restrictions). Governments have reduced the amount of control over the financial sector which has allowed it to expand, transcend national boundaries, and offer a range of financial products that businesses can take advantage of. Interest rates - - When interest rates increase, businesses will become more cautious about taking on extra debt. - When interest rates fall, businesses will take on more debt and increase the purchase of capital equipment which will improve business efficiency. Exchange rates - - This will influence business purchases from overseas. - Eg. If the Australian dollar appreciates against the US dollar, this will make the purchase of raw materials cheaper from the US. Geographic influences (External) Refers to the effects of climate, natural resources, topography, physical infrastructure, and location of a business. Australia is located in the Asia Pacific region and the economic growth of Asian nations has allowed opportunities for the Australian market to expand. Australia has also changed its demographic features (age, structure, income, ethnic composition) and this has changed the demand for goods and services within Australia. ○ Eg. The demographic change of the “baby boomers” (people born between 1946-1964) reaching retirement age means that there will be a labour skill shortage. Globalisation: impacted how we buy products around the world and how businesses source their raw materials to make goods. impacts of globalisation (both positive and negative) include: Increased competition - continually improve products to be competitive Expanded markets - business can global and grow Greater customer expectation - expectations are greater, need to meet demands Economies of scale - more efficient, profitable, competitive Location flexibility - take advantages of lower costs = increased profit Cheaper materials - lower costs = greater revenue Diversification - diversify risks across businesses Access to better labour - have a pool of talent = improve business performance. Social influences (External) Changes in attitudes and behaviours are constantly changing. Changes in taste, fashion, and culture can lead to sales and profit opportunities and in turn business growth. If a business is not able to respond to these changes then it will not be stable and able to work (viable) The main social changes in Australia are: - Growing concern about the environment - Desire to provide family-friendly workplaces - Catering for workplace diversity and catering for specific needs. Legal influences (External) Businesses need to have a sound working knowledge of the laws that will impact their operations and understand and accept the responsibilities to stakeholders. ○ (customers, suppliers, employees, and the environment). Society expects business owners to follow the laws of the country Must comply with federal, state, and local governments  ○ failure → fines, penalties, damage to brand Companies that operate in more than 1 country must navigate the differences in laws between countries. ○ (Transnational corporations (TNCs) are businesses that have a global reach. Examples of legislation are: WH&S, equal employment opportunities, anti-discrimination act. Public health act Political Influences (External) Government policies have a major impact on the business environment both directly and indirectly. Businesses must continually respond to changing political decision-making. The introduction of GST (2000) and Carbon price (2010) had a significant impact on the operation of the business. The process of deregulation (freeing up) and privatisation (making government businesses privately owned) has also impacted business by increasing competition. Privatisation examples: ○ CommBank, Telstra, Qantas Current political issues affecting businesses: Social Reforms - - Paid parental leave - Gender workplace diversity - requirements to have women on board of directors - Equal pay Taxation - - Goods and services tax (GST) - Company tax cuts - Tax incentives to keep jobs within a country Institutional influences There are a number of institutions which interact with the business on a regular basis, and in turn impact the day-to-day operations. Government imposes a range of regulations at each level of government. These are done to standardise practices and to protect consumers and competitors. Local Government - State government - Federal Government - - Approving - Worker composition, - Payment of taxes for development of work health and employees earning buildings safety (WHS) above the minimum - Fire regulations - Payment of payroll taxable income level. - Parking regulations tax - Size, location, and - Following legislation shape of business - (Eg). health, trade signs practices, and employment Other institutional influences: Employer Associations - represent the interest of employers and assist them in the following ways: ○ Formulating policies and provide assistance ○ Acting on behalf of employers in negotiating enterprise/collective agreement with employees/trade unions  Trade unions - their main aim is to improve working conditions and pay rates. Technological influences (External) Technological influences have allowed businesses to increase efficiency and productivity, create new products and improve the quality and range of products and services. This increases their competitive advantage over local, national, or global markets. ○ Eg. robotics has increased productivity and operating costs however reduced employment opportunities. Adopting advances in IT has enabled businesses to operate 24/7, reduced geographical boundaries, and