BUSINESS STUDIES

Year 12
TABLE OF CONTENTS
TABLE OF CONTENTS 1

OPERATIONS 5

ROLE OF OPERATIONS MANAGEMENT 5

STRATEGIC ROLE OF OPERATIONS MANAGEMENT 5
GOODS AND/OR SERVICES IN DIFFERENT INDUSTRIES 5
INFLUENCES ON OPERATIONS 6
GLOBALISATION 6
TECHNOLOGY 7
QUALITY EXPECTATIONS 8
COST-BASED COMPETITION 8
GOVERNMENT POLILICES 8
LEGAL REGULATIONS 8
ENVIRONMENTAL SUSTAINABILITY 8
CORPORATE SOCIAL RESPONSIBILITY 9
OPERATIONS PROCESS 10
INPUTS 10
TRANSFORMATION PROCESSES 11
OUTPUTS 13
OPERATION STRATEGIES 14
PERFORMANCE OBJECTIVES 14
DESIGN AND DEVELOPMENT 14
SUPPLY CHAIN MANAGEMENT 15
OUTSOURCING 16
TECHNOLOGY 16
QUALITY MANAGEMENT 16
INVENTORY MANAGEMENT 17
OVERCOMING RESISTANCE TO CHANGE 18
GLOBAL FACTORS 19

MARKETING 20

ROLE OF MARKETING 20
STRATEGIC ROLE OF MARKETING GOODS AND SERVICES 20
PRODUCTION, SELLING, MARKETING APPROACHES 20
TYPES OF MARKETS 22
INFLUENCES ON MARKETING 23
FACTORS INFLUENCING CUSTOMER CHOICE 23
CONSUMER LAWS 23
ETHICAL ASPECTS OF MARKETING 24

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MARKETING PROCESS – DEVELOPING A MARKETING PLAN 25
SITUATIONAL ANALYSISX 25
MARKET RESEARCH 26
ESTABLISHING MARKET OBJECTIVES 26
IDENTIFYING TARGET MARKETS 27
DEVELOPING MARKETING STRATEGIES 27
IMPLEMENTATION, MONITORING AND CONTROLLING 27
MARKETING STRATEGIES 28
MARKETING SEGMENTATION 28
GOODS/SERVICE DIFFERENTIATION AND POSITION 28
PRODUCTS 28
PRICE 29
PROMOTION 30
PLACE/DISTRIBUTION 31
PEOPLE, PROCESSING AND PHYSICAL EVIDENCE (ADDITIONAL P’S TO MARKETING MIX) 32
E-MARKETING 32
GLOBAL MARKETING 33

FINANCE 34

ROLE OF FINANCIAL MANAGEMENT 34

STRATEGIC ROLE OF FINANCIAL MANAGEMENT 34
OBJECTIVES OF FINANCIAL MANAGEMENT 34
INFLUENCES ON FINANCIAL MANAGEMENT 36
INTERNAL SOURCES OF FINANCE 36
EXTERNAL SOURCES OF FINANCE 36
FINANCIAL INSTITUITIONS 39
INFLUENCE ON GOVERNMENT 40
GLOBAL MARKET INFLUENCES 40
PROCESSES OF FINANCIAL MANAGEMENT 41
PLANNING AND IMPLEMENTING 41
MONITORING AND CONTROLLING 43
FINANCIAL RATIOS 44
LIMITATIONS OF FINANCIAL REPORTS 46
ETHICAL ISSUES RELATED TO FINANCIAL REPORTS 46
FINANCIAL MANAGEMENT STRATEGIES 47
CASH FLOW MANAGEMENT 47
WORKING CAPITAL (LIQUIDITY) MANAGEMENT 48
PROFITABILITY MANAGEMENT 50
GLOBAL FINANCIAL MANAGEMENT 51

HUMAN RESOURCES 53

ROLE OF HUMAN RESOURCE MANAGEMENT 53

STRATEGIC ROLE OF HRM 53
OUTSOURCING 53
KEY INFLUENCES 54
STAKEHOLDERS 54

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 LEGAL – THE CURRENT LEGAL FRAMEWORK 55
SOCIAL 58
ECONOMIC 58
TECHNOLOGICAL 58
ETHICS AND CORPORATE SOCIAL RESPONSIBILITY 59
HUMAN RESOURCES PROCESSES 60
ACQUISITION 60
DEVELOPMENT 61
MAINTENANCE 61
SEPERATION 62
HUMAN RESOURCE STRATEGIES 63
LEADERSHIP STYLE 63
JOB DESIGN 63
RECRUITMENT 64
TRAINING AND DEVELOPMENT 64
PERFORMANCE MANAGEMENT 65
REWARDS 66
GLOBAL 66
WORKPLACE DISPUTES 67
EFFECTIVENESS OF HUMAN RESOURCE MANAGEMENT 68

INTERDEPENDENCE 69

INTERDEPENDENCE WITH OTHER KEY BUSINESS FUNCTIONS 69

OPERATIONS AND HUMAN RESOURCES 69
OPERATIONS AND MARKETING 69
OPERATIONS AND FINANCE 69
HUMAN RESOURCES AND MARKETING 70
HUMAN RESOURCES AND FINANCE 70
FINANCE AND MARKETING 70

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OPERATIONS
ROLE OF OPERATIONS MANAGEMENT

 Operations: the creation of goods and the provision of services by a business

 The transformation of inputs into outputs.

STRATEGIC ROLE OF OPERATIONS MANAGEMENT

 Strategic decisions: those that affect the business in the long term
o Gaining a long term competitive advantage over competitors by improving productivity,
efficiency and quality of outputs

COST LEADERSHIP

 Business aims to be have the lowest manufacturing costs in the business

o Economies of scale
 Increase size of operations = reduce in average cost of making each item
o Using cheaper inputs
o Maximising efficiency, by minimising waste
o Implementing better technology = increased productivity
o Outsourcing product components

DIFFERENTIATION

 Business aims to create unique outputs in industry

o Better quality products
o Custom designed outputs (more variety to suit different specific needs)
 Incurs higher cost in production
o More features, application and versatility
o Clever design
 Products can demand a higher price in the market if successful
o Yet consumers may switch when competitors imitate leader’s innovation

GOODS AND/OR SERVICES IN DIFFERENT INDUSTRIES

Goods Services
Physical, tangible Intangible
Labour intensive
Capital intensive
People-focused
Measurable Hard to measure
Difficult to modify Easy to modify

 Sectors of the economy:

o Primary (extracting): Provision of raw materials e.g. mining, fishing
o Secondary: Use inputs to change the shape of product e.g. dishwashers
o Tertiary: Provision of a service e.g. transportation, logistics
o Quaternary: Provision of intellectual activities e.g. teachers, government
 INFLUENCES ON OPERATIONS

GLOBALISATION

 The integration and interdependence of different countries and their economies

o Gives consumers the opportunities to purchase products from a wider market
o Leads to the development of a worldwide economy

GLOBAL BUSINESS

 A business that has integrated with economies of a number of different countries

o Leads to: Increasing flow of goods, services, people, finance, information around the world.
 May offer the business tax incentives
 TNC’s gain benefits from global web of operations:
o Exploits the competitive advantage that each country has to offer:
 Manufacturing: where inputs and labour are cheap (e.g. developing countries)
 Raw Materials: from where they are abundant
 Finance: controlled from headquarters in one of the World Finance centres - Wall St
 Distribution: To consumers in developed nations

DIFFERENT CURRENCIES

 A depreciation of the AUD against the currency of the country inputs are being sourced from will lead
to rising costs
 Hedging: is used to avoid the risk of fluctuations in the value of currency.
o Businesses sign derivatives (a purchase contract) at the current rate of currency.
o Businesses avoid transaction exposure by transacting between subsidiaries in the same
currency
 Transaction Exposure is the risk that comes with fluctuations in currency
 Subsidiary is a business that is owned by the global corporation that supplies inputs
 Derivatives are special contracts used between global businesses.