changed workplace practices. ○ Eg. flexible workplaces. Competitive situation (External) The concentration of business within an industry or sector describes the level of competition. If a business is the sole competitor in the market it will have a monopoly. Each business aims to achieve a sustainable competitive advantage over its competitors in order to capture a large portion or share of the market. Factors that influence the competitiveness of a business: Number of competitors (market concentration - the size and number of firms within an industry) Ease of entry into a market Marketing strategies employed by competitors Local and foreign competition Monopoly - Complete concentration by 1 business in the industry. Business has the ability to decide the price of goods/services as there are no competitors Customer has no influence over the price charged. ○ Eg. Australia post, Sydney trains Oligopoly - Consists of a small number of larger businesses that dominate the market. Are able to stay in control of the market because they spend large amounts of money on advertising which allows them to restrict the entry of new competitors in the market. ○ Eg. Banks, Oil companies, car manufacturers Monopolistic Competition - Most common type of market in Australia A large number of buyers and sellers The goods and services sold are different compared to competitors using methods such as packaging, advertising, brand names, and quality ○ Eg. Clothing manufacturers, local retailing Perfect Competition - Large number of small businesses that sell products that are the same or similar. Very little advertising is used to increase market share The only way to achieve market share is through price competition ○ Eg. fruit and vegetable growers Markets/changing markets (External) A market is the setting where items are exchanged Financial products are bought and sold across borders more readily due to technology The labour market has been globalised by migration and the tendency for business to favour outsourcing of manufacturing to low-wage economy.  Consumers now have access to goods and services across the globe and have greater levels of disposable income than ever before ○ Disposable income: money that is available from an individual's salary after they pay local, state, and federal taxes Internal Influences Internal influences Internal influences relate to the specific factors within a business that affect its operation. The Business has some degree of control Product Influences (Internal) - Products, Product influences will impact the size of a business, the type of technology used and the location, type of business. resources, The main product influences on a business are: management, 1. The type of Goods and services produced. ○ If the goods are large or require many raw materials, there will need to be and business structures in place to organise and monitor the process involved in production. culture 2. The range of Goods and services (the number) produced ○ The larger the number, the more internal impacts Eg. business will need to expand operations and internal structures. Location Influence (Internal) A good location is an asset as it will lead to high levels of sales and profits A bad location is a liability that positively affects sales and profits Choosing a location near a complementary business (one that sells similar goods and services) may be important to increase customer trade Managers of a business can choose the location of the business ○ A prime location is a combination of customer convenience and visibility Factors to consider when choosing location ○ Visibility ○ Cost ○ Proximity to customers ○ Proximity to suppliers ○ Proximity to support services Resource Influences (Internal) The four main resources available to business are: 1. Human resources - are the employees of the business and are generally its most important asset. 2. Information resources - include the knowledge and data required by the business ○ Eg. market research, sales report, economic forecast, technical material, and legal advice. 3. Physical resources - include equipment, machinery, building, and raw materials 4. Financial resources - are the funds the business uses to meet its obligations to various creditors Management influence (Internal) Managers need to adapt their style to changing situations and ensure the organisation structure of the business is met Developments in technology have changed management structures (they are less centralised) and can now adapt to meet changing market conditions.  Traditional organisational structures - Traditional organisational structure has many levels of management New and emerging organisational structures - Flatter organisational structure has few/no levels of middle management - businesses can adapt quickly to changing consumer needs/market conditions and give greater responsibility to individuals in the business. Business Culture (Internal) Business (corporate) culture refers to the values, ideas, expectations, and beliefs shared by members of the organisation Business culture can be official (eg. politics) or informal (eg. behaviour, dress code) Effective business culture is where employees embrace change ○ Employees who have clear expectations develop a sense of belonging ○ A manager who understands a business culture will more likely succeed Elements of business culture - Values - the businesses basic beliefs, shared among its employees Symbols - events or objects that represent something the business believes to be important Rituals - Rites and celebrations (eg. monthly birthdays) Heroes - The businesses successful employees (eg. an employee of the month) Stakeholders Stakeholders Owners/shareholders Shareholders may include the owners of a business and the main responsibility of a business is to maximise the return of the shareholder's investment (ensure profit) in a - Owners/share sustainable way. holders, Businesses are obligated to hold annual general meetings (AGMs) at which shareholders managers, can vote on key decisions. employees, Public companies must allow shareholders to buy and sell shares and to divide surplus customers, assets in the event of a company's closure. society, environment Managers Managers must give an honest and accurate account of their management of the business. In return, businesses have to support the actions of the management through adequate resourcing levels, training, and development, clear lines of communication and delegation of authority Employees Businesses must ensure employees have a safe and rewarding work environment Employees who are encouraged become more valuable to themselves and the organisation Employees need to be treated ethically and fairly. Their legal rights must always be  honoured and respected. ○ Eg. right to privacy, recognition of efforts Businesses should provide training and promotional opportunities for employees Customers Consumers are the lifeblood of any business and therefore the business must respect and satisfy its customer's needs and wants. Legislation states that businesses must avoid misleading consumers and produce a good that is both fit for purpose and durable (accurate disclosure labelling) Better informed consumers and vigilant consumer groups like choice and ensure that most businesses avoid mistreatment and deception of customers. (ensure warranties and guarantees are honoured) Society Businesses need to obey the legislation and an increasingly conscious society expects businesses to give back to the community something in what they take out in generating profits. This may include addressing social injustices and advocating societal change. This area is often referred to as corporate social responsibility. Environment Businesses need to adopt ethically sustainable operating practices to reduce the ecological foot-print. Over the last decade the business community has undertaken many initiatives to put the principle of sustainable development into practice These initiatives include water recycling, renewable energy usage, mitigation of air and land pollution. Business growth and decline Stages of the business life cycle Stages of the business lifestyle - Establishment, Establishment growth, Occurs during the initial period in which a business is set up. maturity, post ○ High set-up cost maturity ○ Low sales due to ensure customers Profits will be low and may even be negative Businesses will rely on finance from owner's savings. Challenges include choosing the right staff, location, and government regulations. Characteristics and features - Challenges -  - Low customer awareness - Survival of the business as sales a low - Low sales - Marketing strategies need to be - Profits are low / may be a loss effective and focus on brand - Finance from banks are difficult to get awareness - Cash flow is low - Cash flow shortages - High set up cost - High production cost - Difficult finding staff - High failure rate - 33% fail in year 1 Growth This is a stage of accelerating growth - there is an increase in sales revenue and customer awareness due to developing a customer base and reputation/loyalty. The business may undertake development to improve product quality and develop new products. Due to the growth of the business it may need to seek financial management and long-term planning. The business must continue to improve its competitive edge. Characteristics and features - Challenges - - Accelerating / rapid growth - Business may not have enough - Great customer awareness experience in the new market. - Sales and profit increasing - Business may not be able to keep up - Cash flow usually positive with growth in demand - High levels of innovation - Possible labour shortages - Diversified product range - Require specialists to provide advice - Lower production cost and expertise. - Finance easier to obtain - Loyalty to the business from employees Business growth and decline factors - Internal reasons for the business decline - External reasons for the business decline - Lack of management knowledge Unexpected competition Inadequate planning Government policies Lack of finance and poor cash flow Natural disasters Poor location Mergers and Acquisitions - A merger occurs when two businesses agree to join forces and create a new entity. An acquisition (takeover) is when one business buys a controlling interest in another business. Merger ➔ when the owners of two separate businesses agree to combine their resources ➔ form a new organisation. Acquisition ➔ when one business takes control of another business ➔ by purchasing a controlling interest in it Types of Mergers and acquisitions: Horizontal integration - Occurs when a business acquires or merges with another firm that makes and sells similar products. Benefits: ○ Less competition ○ Possible economies of scale ○ Increased production size Vertical integration - Occurs when a business expands at different but related levels in the production and marketing of a product Backward vertical integration - Occurs when a business integrates with one of its suppliers Benefits: ○ Guaranteed supply ○ Control over the quality of inputs Forward vertical integration - Occurs when a business integrates with a firm