TRADE AGREEMENTS

 Treaties made to reduce globalisation barriers between economies and promote economic
integration
o Bilateral Agreement: between two (2) countries
o Multilateral Agreement: between more than two (2) countries
 When a business is a part of a Trading Bloc, corporations gain reductions in trading restriction
o The North American Free Trade
o South East Trade
 TECHNOLOGY

 The development of new methods of production/equipment

 Businesses may gain access to tech through joint venture strategic alliances
o Different Cultures
 Use of local experts (resolve culture and communication clashes)
 Advantages
o More efficient  reducing waste
o Save time
o Increase productivity
o Lower cost
o Increase quality
 Factors that could affect decision to use tech
o High initial cost
o Speed of change
o Redundancy in staffing
o Need to acquire new staff with appropriate IT skills

ROBOTICS

 The development of programmable/automatable machines w/ sensors to detect changes in

environment
o Complicated or Repetitive Tasks
o Dangerous or Hazardous Work
 Benefits
o Increased efficiency
o No boredom of repetitive work – no HR
o No wages to be paid
 Limits
o Power source
o Mechanical failure/repair
 Have become desirable due to their cost-effective working conditions

CAD
 Computer aided design allows architects/engineers to design more efficiently on computers
o More effective visual representation, alterations can be made easily. Steps involved:
1. Receive info from clients
2. Make comments
3. Make alterations

CAM
 Computer aided manufacture uses electronic data to manufacture/produce products
o Ensures less error involved
o Fewer mistake
 QUALITY EXPECTATIONS

 Customers relate price to quality, and often have certain expectations of:
o Durability
o Reliability
o Fit for purpose
 Marketing relies on operations to fulfil consumer expectations promoted
o Brand name affecting consumer choice

COST-BASED COMPETITION

 Business are influenced by competitors to decreases prices

o Here, the operations unit is influenced to decrease costs so they can lower prices and
maintain the profit margin
o Achieved through a cost-leadership strategy

GOVERNMENT POLILICES

 AUSTRADE: supports Aus. businesses that are innovative in operations and able to develop products
to be exported.
 AUSFTA: trade policy to promote trade relationships

LEGAL REGULATIONS

 Legal obligation of operation managers to be aware of laws and ensure business complies with them
 Legal regulations are put in place to promote safe and fair conduct of businesses
o Trade practices
o WHS

ENVIRONMENTAL SUSTAINABILITY

 Limit the negative impact business operations has on the environment

 Stakeholders pressure businesses to incorporate sustainable resource use:
o Protect resources from depletion
o Ensure that operation processes are sustainable
o Store/remove waste appropriately
 CORPORATE SOCIAL RESPONSIBILITY

 CSR is the duty of care a business has towards its stakeholders

o Extension of the triple bottom line concept – financial, social and environmental evaluation
o Such steps can often have a great influence on operations not only socially and
environmentally, but also economically in the sense that by promoting itself as a socially
responsible corporation, the business can indirectly increase brand awareness and sales.

ETHICAL RESPONSIBILITY: AN EXTENSION TO LEGAL COMPLAIANCE

 Legal compliance refers to developing operations processes and strategies to obey the law
 CSR can be measured by a business’ degree of ethical responsibility
o Making decisions that are not only legally correct, but also morally right
o Businesses should aim to make decisions which extend beyond the law, and reflect the
intention and “spirit” of the law  portray the business as a good corporate citizen
 Following international labour standards that come from the International Labour Organization (ILO)
o Devoted to promoting rights at work and encouraging equal employment opportunities
 Code of conduct: voluntary set of guidelines of the behaviour of a business to benefit stakeholders
o Producing value-for-money quality products
o Improve customer service

ENVIRONMENTAL SUSTAINABILITY AND SOCIAL RESPONSIBILITY

 CSR can be easily assessed by how environmentally sustainable a business is

o Business should not endanger the environment for means of economic growth
o Requires business to evaluate the full environmental effects of their operations
 CSR is also measured by how socially responsible a business can conduct itself
o Trying to improve the quality of life of all stakeholders
o By demonstrating social responsibility, a business demonstrates that it values its social and
environmental responsibilities even greater than their financial objectives
 Furthermore, this can in turn increase sales and brand awareness for a business
 Environmental sustainability and social responsibility can be achieved by:
o Minimize negative impact on environmental – adopting greenhouse measures
o Adopting policies of conservation of waste, recycling and restoration
o Comparing and tracking social responsibility through Aus. SAM Sustainability Index
 Determines ecological sustainability and social responsibility of Aus. Businesses
o Comparing and tracking environmental sustainability through Reputex
 Measures how a business incorporates clean technology/manages Carbon emissions
 OPERATIONS PROCESS

 Operations processes: the activities involved in the transformation of inputs into outputs
 Value adding analysis: allows managers to closely examine transformation stages and determine how
much value each stage adds.
 ‘Top down’ approach: operations sector interprets and aims to play its role in businesses objectives
 Systems management approach: focuses on integrating operations with other business sectors

INPUTS

TRANSFORMED RESOURCES

 Inputs that are changed and converted into something else as:
o an input for other businesses (component)
o finished good or service

RAW MATERIALS

 Supplies used up in operations are transformed throughout the TP to form a product

o They are usually current assets (not kept for > 12 months)

INFORMATION

 Information can be a transformed resource since operations may transform the information
o E.g. Market research takes data from a client and transforms it for them to understand
 Information is also processed as an input when it is stored
o E.g. Archives and libraries which are paid to store data.

CUSTOMERS

 Customers are a transformed resource when the operations process may be changing their location,
physiological or psychological state.
o E.g. hospitals and surgeons transform a customer’s physiological state
o E.g. airlines and bus companies transform a customer’s location
o E.g. theme parks and cinemas transform a customer’s psychological state

TRANSFORMING RESOURCES

 Resources that remain in the business and are applied to the inputs to change them/add value

HUMAN RESOURCES

 Mental and physical labour who apply knowledge, skills and effort into inputs

FACILITIES

 Buildings, land, equipment and tech etc.

o Non-current assets (kept for > 12 months)
 TRANSFORMATION PROCESSES

 Activities which determine value addition

 Production method
Job Batch Flow
o Job
 Produced individually
 Unique customisation
o Batch
 Produced in bundles
 Flexible production
o Flow:
 Continuous production
 Low variation of product

INFLUENCE OF THE 4 V’S

VARIETY

 The variety of different models offered in the product

o High variety usually results in batch or job production

VOLUME

 The number of products/services produced by the operation

o High volume (mass production) usually results in a more standardised product

VARIATION IN DEMAND

 Variation in demand can change according to time e.g. seasonal products

o Operations needs to be flexible to increase/decrease output

VISIBLILTY

 The degree to which customers can see the operations in action

o High level = service based e.g. restaurant
o Low level = manufacturing e.g. beef producer
 SEQUENCING AND SCHEDULING

 Tools used to identify all steps in the operations process and organise them into the most efficient
order to complete

GANTT CHARTS (SCHEDULING)

 Scheduling: is a term used to indicate a detailed timetable of what work needs to be done
 Records the number of tasks in the project
 Records the time needed for each project
 Allows the business to compare planned
progress with actual progress
 Does not show interdependence of tasks

CRITICAL PATH ANALYSIS (SEQUENCING)

 Sequencing: the planning of activity that decided on the order in which the work is to be performed
 Shows the interrelationship of tasks
 Critical path time: shortest time for project to complete
o Longest path taken reflects the longest process which must
complete to finish project