it sells to Benefits: Guaranteed sales Bakery - backward vertical integration -> wheat farm supplier of wheat to make bread Bakery - Forward vertical integration -> shop which sells bread Diversification Occurs when a business acquires or merges with a business in a completely unrelated field. Benefits: ○ Can act as a safety net ○ Allows the business to take advantage of  new trends in the business environment. Maturity A business enters the maturity stage when growth in its sales begins to level out. ○ Present challenge - need to rethink to guarantee survival. Some reasons for this include: ○ Increased competition - market saturation ○ A successful product being copied ○ Low interest in the product ○ Complacency by management and staff in operations and direction. Characteristics and features - Challenges - - Growth stage has slowed down - Challenge is continued survival - High level of competition (Market - Need to control costs with a saturation) reduction in sales. - Reasonable profits are maintained - Need to ensure staff is motivated and - Managers become complacent enthusiastic - Business loses its energy and - Businesses will need to invest in enthusiasm (low staff morale) research and development. - Market shares begin to slow Post-maturity What happens in this stage depends on how the business has responded to the characteristics and challenges encountered in the growth and maturity stages. Possible outcomes in post-maturity include 1. Steady-state 2. Renewal 3. Decline Steady state The business continues to operate at the level it has been during the maturity stage ○ Sales remain at the same level as maturity The difference between maturity and steady state is that research and development is stopped The business will eventually be forced out of this state ○ Effective responses will lead the business into renewal ○ Ineffective responses will lead the business into decline Renewal A business enters renewal when it experiences increasing sales and profit. A business can enter renewal by ○ Adding new products ○ Finding new users for their product ○ Entering previously untapped markets The key to entering and remaining in renewal is meeting changing needs of customers. ○ This requires the business to undertake market research to forecast future sales Decline A business enters decline when falling sales and profits ultimately lead to business failure. Management will need to decide if ○ The business can be saved - what can they do to turn it around ○ The business is doomed to fail - what can they try to save  *the longer a business tries to ‘stagger on’ the greater the risk of failing and ceasing operations.* Key challenges ○ Difficulty obtaining money due to high risk ○ Suppliers may ask for cash payments, not credit ○ Profit decline Factors that ○ Low staff morale and staff turnover contribute to business Factors which contribute to business decline decline Ignorance of existing competition / increased competition Unfavourable economic conditions Failure to properly price products Uncontrolled growth Failure to adapt to change Lack of management skills Poor location Lack of adequate cash flow Failure to meet customer needs Failure to plan Internal reasons for business decline - - Lack of management knowledge - Inadequate planning - Lack of finance and poor cash flow - Poor location External reasons for business decline - - Unexpected competition - Government policies Voluntary - Natural disasters and involuntary Voluntary and involuntary cessation cessation - Liquidation Cessation = Ending Voluntary Cessation When the owner ceases to operate the business of their own accord. All assets of the business are sold Why? In most cases this is due to business failure - rising debts and negative cash flow In the case of a sole trader, this can be due to the owner wishing to retire, changes in lifestyle, or passing away. Involuntary Cessation - When the owner is forced to cease trading by the creditors of the business Why? - Creditors are concerned about the level of debt owed so they force the business owner to wind up the business. Different methods available to cease a business Bankruptcy A business or person may end up being declared bankrupt if they are unable to pay their debts. (sole trader, Partnership) Bankruptcy can be voluntary or involuntary eg. the business owner or the creditor applies to a court for a bankruptcy order. The court then appoints a representative to collect any money owed to the business, sells assets of the business (including personal assets of the owner), and then divides this between creditors. Realisation is the process of converting the assets of a business into cash. Liquidation Liquidation is when an independent and suitable qualified person (liquidator) is appointed to take control of the business with the intention of selling all the company's assets in an orderly and fair way in order to pay the creditors. A company in liquidation can also be in receivership ○ When a business has a receiver, take control of the affairs of a business. The main features of liquidation are: ○ Is the equivalent of bankruptcy for a company (corporation) ○ End result - company comes to an end ○ The company has become unable to pay off its own debts. 2 types of insolvent liquidation: 1. Creditors (voluntary) liquidation - - Creditors may vote for liquidation following a voluntary administration or the company’s shareholders agree to liquidate the company and appoint a liquidator 2. Court (involuntary) liquidation - The court appoints a liquidator to wind up the company after an application by a creditor/shareholder/company director ASIC. Impacts of liquidation for the stakeholders of the company Stakeholder Main problem arising from company liquidation Company Loss of position/disqualification directors Could lose personal assets to pay for the companies debts Possibility of fines and/or imprisonment Creditors May not recover all money owed Only paid partially (eg. 5¢ for every dollar owed) Employees Loss of jobs  Have the right to be paid outstanding wages Shareholder Unlikely to receive any payment Lose money Society/Economy Loss of production of liquidated companies Loss of economic confidence  Topic 2 - Business management Nature of Management Features of effective Management Features of effective Every business needs effective management to succeed management The traditional definition of management is the process of coordinating a business's resources to achieve its goals. ○ Human resources - the employees ○ Information resources - the knowledge and data required by the business eg. market research, sales reports, and legal advice. ○ Physical resources - the equipment, machinery, building, and raw materials. ○ Financial resources - the funds used to meet financial obligations A manager is someone who coordinates the business's limited resources in order to achieve specific goals Management is the process of working with and through people to achieve the goals of a business in a rapidly changing environment. An effective manager needs to be good at: - Planning - this involves the process of setting objectives and deciding on the methods to achieve them - Organising - The process of structuring the organisation to translate plans and goals into action. - Leading - The process of influencing or motivating people to work towards the business goals/objectives. - Controlling - The process of evaluating performance and taking corrective action to ensure that the set objectives are being achieved. Skills of Management Skills of Management - interpersonal, RAPIDS CVF skills, Interpersonal (People) Skills strategic Interpersonal skills are those skills needed to work and communicate with other people thinking, and understand their needs. vision, This is vital - communicating and building positive relationships with stakeholders will problem-solvi enable the business to achieve its objectives. ○ Eg a clear communicator whilst showing empathy is an inspirational influencer on ng, decision employees making, flexibility, Communication Skills adaptability Communication is the exchange of information between people through sending and receiving messages either oral or written. to change, Effective communication is essential to assist managers in meeting business goals, reconciling through detailed planning and strategies. the Non-verbal communication through body language is a powerful technique to send conflicting messages At times there can be miscommunication however managers must ensure they overcome interests of these barriers and don’t send false messages. stakeholders Strategic thinking skills Strategic thinking involves thinking about a business as a whole by taking on board the  long-term goals of a business to visualise the bigger picture. Managers will then: ○ View how stakeholders interrelate eg. work with teams and individuals. ○ Understand the effect of actions on the business ○ Gain insights ○ Contextualise the business through trends ○ Identify opportunities and threats Vision Skills Vision is the clear, shared sense of direction that allows people to attain a common goal. Having to develop a vision for the business is important to constantly adapt to change and ensure a sense of cooperation, to ensure the business does not fail. To share their vision, managers need to display leadership qualities Problem-solving skills Problem-solving is a broad set of activities involved in searching for, identifying, and implementing a course of action to correct an unworkable situation. The process follows ○ Identifying the problem and causes ○ Gather relevant information ○ Develop alternative situations ○ Analyse the alternatives ○ Choose an alternative and implement it ○ Evaluate the solution Decision-Making skills Decision-making is the process of identifying the options available and then choosing a specific course of action to solve the problem. This should be completed in specific time frames and requires adequately assessed risks that may be involved in the decision implementation Effective decision-making should involve employee input. Flexibility Being flexible refers to being responsible to change and being able to adjust to changing circumstances Managers are to ensure that they remain in practice and incorporate dynamic actions to plan to achieve particular objectives. Adapting to change Change is the act or process in which something transforms or becomes different Successful managers are those who anticipate and adjust to changing circumstances. Reconciling the conflicting interest of stakeholders This means that managers need to interact with all stakeholders of a business and have a vested interest in ensuring all parties are included in business objectives. Business managers recognise that they increase their chance of success if they pursue goals that align with the interest of stakeholders.  