TECHNOLOGY, TASK DESIGN AND PROCESS LAYOUT

TECHNOLOGY

 Can lead to sustainable competitive advantage

 Process technologies are the improvements in the tech components used in operations
 Product technology is the innovation in the product themselves
 Flexible manufacturing systems (FMS): use tech to perform multiple tasks at once

TASK DESIGN

 Task analysis is the breakdown of all the tasks in the entire transformation process
 Task design then determines how the task will be performed
o Allows ongoing analysis of each step, ensuring improvement in productivity

PROCESS LAYOUT

 Process layout: where all operations activities are arranged by what they do.
o Generally used in service and human intensive industries
 Product layout: where machinery is arranged in sequential order of production – assembly line
 Facilities layout planning: the physical layout of the business’ factory/office
 MONITORING, CONTROL AND IMPROVEMENT

 Monitoring: involves collecting information about the performance of the operations process
o Aims to ensure operations process are running efficiently and effectively
 Control: involves adjusting operations process to keep observed performances as close to intended
 Improving: analysing and determining what can be changed to improve the operations process

OUTPUTS

 The purpose of the operations process is to produce an output that has a value to the
customer, greater than the cost of the inputs

CUSTOMER SERVICE

 Intangible output that requires human contact

 Can increase consumer satisfaction
o Contributes to the competitive advantage
 Maintains 80/20 relationship
o 80% of revenue comes from 20% of the customer base

WARRANTIES

 An assurance that a business stands by the quality claims of their product

 Retailers must comply with warranty by repairing or replacing the product
 Under the Fair Trading Act 1987 and Competition and Consumer Act 2010 products must:
o Have a level of quality comparable to price and product description
o Suitable for the purpose they are used for
o Match the product description
o Free from defects or faults
 OPERATION STRATEGIES

 The activities and specific decisions about how the business produces goods/supplies services.

PERFORMANCE OBJECTIVES

 Key area of focus for operations

o Product differentiation strategy through performance objectives
 How to remember? FCC-QSD

FLEXIBILITY

 Ability to deal with market changes and variation in demand

CUSTOMISATION

 Reproducing products to match customers desire

COST
 Keeping costs as low as possible
o Fixed: do not change as output changes
o Semi-fixed: parts are fixed and parts are variable
o Variable: change as output changes
o Direct: directly related to production
o Indirect (overheads): indirectly related to outputs e.g. salaries of admin staff
 Break-even point: determines the amount of sales necessary to begin making a profit
o By reducing costs, breakeven point is reduced and more profit is made at lower output levels
𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑒𝑥𝑝𝑒𝑛𝑠𝑒
 Operating expense ratio: the cost incurred per $1 of sale = × 100
𝑠𝑎𝑙𝑒𝑠
𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡𝑠
 Average costs: the cost incurred per unit produced =
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡𝑠

QUALITY

 Quality must be high

 Durability, reliability, aesthetics, features, fit for purpose

SPEED
𝑜𝑢𝑡𝑝𝑢𝑡
 Speed is related to productivity ( 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝑜𝑓 𝑡𝑖𝑚𝑒)
𝑖𝑛𝑝𝑢𝑡
o Increased by tech (CAD, CAM or robotics)
o Production line will move as fast as its slowest machine
 Risk of increasing speed
o Quality may suffer

DEPENDABILITY

 Reliability of the product

 DESIGN AND DEVELOPMENT

 New products = competitive advantage

o Lengthy/expensive process
o Risky since not all products end up being produced
 Design includes: activities such as identifying an opportunity, screening the ideas and basic costing.
 Development includes: building a prototype, testing a sample market, making technical changes, trial
runs, business feasibility study.

SUPPLY CHAIN MANAGEMENT

 The stream of processes from receiving an initial order and distributing the product to a customer
o Includes all businesses that are linked to the supply of the product to the consumer
o Outsourcing of the management of supply chain has become more popular
 Lead time: the time it takes for a supplier to provide the consumer with the product ordered
o Shorter lead times lead to more flexible purchasing

LOGISTICS

 The transport of physical inputs, outputs and resources through the supply chain
 Goal is to achieve an efficient steady flow of materials
o Correct and timely info is crucial
o Strategies to save time/control the flow of materials
o Increased complexity of supplying business with materials due to globalisation
 Transport logistics: the organisation of the physical movements of products from their point of origin
to their destination.

E-COMMERCE

 The use of internet to both buy and sell products

o Has increased B2B and B2C interaction
o Part of E-business: the use of internet to carry out business functions
 E-tailing: businesses that only use virtual stores to sell products through a website
 Electronic data interchange (EDI): use of tech (barcodes, scanners etc.) to monitor stock

GLOBAL SOURCING

 Where a business seeks to find the most cost-efficient location for manufacturing
o Includes tax incentives to encourage globalisation
o Exploit cost advantages offered by cheaper inputs
 Businesses may decide to vertically integrate: take over a business that can supply inputs
o Ensures a secure supply of resources and inputs
 OUTSOURCING

 Outsourcing involves the transfer of part of (or all) a business function to an external 3 rd-party business
Advantages Disadvantages
 Access to specialist knowledge and expertise  Breakdowns in external client will affect
and better equipment/technology operations
 Increased speed and quality of outputs  Loss of control over quality and reliability
 Free up resources to be used in the core  Slower lead time/response to market
function of the business changes

TECHNOLOGY

 The equipment and knowledge that are available to help business perform functions or produce
o Bleeding edge: so advanced there is a high risk/uncertainty of customer use
o Leading edge: (cutting edge) will give the company a competitive advantage
o Established: tried and proven = reliable

QUALITY MANAGEMENT

 Ensuring that the outputs of a business are consistent, durable and reliable
o Allows business can gain competitive advantage
 Government Legislation:
o Competition and Consumer Act 2010
o Fair Trading Act 1987

QUALITY CONTROL

 Involves checking transformed and transforming resources in all stages of operations:

o Feed forward: the use of careful planning before product, to prevent any problems occurring
o Concurrent: used during manufacturing process – real time control
o Feedback: after production or delivery of the service
 Establishing evaluation procedures and setting standards

QUALITY ASSURANCE

 Establishing and using a set of procedures (standards) to prevent product defects from occurring
o ISO (service-based industry) are examples of certificates
 Quality Circles: a group of employees from diff sectors to discuss issues arising in the workplace
 Code of Practice: the min. level of service registered members of a profession are expected to provide
o Set up by professional associations e.g. the Institute of Chartered Accountants.

QUALITY IMPROVEMENT

 TQM approach relies on continuous improvement in all areas, not just operations
 Zero defects = brand loyalty = market reputation = competitive advantage gained
 Quality circles to present findings and pressure management
 Benchmarking (average industry performance): business can compare themselves with industry
 World’s Best Practice: firms can compare performance to high productivity standards world wide
 INVENTORY MANAGEMENT

 Inventory management: the management of inventory in the business to maximise effeciency

o To have enough stock available as it is needed, but not too much
o To identify stock that is not selling well
 Monitoring:
o To identify and sell off slow—moving or close-to-obsolescent stock
o To avoid accumulating dead stock (used by dates, damaged stock etc.)
 Inventory: the raw materials and inputs that are used in the production process
 Stock: the businesses transformed resources

HOLDING STOCK

 The stock a business holds as a reserve to cover in case of interruptions or unexpected demand

Advantages Disadvantages
 Stock is ready to use  Capital intensive (dead cash)
 No delays, quick lead time  Cost of holding stock – warehousing etc.
 Planned purchases  Accumulating obsolescent (dead) stock
 No need to rely on suppliers

LIFO (LAST-IN-FIRST-OUT)