Achieving business Goals Achieving business A goal is a desired outcome or target goals Why are goals important for managers 1. Serving as targets - Managers set goals 2. Measuring sticks - some goals act as benchmarks 3. Motivation - good quality goals present a challenge 4. Commitment - participation by employees is vital Profits - Profits, A financial goal for a business is to maximise profits market share, Profit is what is left after the cost of producing and supplying the product (expenses) growth, share which have been deducted from the sales (revenue) price, social Profit = total revenue - total costs goals, and the Businesses aim for profit maximisation - the maximum difference between total revenue environment and total costs How can this be achieved ○ Increase sales - may need to lower price to increase sales ○ This is a long term goal for a business Market share Market share refers to the business share of the total industry sales for a particular product. An increase in market share suggests the business is doing well An increase in the market share for the business is important for a business to dominate the market. (promotional strategies) ○ This can be done through advertising Growth Growth refers to the ability of a business to increase its size in the long term Growth of a business can be achieved by: ○ Increasing physical size of a business ○ Employing more people ○ Increasing sales and profits ○ Purchasing new equipment ○ Establishing more outlets in Australia and overseas. Share price A share is part ownership of public company - shareholders are the real owners Companies that wish to be successful need to maximise the returns of their shareholders Social goals  Many businesses develop social goals and adopt strategies that will better the community Some main social goals are: ○ Community service - sponsorship, promotion and programs ○ Provision of employment - employ family members who may be unemployed ○ Social justice - adopting policies to ensure employees and community members are treated equally and fairly. Environmental goals Businesses becoming more environmentally aware by adopting practices such as ‘recycle, renew, regenerate’ (products are environmentally friendly) Practices of sustainable development (balance between economic growth and environment Many businesses are developing environmental goals due to an increase in environmental issues by society and greater regulations by government Achieving a mix of business goals - Achieving a mix of Managers need to have a mix of goals as there are different stakeholders of a business. business Business goals are interdependent (require to work together) to help the business goals achieve its prime function Some goals are compatible - certain strategies may assist in achieving multiple goals At times when the goals of a business may be in conflict, the business may need to compromise its goals. Staff Involvement - Staff Vital to provide a work environment that maximises employee involvement and involvement - satisfaction → results in high levels of labour productivity Innovation, Staff involvement provides 2 advantages: increased employee motivation and solutions motivation, to organisational problems. mentoring Staff involvement will only be fully successful if a business provides employees with the and training necessary expertise as well as recognising the importance of: 1. Innovation Innovation occurs when a new idea is applied to improving an existing product or idea Businesses can gain a competitive advantage if they innovate successfully Encourages staff creativity through brainstorming and asking for solutions Reward employees with innovative ideas Staff must be given the opportunity to be innovative → to achieve this a business should demonstrate that it values new ideas + solutions and by taking them seriously 2. Motivation Higher motivation = higher productivity - Low motivation = low productivity Motivation through rewards ○ Pay rise ○ Bonuses ○ Extra holidays Motivation through reward (pay) or motivation through punishment (Fired) Good managers should be good motivators The overall success of the business largely depends on motivated and skilled employees who are committed to its goals 3. Mentoring  Mentoring programs encourage staff involvement More experienced staff can offer advice and guidance to co-workers as an act of support, also resulting in skill transfers and gained expertise Individuals understand what is expected of them. (values and beliefs of the workplace) Helps socialisation Process of developing another individual by offering tutoring, coaching, and modelling good behaviour → Results in employees being better equipped for their role 4. Training On-the-job training, seminars, and re-training when using technology Training improves productivity and skills → higher staff efficiency Training can also be looked at as an investment opportunity Higher training allows for staff to be able to adapt to a rapidly changing technological environment May involve teaching new employees specific skills, allowing existing employees to upgrade their skills with the aim of developing multi-skilled employees. Management approaches Classical approach / Scientific Classical approach The Classical approach stresses how best to manage and organise workers so as to improve productivity (output). - Management Management as planning, organising, and controlling as planning, organising, 1. Management as planning - Planning is the function of determining the business objectives and the strategies required to achieve its objectives. and Old fashion school - staff meeting, strategic plans - for new building controlling Levels of planning: a. Strategic planning: (long-term) is for 3-5 years. b. Tactical planning (medium-term) is flexible (1-2 years). c. Operational planning (short-term). Addresses the day-to-day operations 2. Management as organising - Organising is the process of arranging the resources of the business to achieve its goals. Eg. organising a workplace in such a way to maximise productivity and efficiency.Old Fashion school - controls structure - strict hierarchical structure 1. Determining the work activities = work activities broken down into smaller steps 2. Classifying and grouping activities = similar activities can be grouped together 3. Assigning work and delegating authority = who will carry out the work 3. Management as controlling - controlling is the process of evaluating and modifying tasks to ensure that they set goals are being achieved. For example changing production procedures if goals are not being achieved. - Hierarchical Establish standards - Measure performance - take corrective action organisational structure Hierarchical organisational structure Increasing authority at higher levels of hierarchy Several levels of management - each with separate roles and responsibilities Specialisation of labour - tasks being divided into separate jobs  A chain of command which clearly shown whose responsible to whom Many levels of management determined by top levels - Autocratic leadership Autocratic leadership style style Managers use a high degree of direction with little participation in decision making by employees. - Expect employees to follow orders Manager makes all decisions and dictates work Advantages Disadvantages - Shorter time to make decisions - Repetitive tasks can lead to - Improved efficiency boredom/disinterest - Increased productivity - Low staff morale ➜ Low creativity ➜ - Clear chain of command reduced profit - Less adaptable to changing conditions Behavioural approach Behavioural approach The behavioural approach focuses on people (employees) which should be the main focus of the way the business is organised. Managers need to meet the social needs of their employees - Management as leading, Management as leading, motivating and communicating motivating and 1. Management as leading - Leading occurs when managers influence or motivate people in the communicati business to work towards achieving the business objectives. ng A good leader is someone who ○ Conveys work goals and motivates workers ○ Empowers workers ○ Demonstrates flexibility in dealing with situations ○ Has confidence in workers 2. Management as motivating - Motivated workers will always perform at higher levels than unmotivated workers. Some motivating factors are: ○ Ensuring fair/reasonable play ○ Providing training ○ Safe work environment 3. Management as communicating - Effective communicating is open communication - ensuring an exchange of information Providing employees with information regarding the business’s goals, plans and overall financial results. ○ Eg. detailed plans and strategies - Teams Teams (Flat organisational structure) Team work involves people interacting regularly and coordinating their work towards a common goal. Managers need to ensure cohesion and unity between team members A team approach removes the hierarchical organisational structure - individuals have greater responsibilities Managers are now facilitators - they need to balance the needs of the team with those of  the business Managers need to develop a sense of trust, building a common goal - Participative/ democratic Participative/democratic leadership style leadership This leadership style is where the manager consults with employees to ask their style suggestions and then seriously consider those suggestions when making a decision Shared decision making / employees have an input Advantages Disadvantages - Increased employee empowerment - Lack of control - Worker recognition - Decreased employee behaviour - Improved relationship between staff and manager Contingency approach Contingency approach - Adapting to Adapting to changing circumstances changing Flexibility and adaptation for ideas circumstances Organisational structure depends on business requirements (flat for pyramid) Levels of management depend of requirements Management style depends on business needs/requirements Management processes Coordinating key business functions and resources Coordinating key business The four key business functions are: functions and Operations - strategies to improve the production process. This involves sourcing supplies and processing them to create outputs. Eg. manufacturing, customer service resources ○ Activities to make a profit Marketing - Determining the appropriate markets for the business’s products, and ensuring pricing, product features, promotion channels of distribution. ○ Activities to make consumers want/buy a product Finance - involves the financial requirements of the business eg. Budgets ○ Activities involved in organising the businesses money, making sure it’s used effectively Human resources - involves managing the labour resources of the business. Eg. recruitment of staff, training, employment and separation contracts. ○ Activities involved with hiring and staff wellbeing Although the 4 key business functions perform different roles, they interact with each other to meet objectives. Eg. the operations function requires ○ Human resources to provide/hire labour ○ Finance to provide funds ○ Marketing to ensure the product being manufactured will sell Interdependence: the mutual dependence that the four functions have on each other If one of the functions makes a decision than all are affected Managers are responsible for coordinating the key business functions depending on the  size of the business, managers may need to outsource one or some of the functions to ensure adequate skill level Interdependence