 The stock purchased most recently is sold first (Last stock delivered is the first used and sent out)
o Used for goods that have no use-by-date
 Income Statement: COGS is higher = lower profit = less tax
 Balance Statement: stock= older value, therefore is lower than actual cost

FIFO (FIRST-IN-FIRST-OUT)

 The stock ordered first, will be sold first

o Used for perishable goods
 Income Statement: COGS is lower = higher profit = higher tax 
 Balance Statement: Closing stock is higher, therefore current assets is higher

JIT (JUST-IN-TIME)

 Holding minimal stock and only ordering as required

o Improves liquidity and efficiency of operations process
o Lower storage costs and less chance of obsolescent stock
o More flexibility to respond to changes in market
 OVERCOMING RESISTANCE TO CHANGE

 Force-field Analysis: change occurs when

𝑑𝑟𝑖𝑣𝑖𝑛𝑔 𝑓𝑜𝑟𝑐𝑒𝑠 > 𝑟𝑒𝑠𝑡𝑟𝑎𝑖𝑛𝑖𝑛𝑔 𝑓𝑜𝑟𝑐𝑒𝑠
 Driving forces: the push for the need for change
 Restraining forces: those that hold back from change

PURCHASING NEW EQUIPMENT

 Long term reductions in costs

 Decreased time delays
 Faster decision making

REDUNDANCY PAYMENTS

 When an employee is made redundant, businesses are legally obliged to pay redundancy payments.

RETRAINING

 May take extended period of time to re-gain productivity once re-trained

REORGANISING PLANT

 Requires closure of the business while equipment is physically moved

o Temporary loss of sales

INERTIA

 The resistance to change is caused mainly by fear and uncertainty of deskilling and being job less
 External driving forces to overcome inertia include:
o Training programs
o Demographics and attitudes in the work place
o Flatter management structure
o Introduce change agents
 GLOBAL FACTORS

GLOBAL SOURCING

 Less expensive inputs from other countries - low cost region (LCR)
o Business may use global web of operations to reduce costs – use of subsidiaries
 Manufacturing in developing countries
 Marketing and distributing in developed countries
 Finance from country with cheapest interest rates
 Disadvantages
o Time taken to research suppliers
o Cultural barriers
o Increased lead time

ECONOMIES OF SCALE

 The larger business operations are, the lower cost of producing individual cost becomes
o Buying bulk orders of supplies (inputs)
o Using equipment to total capacity
 Diseconomies of scale can occur however
o Inefficiency due to poor communication
o Complex and dysfunctional management
o Loss of direction/slow decision making – not flexible = not adapting to market changes
 To overcome diseconomies, expand through joint ventures or strategic alliances

SCANNING AND LEARNING

 Monitoring the global business to identify critical global trends

o Global demand of the product
o Supply of transformed and transforming resources
o Advancements in product and process tech
o Emergence of new competitors
o Changes to government policies
o Changes to suppliers of inputs – (quality, price, delivery delays etc.)

RESEARCH AND DEVELOPMENT

 The strategy associated with the creation of new products and the improvement of existing ones
o Crucial to the long term survival of any business
o Process innovation: development of operation processes to bring benefits to the business
o International patent: gives business 20 years protection from any organisation copying idea

Advantages Disadvantages
 Provide higher profit margin  May lead business from prime function
 Lead to quality improvements  Opportunity cost
 Gain competitive advantage  May not yield financial return
MARKETING
ROLE OF MARKETING

 Developing a product and implementing a series of strategies aimed at correctly promoting, pricing
and distributing the product to a core group of customers
 Develop and implement strategies that generate revenue and sales for the business
o Researching the changing nature of consumer tastes and preferences
o Development of products to provide consumers with improved standard of living and choice

STRATEGIC ROLE OF MARKETING GOODS AND SERVICES

 Business
 Society
o Increased brand awareness
o Increased employment
o Increased market share
o Increased choice
o Increased revenue streams
o Increased standard of living

CHOICE

 Competitiveness drives businesses to produce unique products

 As such, customers are provided with increased range of choice

STANDARD OF LIVING

 R&D has promoted the development of better products, to increase the quality of life
 Innovation has led to newer, and a wider range of products provided by business

EMPLOYMENT

 Provides a source of income and employment to many Australians

o Business employ labour to provide a product, salesmen sell the products and finance

BRAND AWARENESS

 Allows a product to remain in the consumers subconscious to influence consumers’ purchasing choice
 Achieved through strong and effective marketing campaigns
 Increased brand awareness = stronger market share

MARKET SHARE

 Refers to the percentage of total sales a business has compared with competitors in the market
 Increased market share = increased sales and profitability

REVENUE STREAMS

 Great sales due to marketing relates to access to greater revenue streams

 PRODUCTION, SELLING, MARKETING APPROACHES

PRODUCTION APPROACH – EARLY 1900’S

 Relies on the view that consumers base their purchasing decision on the quality of the product
 Product was the element of the marketing mix that was emphasised
o Promotion and place insignificant
o Price reflects the quality of the product

SELLING APPROACH – MID 1900’S

 Relies on the view that business will be successful if they promote the benefits of the product
 Promotion was the element of the marketing mix that was emphasised
o Product (small emphasis) – used to differentiate the product
o Price and place insignificant

MARKETING APPROACH – LATE 1900’S

 Relies on the view that the consumer is at the core of all business activities
o All actions of the business should be aimed at meeting the needs of the customer
 All elements of the marketing mix are needed to ensure customer satisfaction:
o Product - quality and features to attract the customer
o Price - to encourage the customer to buy the product
o Promotion - so that the customer knows about/desires the product
o Place - so that customer gains access of the product to buy it
 TYPES OF MARKETS

RESOURCE MARKETS

 Where the product and sale of raw materials occur

o E.g. gold, silver, aluminium, sugar, wheat etc.
o Produced by BHP Billiton, Rio Tinto etc.
 Labour is traded on the resource market – as it is a key factor of production

INDUSTRIAL MARKETS

 Where goods that are used as supplies in the production process are traded
o The outputs of another business are used as inputs for a business with more
transformed resources
o E.g. Aluminium to build cars

INTERMEDIATE MARKETS - WHOLESALERS

 Where businesses retail products, produced by other businesses, to sell retail businesses
 Involves purchasing in bulk to offset costs and then distributing the goods in smaller quantities to
retailers

CONSUMER MARKETS

 Markets where businesses sell directly to the consumer

o Most widely recognised markets
o E.g. Harvey Norman, David Jones, Myers etc.

MASS MARKETS

 Where the products are aimed at all consumers irrespective of age, gender, income, location
o Usually includes goods that appeal to all consumers
 Water, petrol, electricity etc.

MARKET SEGMENTS

 Market segmentation refers to the dividing of the mass market to smaller sub-categories
o E.g. milk is a mass market product, yet low-fat and skim milk are produced to appeal to a
segmented market of “healthy-wise individuals”

NICHE MARKETS

 A smaller section of a larger market segment

 Have a very specific customer base
 Due to less sales volume, businesses compensate with higher prices to retain profitability
o E.g. rice milk
 INFLUENCES ON MARKETING

FACTORS INFLUENCING CUSTOMER CHOICE

PSYCHOLOGICAL FACTORS

 The personal characteristics of a consumer that influences their behaviour:

o Motivation: the belief of the need to buy a particular product.
 Maslow’s hierarchy of needs shows that a consumer must first fill their basic needs
o Attitudes: what we believe, feel about something and how we respond to it
o Perception: the opinion that a customer has about the wider world (and the product)
 Different people have perceive the same thing differently
 Marketing can have a slight influence on a consumers perception
o Personality/Self-Concept: what people buy reflects how people see themselves
o Lifestyle: the daily activities and routine of consumers, how they spend their day
o Learning: the knowledge and experience a consumer develops in the marketplace
 E.g. satisfaction from previous purchases, brand awareness from promotions etc.

SOCIOCULTURAL FACTORS

 The influences on a consumer’s choices from their society, culture and religion.
 Culture: defined as the society’s values, beliefs and customs
 Subculture: subset of people within the culture which share specific values
o Socioeconomic status: subdivision by factors as income, education and occupation
o Family: values/customs that are specific to the individual family
o Reference the groups a consumer identifies themselves in e.g. religion – Christianity etc

ECONOMIC FACTORS

 A person’s economic situation influences the products they will buy

o Ability to borrow, level of income, savings/inheritance etc

GOVERNMENT REGULATIONS

 Fiscal policy: the use of annual budget to regulate consumer spending

o E.g. increasing tax discourages consumption of products
 Monetary policy: the RBA influencing interest rates to regulate money supply
 Government laws and regulations: such as the legal age limit to purchase alcohol.

CONSUMER LAWS

 Laws that protect the interest of consumers within the business environment
 Business must market their products according to strict legislation which attempts to promote
fair/competitive behaviour in the marketplace
o Competition and Consumer Act 2010 (Cwth)
o Fair Trading Act 1987 (NSW)
 DECEPTIVE/MISLEADING ADVERTISING

 Because of advertising’s benefits, some businesses attempt to use it deceptively

o Giving misleading information (about product features or contents)
o Overstating the benefits of the product
o Offering discounts/offers that do not exist
o Bait and Switch advertising – switching the consumers interest to a more profitable item

PRICE DISCRIMINATION

 Giving preference to some retail stores by providing them with stock at lower prices
 Exceptions:
o Bulk buying where stores are discounted for purchases of larger stock
o The retailer is trying to temporarily meet local competitors prices

IMPLIED CONDITIONS/WARRANTES

 By law, a business must refund or exchange any faulty good when purchased regardless of warranty

RESALE PRICE MAINTENANCE

 Manufacturer cannot discriminate against retailers for not selling at RRP

ETHICAL ASPECTS OF MARKETING

 Not enforceable by law

 Rely on the goodwill of stakeholders in the business

TRUTH, ACCURACY AND GOOD TASTE IN ADVERTISING

 Information in advertisements must be truthful, accurate and in good taste

 Some businesses deliberately implement controversial advertisements to generate further publicity

PRODUCTS THAT MAY DAMAGE HEALTH

 Government restrictions on the provision of certain products which may act as a health detriment
o These goods are known as “sin” goods e.g. cigarettes and alcohol

ENGAGING IN FAIR COMPETITION

 Examples of unfair competitive behaviour:

o Price Fixing between major competitors to reduce competition
o Loss Leader undercutting small competitors in the short term forcing them to engage in a
price war
o Misleading Advertising

SUGGING

 Disguised marketing process that use questions in a service to determine the needs of the
consumer and offer the consumer a product that the business believes caters to the consumer’s
desires.
 MARKETING PROCESS – DEVELOPING A MARKETING PLAN

 Planning allows a business to examine its current position in the market, strengths, weaknesses and
the most effective method of implementing such changes

SITUATIONAL ANALYSIS

 Provides the firm with an opportunity to examine its current position within the markets:
o Product market share
o Future trends and changing consumer tastes and preferences
o Behaviour of competitors

SWOT
 Examines internal and external environment of the business to develop strategies to:
o Strengthen the organisations weaknesses and maintain it’s strengths
o Handle possible opportunities/threats
 Strengths/Weaknesses - Internal business environment
o The business’ reputation, financial stability (liquidity), quality of products et c
 Opportunities/Threats - External business environment
o Degree of competition in the market and changing trends in the marketplace

PRODUCT LIFE CYCLE

 Examines current position of a product in the marketplace

ESTABLISHMENT PHASE

 When the new product is launched

o Emphasis on building customer loyalty
o Little awareness in the market = low sales volume = limited profits
o Costs remain high = small profit margin
 Appropriate pricing strategies for businesses to establish market share
o Penetration pricing: low price to establish quick entry
o Prestige pricing: to establish an image of high quality to consumers

GROWTH PHASE

 Brand awareness and customer loyalty grows

 Strong growth in sales volume, revenue, profitability and market share
 Emphasis on more promotional activity to combat competitors = higher costs

MATURITY PHASE

 Product is well established = consistent sales, revenue

 Increased consumer choice = limited prospects for growth
 New marketing strategies to establish a competitive advantage
o Product differentiation: price, quality, after-sales service etc.
 POST-MATURITY PHASE
 Final stage of product life cycle
o Key decisions made by management to affect the survival of the product
o More competitors in the market = lower sales volume = lower profit margin
 Decline: Production may be ceased
o The product no longer meets the needs of consumers
 Renewal: aimed at revitalising the product
o Re-establishing competitive advantage
o New marketing strategies to sustain interest - possible new target markets
o Modifications to marketing mix – product in particular
 E.g. change of packing to invigorate new perception of product etc.

MARKET RESEARCH

 Provides businesses with information needed to make decisions

o Must establish reliable sources of information

PRIMARY DATA
Info that is collected for the specific purpose it will be used for.
Observational research: Observing the target market, their actions and how they respond to conditions
Surveys: Asking the target market the same questions over a range of variables e.g. buying behaviour
Experimental research – usually testing the product on the market and examining their reaction to different products and features

SECONDARY DATA

 Info that already exists, pre-collected by another person i.e. historical data, Gov. census statistics
 Internal Sources
o Data within the business itself i.e. financial reports, past surveys
o Used to compare past and present results
 External sources
o Data collected by organisations outside of the business
o Used to identify current and ongoing trends
 ESTABLISHING MARKET OBJECTIVES

 Provide the framework to guide business operations

o Must be flexible to adapt to changing nature of market S M A R specific
T
 Adopt a SMART approach measurable
 General market objectives
o Increased Market Share
achievable
o Expansion of Geographic Markets realistic
o Expansion of Product Range timely
IDENTIFYING TARGET MARKETS

 Group of consumer whom the product is developed for – usually a section of the consumer market
o Use of market segmentation (marketing strategy)

DEVELOPING MARKETING STRATEGIES

 The process of developing a product and then implementing strategies to encourage purchases
o Market segmentation
o Developing a product with strong brand, position and packaging
o Pricing, promotional and placing/distribution strategies to encourage sales
o Use of technology (e-marketing) and global marketing
 NOTE: This syllabus dot point does not require you to expand on marketing strategies, only list
the types of marketing strategies a business can implement as part of its marketing plan.