of the business functions supports the main goals/objectives of the business - it is a unified approach Operations Operations Operations refers to the business processes that involve transformation - this means transforming inputs into outputs (production) Operations management has a considerable influence on the quality, cost and availability of a business goods or services. This will directly impact whether the business will achieve its main goals - Goods and/or Goods and/or services services A manufacturer will transform inputs into goods - tangible products Tangible products are physical products that can be handled and stored before being sold to consumers A service organisation will transform inputs into services - intangible, cannot be touched Many businesses produce a combination of both manufactured goods and service The production process - The production Input → transformation process → output process Inputs = the resources used in the transformation (production) process ○ Inputs may be divided into those that are transformed and those that are transforming Processes = the conversion of inputs (resources) into outputs (goods or services) ○ Transformed resources = those inputs that are changed or converted in the operations process. (Eg. materials, information, customers) ○ Transforming resources = those inputs that carry out the transformation process (Eg. human resources, facilities (plant/factory/office)) Outputs = the service or good that is delivered or provided to the customer ○ Management must ensure that the output meets the demand of the customer. Need to consider quality, efficiency and flexibility in the planning process. - Quality Quality management management Quality is the degree of excellence of goods or services and their fitness for a stated purpose Quality management refers to the strategy which a business uses to make sure that it’s product meets customer expectations Advantages Disadvantages - A reduced difference in final output - Resistance to change by employees - Increased productivity and cost - Initial increased costs with - Reduced waste and defects in the setup/maintenance product - Reduced cost in production - Improved reputation and customer satisfaction 1. Quality control  Quality control involves the use of inspections at various points in the production process to check for problems and defects Advantages: ○ Reduces problems and defects - better products for customers ○ Products meet standards/benchmarks - customers are satisfied ○ Finds defects and corrects them whilst making product ○ Increased competitiveness of business Eg. lab technicians at coca cola spot checking products to find defects before the product is sold to customers. 2. Quality Assurance Involves the putting in place procedures and processes to prevent faults and ensure that set standards are achieved in production (prevent defects) Businesses seek to achieve quality certificates from standards Australia or ISO to meet international standards ○ This enables the business a competitive advantage Meeting standards ensures to the customer that the product is safe and reliable ○ This is a productive approach/preventative technique used Eg. Coca-cola production maintenance employees will test all machinery in the morning to ensure it is working well by meeting all standard requirements and correcting any malfunctions. 3. Quality improvement Total quality improvement/total quality management is an ongoing, business-wide commitment to excellence that is applied to every aspect of the business. ○ (it is a holistic approach) The aim of TQM is to create a defect-free production process and maintain customer focus in operations To achieve TQM objectives a range of approaches can be used, including: ○ Employee empowerment ○ Continuous improvement ○ Customer focus JIT (Just in time) - inputs are only ordered when they are needed Marketing Marketing Marketing: Activities to make consumers want and buy a product Marketing is a total system of interacting activities designed to plan, price, promote and distribute products to present and potential customers. Marketing is vital to the existence of the business, because, without some form, customers may not be aware of a product's existence. All businesses need to determine their marketing objectives. These are measurable goals, to be achieved through the marketing plan. There are four general marketing objectives that a business can adopt: Increasing market share Increase product range - Identification Maximising customer service Expand into new geographical markets of target market Identification of target market A target market is a group of customers with similar characteristics who presently, or in the future purchase the product Identifying the target market is critical in determining the prime function of a business  ○ Eg. age, group, sex, income, lifestyle Variables used to segment markets: Demographic - population - Eg. age, gender, income Geographic - Location - Eg. city, country Psychographic - Customer interests - lifestyle, personality, values, interests Behavioural - knowledge of product - Eg. loyalty to product Businesses must choose which approach to adopt to target their market: ○ Mass market approach - targets everyone - Eg. McDonalds, google Requires a large range of customers Individuals in target market need to have similar needs Mass-distributes and mass-promotes one product to all buyers ○ Market segmentation approach - Divided into groups based on common characteristics - Eg. location, age The total market is subdivided into groups of people who share one or