IMPLEMENTATION, MONITORING AND CONTROLLING

IMPLEMENTATION

 Implementation is the process of putting marketing strategies into action

 Developing a financial forecast: a financial forecast is the expected costs of the marketing plan

MONITORING

 Monitoring is the process of collecting info to measure if plans are achieving desired outcomes
 Sales analysis: Examines the sale of a particular product
o Determines which products are performing well
o Allows management to assess the effectiveness of different marketing strategies
 Market share analysis: Comparing the sales performance of the business to competitors
o Assessment of marketing strategies in terms of brand awareness can be made
 Marketing profitability analysis: Assessing the profitability of marketing strategies
o Comparing monetary/non-monetary benefits of strategy vs. costs of implementation

CONTROLLING

 Controlling is the process of comparing actual results with desired results

 Revising the marketing strategy: Strategies should be revised according to analysis
 MARKETING STRATEGIES

MARKETING SEGMENTATION

 Breaking down a market depending on similar characteristics of a customer group

o Allows business to focus resources, tailor its marketing plan for target market

METHODS OF SEGMENTATION

 Geographic: Based on customers’ location

 Demographic: Based on particular features of the population: age, gender, income etc.
 Psychographic: Based on differing personalities, lifestyles and interests of consumers
 Behavioural: Based on differing knowledge and attitudes of the benefits a product provides

GOODS/SERVICE DIFFERENTIATION AND POSITION

 Goods Differentiation: distinguishing the features of a product from those of competitors’ product
o Price: where it promotes itself as the cheapest provider
o Product Quality: providing higher quality to gain competitive adv.
 Service Differentiation: maintain customer loyalty
o Involves an immediate form of contact between the business and consumer

PRODUCTS

 Tangible benefits: physical attributes of the product

o E.g. features, colour etc.
 Intangible benefits: benefits a consumer associates with the product
o e.g. prestige/image of owning the product

POSITION

 The image of the product in the view of consumers

BRANDING

 Reputation of the product

 Strong brand name = higher expectations from consumers

PACKAGING

 The physical appearance of the good

o Protects the quality of the product
o Last point of contact before final purchase
 Includes the attitudes/product knowledge of the sales person
 PRICE

 Price must reflect position and branding of the product

o most influential factor for customer’s (before purchasing)

PRICING METHODS

 Careful decisions must be made by management

o Can result in loss in market share, brand name, consumer loyalty and even product failure
 Cost-plus: Adding a profit margin to the costs per unit of output
 Competition-based: setting prices according to the competitor’s prices
 Market-based: set according to supply and demand of a product

PRICING STRATEGIES

MARKET SKIMMING

 Setting a high price to recover costs – e.g. from establishment phase or new technology implemented
o May back-fire if consumers respond negatively to high price

PENETRATION PRICING

 Setting prices at the lowest price to gain immediate group of consumers

o Aims to undercut main competitors in hope that consumers will switch to new product
o Establishes consumer base despite comprising profit margin

LOSS LEADERS

 Providing a limited number of goods at cost price or less in hope that consumers will continue buying
o Again, establishes consumer base despite comprising profit margin

PRICE POINTS

 Setting different prices for similar products

o Products are differentiated by features
o Used to market to a large market segment
o Can result in higher costs (varied production methods)

OTHER PRICING STRATEGIES

 Product-deletion pricing: Used to clear stock of unsuccessful “distressed” product

 Prestige pricing: charging a higher price for products consumers regard as prestigious
 Psychological pricing: influencing customers by minor price differences (e.g. $9.95 vs. $10.00)
 Demand-based pricing: charging a higher price for higher demand products
o NOTE: This is very similar to market-based pricing methods – I would not refer to it

PRICE AND QUALITY INTERACTION

 Consumers often associate price with quality

o High prices reflect higher quality, durability and service, which may serve as a comp. adv.
 PROMOTION

THE PROMOTION MIX

ADVERTISING

 Seeks to convey a message to a broad group of consumers

 Traditional advertising conducted through mass media e.g. newspapers
o Rise of e-commerce forces business to embrace tech for advertising e.g. Facebook

PERSONAL SELLING

 Selling directly and personally to an individual consumer— e.g. Door-to-door sales

 Whisper marketing: business engages other businesses to sell products in return for benefits (goods)

RELATIONSHIP MARKETING

 Process of building long term relationships with customers

o High level of customer satisfaction, value and service
o Encourages regular client base

SALES PROMOTIONS

 Intended to generate interest and awareness of a product

o Promotions include discounts, samples, competitions, sales etc.
o Usually use internet and email due to its cost-effectiveness

PUBLICITY AND PUBLIC RELATIONS

 Creating an event to generate product awareness

o Often promoted by famous individuals

THE COMMUNICATION PROCESS

OPINION LEADERS

 Seeking individuals respected in the community to influence consumers

o Ideally, consumers will link the leader’s reputation with their use of the product

WORD OF MOUTH

 Involves consumer’s reactions to products and their degree of satisfaction.

 May influence consumers to either try or avoid a product, depending on info circulated
 Business has no direct influence over this publicity
 PLACE/DISTRIBUTION

 Process of distributing the product from the manufacturer to the consumer

DISTRIBUTION CHANNELS

USE OF AN INTERMEDIARY

 (i.e. retailer and/or wholesaler):

o Decreased costs as retailer takes over marketing strategies, although control also decreases
o Decreased storage, warehousing and SCM cost for wholesaler
o Increased distribution of goods
o Used in large industrial companies (e.g. Arnott’s biscuits)

NO USE OF AN INTERMEDIARY

 (i.e. straight to consumer):

o Increased efficiency and control e.g. marketing, quality control
 Better understanding of consumers’ needs, relationship marketing etc.
o Used in service industries (e.g. dentists, hotels etc)
o Used in large resource companies (e.g. oil companies who control their whole supply chain)

CHANNEL CHOICE

 Influences the type of consumers the product attracts, perception of the product and ease of access

INTENSIVE

 Product being available to a wide selection of stores/locations

o The market is saturated – all buyers already have the product
o E.g. convenience items such as milk, newspapers etc.

SELECTIVE

 Limited number of distribution outlets

o Allows business to control where product is sold
o Ensures places are consistent with marketing strategy and goals
o E.g. oxford shirts only sold to Myers, David Jones etc.

EXCLUSIVE

 Restricting the number of products or their availability

 Selling at a limited number of venues
o Allows business to control all methods of the marketing mix
o Used by hyper-exclusive products e.g. sports cars, jewellers
 PHYSICAL DISTRBUTION ISSUES

TRANSPORT

 Process of moving goods from one location to another

 Considerations:
o Cost of transport and time needed
o Type of good e.g. fresh fruit = refrigeration

WAREHOUSING

 Process of storing products before they are distributed

 Build up in holding stock decreases lead time
 Considerations:
o Type of good e.g. perishables = can only warehouse for short period
o Cost of warehousing, inventory becoming toxic (obsolescent)

INVENTORY

 Must manage levels of inventory

 Considerations:
o Overstock can lead to obsolescent stock and clearance sales = reduction in profit
 Restricts capacity to store new/updated stock
o Undersupply could damage customer loyalty
 Not enough stock to satisfy consumer demand = loss in sales

PEOPLE, PROCESSING AND PHYSICAL EVIDENCE (ADDITIONAL P’S TO MARKETING MIX)

 People: Refers to the performance of human resources

o Excellent customer service = high level of customer satisfaction
 Process: The consumer’s total experience from searching for a product to using the product
 Physical evidence: The physical appearance of the product’s presentation
o Visual packaging influences consumer buying behaviour
o Crucial in promoting a positive image

E-MARKETING

 Provides business with opportunity to interact with consumers

o Use of emails to directly communicate
o Online operations reaches a global audience = faster sales volumes
 GLOBAL MARKETING

 Strategies must be modified to cater new foreign marketing

GLOBAL BRANDING

 Effective global branding can deliver same message to customers regardless of culture
o E.g. Coca-Cola logo
o As product is marketed globally, brand becomes universally recognisable

STANDARDISATION

 Assuming the way the needs the product satisfies is the same world over
o E.g. mobile phones, music, cosmetics, electrical equipment
 Cost savings option
o Higher economies of scale
o Less R&D needed

CUSTOMISATION

 Used to alter the core product to suit a variety of target markets

o Differing economic, political, sociocultural characteristics of country
o E.g. McDonald’s in Egypt – all halal
 Company’s try to use a combination of the two

GLOBAL PRICING

 Customised pricing
o Different countries are charged diff prices for the same product
o Uses cost-plus method to cover the added costs of exportation (e.g. taxes, tariffs etc.)
 Market-customised pricing
o Sets pricing according to local market conditions
o Varies pricing depending on level of demand and comp. in overseas market
o Influenced by foreign currency exchange rates
 Standard worldwide price
o Charging customers same price for a product worldwide
 Domestic businesses may undercut the standardised price
 Changes in exchange rate may negatively impact the exported price

COMPETIVITIVE POSITIONING

 The formal process of a business determining how to differentiate itself from competitions
o Developing strategies for the business to create value from these differences
 Value proposition
o Operational excellence: ability to run as efficiently as possible – e.g. low cost operations
 Business can pass on cost savings to consumers
o Customer Intimacy: business develops personalized profile of customer shopping habits
 Business can devise correct marketing strategy over time
o Product Leadership: business’ ability to produce the best product first
FINANCE
ROLE OF FINANCIAL MANAGEMENT

 The role of finance involves managing financial resources of the business to achieve its strategic goals.
o Involves the analysis, interpretation and evaluation of all financial records to the business

STRATEGIC ROLE OF FINANCIAL MANAGEMENT

 Aims to ensure the business continues to operate, grow and achieve goals and objectives

OBJECTIVES OF FINANCIAL MANAGEMENT

PROFITABILITY

 The ability of a business to maximise its profits

o Achieved through increased revenue or decreased costs
 Measuring profitability using income statement
Costs of goods sold = 𝑜𝑝𝑒𝑛𝑖𝑛𝑔 𝑠𝑡𝑜𝑐𝑘 + 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠 − 𝑐𝑙𝑜𝑠𝑖𝑛𝑔 𝑠𝑡𝑜𝑐𝑘
Revenue − Costs of goods sold = 𝑮𝒓𝒐𝒔𝒔 𝑷𝒓𝒐𝒇𝒊𝒕
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 − Expenses = 𝐍𝐞𝐭 𝐏𝐫𝐨𝐟𝐢𝐭
 Measuring profitability using income statement and balance sheet

Net profit
𝑹𝒆𝒕𝒖𝒓𝒏 𝒐𝒏 𝒆𝒒𝒖𝒊𝒕𝒚 𝒓𝒂𝒕𝒊𝒐 =
Total equity

GROWTH
 The ability of the business to increase its size in the long term  more outputs = sales = profit
 Measuring growth using income sheet and secondary data:

Business Sales
𝑴𝒂𝒓𝒌𝒆𝒕 𝑺𝒉𝒂𝒓𝒆 = × 100
Total Market
Sales

o NOTE: This is not a “ratio” you need to know – an understanding of market share will suffice.

EFFICIENCY

 The ability of a business to minimize costs and manage its assets to achieve maximum profit
 Measuring efficiency (in cost minimization) using the income sheet:

𝑇𝑜𝑡𝑎𝑙 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
𝑬𝒙𝒑𝒆𝒏𝒔𝒆 𝑹𝒂𝒕𝒊𝒐 =
𝑇𝑜𝑡𝑎𝑙 𝑆𝑎𝑙𝑒𝑠

NOTE: Lower expense ratio = higher efficiency

 Measuring efficiency (ability to collect accounts receivable using the income sheet and balance sheet:

Sales
𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝒓𝒆𝒄𝒆𝒊𝒗𝒂𝒃𝒍𝒆 𝒕𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒓𝒂𝒕𝒊𝒐 =
Accounts receivable

NOTE: higher accounts ratio = higher efficiency

 LIQUIDITY

 The ability of a business to convert their assets into cash

o The ability for a business to pay short term debts using current assets

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
𝑳𝒊𝒒𝒖𝒊𝒅𝒕𝒚 𝑹𝒂𝒕𝒊𝒐 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

SOLVENCY
 The extent to which the business can meet its financial commitments
o Measures the financial stability of a company  important for investors

𝑇𝑜𝑡𝑎𝑙 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝑫𝒆𝒃𝒕 𝒕𝒐 𝑬𝒒𝒖𝒊𝒕𝒚 (𝐺𝑒𝑎𝑟𝑖𝑛𝑔) 𝑹𝒂𝒕𝒊𝒐 =
𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦

 Gearing: how much debt the business has with respect to their equity
o Higher gearing = greater financial burden the firm has to deal with = greater risk involved

SHORT TERM

 Tactical and Operation goals

o e.g. maintenance of liquidity, upgrading equipment
 Reviewed regularly to see if targets are being met and if resources are being used

LONG TERM

 Strategic goals  Broad goals e.g. increasing profit or market share

o Often involves a series of short-term goals
 Business reviews progress annually to determine if changes need to be implemented
 INFLUENCES ON FINANCIAL MANAGEMENT

INTERNAL SOURCES OF FINANCE

OWNERS’ EQUITY

 The funds contributed by owners to build the business.

RETAINED PROFITS

 Profits of a business which are not distributed to be used as a source of finance in the future

EXTERNAL SOURCES OF FINANCE

DEBT
 Any money that is loaned – with short or long term maturity
o Often incur some form of interest – set and predictable
o Shareholders do not lose ownership/control of business
 If business is liquidated, the follow investors are payed first;
1. Holders of preferred stock (do not have voting rights)
2. Debenture holders
3. Ordinary shareholders
4. Unsecured notes

SHORT TERM:< 12 MONTHS

 Overdraft: flexibility to borrow money from a bank at short notice through cheque account
o Allows a business to overdraw its account to an agreed limit
 Allows a business to have a negative value in its account
 Assists businesses with short-term liquidity problems – by providing working capital
o Can have very high costs – high daily interest rates
 However, interest rates on bank overdrafts are tax deductible in Aus.
o Alternative: using business credit card – offers lower fixed interest rates
 Commercial Bill: Borrowers receives an amount from another business with surplus funds
o Promising to pay principal + interest back between 30-180 days
 Can be rolled over for extended time period – reassessed each time it matures
 Factoring: Business sells its accounts receivable (money owed by debtors) to an external business
o Provides business with immediate (within 48 hours) short-term finance
o Generates immediate short-term liquidity
o Factoring company charges the business a fee according to credit risk
 Analysed by credit sales and credit rating of accounts
o Trade credit: can also be provided by suppliers – result of good relationship
 LONG TERM:> 12 MONTHS
 Mortgage: loan secured by the asset (being purchased) of the business
o Provides the business with a large amount of finance to purchase a non-current asset
o Business repays through regular repayments (often monthly) over agreed period (e.g. 15yrs)
 Includes interest rate charged on top
o Interest only loan: only the interest is paid and then once a business resells the asset, which
they initially loaned out the finance to buy, the business pays back the principle; whilst
keeping the excess capital gains.
 Debenture: when a large business seeks to obtain finance by issuing debentures
o Large firms are invited to invest by lending finance  become debenture holders
o A trustee is appointed to monitor the debenture-issuing business
 Ensure it remains profitable and can therefore repay loans + interest
o Debenture holder’s loans are collateralised and given preference in the case of liquidation
 Unsecured Notes: essentially corporate bonds that are uncollateralised
o Used to finance short term liquidity short falls
o Incur higher rate of interest – since there is greater risk for investor
 Requires strong reputation and good credit ratings
 Leasing (rental agreement):
o Payment of money for the use of (non-current) assets owned by another business
 At the end of period, business can buy leased item at the agreed ‘residual value’
o Operating lease: shorter than the life of the asset – owner carries out maintenance etc.
o Finance lease: lessor purchases the asset on behalf of the lessee
 Repayments are fixed for the economic life of asset (e.g. 3-5 years for a TV)
 Often incur higher interest rates
 Incur penalties for cessation of lease
 Payment includes insurance, maintenance etc.

EQUITY

 Finance raised by a company by issues shares to the public

o Increases number of owners = less control over business = dilution of returns to owners
o No obligation to repay an initial capital investment
o More difficult to secure: prospectus must be filled, approved by ASX and ASIC

PRIVATE EQUITY

 Money invested into a (private) company not listed on the ASX

 Venture capital
o Buys shares to boost capital of a business (source of finance) and receives dividends
o Very little to say in day-to-day management of business
 ORDINARY SHARES
 Occurs when a company becomes public and lists stocks on the ASX
o Allows business to raise additional capital
 Individuals who purchase such shares become part-owners in a company and receive dividends
o Can be issued with or without voting rights
 New issue
o First issue is known as primary market
 Prospectus is issued through a stockbroker
 Shares are made available on the securities exchange
 Underwriter such as an investment bank is enlisted
o Shareholders pay for each share they purchase
 Payments go straight to the business
 Shareholders receive a dividend (proportion of company’s profits)
o Secondary market: shares are sold by previous owner
 Rights issue
o Additional shares are offered to the existing shareholders of a company
 The number of shares an owner can buy is proportional to the number they own
 Shares will be at a discounted rate yet shareholders are not obliged to buy
o However, if they do not, their rights will be diluted
o If part of original prospectus, rights issues does not incur expenses of new prospectus
 only a written proposal to shareholders is necessary
 Placements
o Offering additional shares to specific institutions/investors
 Does not require formal prospectus or general shareholder approval
 Can raise up to 15% of current capital base
o Funds can be raised quickly, and without minimal publicity
 Great for businesses seeking to expand or seek funding to perform a takeover
 Share purchase plan (SPP)
o Allow existing companies to issue new shares (max $5000) to existing shareholders
 Similar to a rights issue, yet whoever wants shares puts their hand to buy
 Thus, ownership is almost always diluted
 Does not require a prospectus, however does require permission from ASIC

OTHER SOURCES OF FINANCE

 NOTE: This is isn’t in the syllabus. Don’t bother learning it, just read it to have a general
understanding to place into a long response question if you have time. The others above are much
more significant.
 Government gifts and grants: Financial gifts to assists establishing/growing businesses
o E.g. subsidies, low interest loans, tax deductions, grants etc.
o Business must meet strict criteria to receive such grants  takes time and effort
 FINANCIAL INSTITUITIONS

BANKS – RETAIL/COMMERCIAL

 Receive savings as deposits from individuals and then make investments and loans to borrowers
o Supervised by the RBA
o Since 08-09 GFC, banks have adopted more cautious lending policies
 Provide a range of financial products for clients: e.g. online banking, credit facilities, legal/tax advice

BANKS - INVESTMENT

 Serve large institutional clients/governments seeking to raise substantial amounts of capitals

o They offer to underwrite shares for businesses in their IPO, often asking for equity in return
 Underwriter: 3rd party which provides a business with the assurance that it will buy
excess shares which aren’t sold in the IPO
 They also offer advice for merging, takeovers and other financial decisions

FINANCE/LIFE INSURANCE COMPANIES

 Provide diff. types of secured/unsecured loans to business

o Have large amounts of capital that has been gained from clients, that needs to be invested to
generate returns for the business, in the scenario where it must be pay-out a client
o Interest rates are often higher than general banks since they lend more freely

SUPERANNUATION FUNDS

 Have large amounts of capital that needs to be invested to generate returns for the investors
o Used to invest in long-term securities (company shares, Gov. /company debt etc.)

UNIT TRUSTS

 Individuals trust a trustee with their funds

o Types of unit trusts: property trust, equity trusts, mortgage trusts, fixed-interest trusts
 Trustee places funds into various investments in hope to generate the highest yield for investors

AUSTRALIAN SECURITIES EXCHANGE

 As a primary market, enabling businesses to raise new capital through the issue of shares
 As a secondary market, transaction of existing shares between individuals
 Initial public offering (IPO): process a business must initially undergo to list on the ASX
1. Must be of reasonable size, and have been successful in operations for a reasonable time
2. Business then must issue a prospectus
 Gives potential investors a detailed depiction of the business and its finances
 Comprehensive outline of key functions, past finances and predicted performance
3. Investors can then apply for a share allocation
 An investment bank is usually hired as an underwriter
4. According to supply and demand, the stock may become oversubscribed, or undersubscribed
 Funds received are then used by the business to expand or invest
5. Shares may then be re-traded on the secondary market by shareholders
 INFLUENCE ON GOVERNMENT

 Monetary policy: the RBA uses the cash rate to influence the interest rate of banks
o This in turn will influence economic activity
o Increasing interest rate = higher cost of debt finance = less borrowing = less spending
 Government grants: the federal government offers low-interest loans and grants to businesses that
will make a significant contribution to the economy
o The Export Market Development Grant: 50% rebate on marketing costs for exporters
o New Enterprise Incentive Scheme: proves new small businesses with accredited training,
advice and mentoring + ongoing income support for up to one year

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION (ASIC)

 Regulates corporations, markets and the provision of financial services - Corporations Act 2001 (Cwth)
o Aims to assist in reducing fraud and unfair practices in financial market
o Primary legal instrument that oversees business operations and financial reporting, ensuring
that company directors and financial service providers carry out duties honestly

COMPANY TAXATION

 Flat rate of 30%

o Paid before dividends are distributed
 Aus. Gov. has undertaken a process of reform of the federal tax system
o Decrease company tax by 2-3% or introduction of a progressive taxation scheme
 SMEs are taxed at a smaller rate then large businesses
o Will boost net profit, encouraging businesses to expand
o Will attract offshore investments = boosts in domestic economy = boost in employment

GLOBAL MARKET INFLUENCES

ECONOMIC OUTLOOK

 Refers to the projected changes in level of economic growth world wide

 Increases in global economic growth can lead to increased demand for products and services –
requiring excess funds. It can also lead to decreased interest rates of funds borrowed internationally –
providing higher levels of net profit and lower risk

AVAILABILITY OF FUNDS

 The ease which a business can access funds internationally

 GFC (2008-09) had major impact on the availability of funds causing higher interest rates and more
cautious lending

INTEREST RATES

 Traditionally, Aus. Interest rates tend to be higher than other countries

 Aus. Businesses can be tempted to borrow sources of finance from overseas
o However, exchange rates/fluctuations can often outweigh advantage of lower interest rates
 PROCESSES OF FINANCIAL MANAGEMENT

PLANNING AND IMPLEMENTING

FINANCIAL NEEDS

 Financial information must be collected and analysed to forecast trending financial needs
o Business must then also ensure it manages its financial resources accordingly

BUDGETS

 A budget is a quantitative plan for providing financial direction to a business

o It provides a framework for decision making
o It acts as a control mechanism to compare planned results with actual results
o Has a degree of flexibility to respond to the changing nature of the business context
 3 types of budgets:
o Operating budgets: relate to expenses of the main business activities
o Project budgets: capital expenditure and R&D
o Financial budgets: collaboration of operation and project budgets to estimate and predict
forecasts of funding required in the future

RECORD SYSTEM

 A record system refers to the processes and practices that business uses to record financial info
o Businesses must consider how they record info  hard copy or digitally
 Digital tech have made systems more efficient to record and analyse
o Human error must be minimized to produce accurate and reliable financial reports
 Can be ensured by auditing reports and employing a double entry system
 By recording all items twice, errors can be found by variance in balance
o Business must also consider the confidentiality of info and ensure securities are in place
o Management information systems (MIS) are also a consideration for large businesses
 Allows managers from different functions to gain access to info according to needs
 The need for accurate/reliable financial reports are because management bases most decisions on it

FINANCIAL RISKS

 Business must be proactive to be aware of future threats to finances

o Insurance can be taken out to protect the business against unexpected costs/loss of profits
o Risk of a business being unable to cover financial obligation - leads to bankruptcy
 To minimize risk, adequate perception of risk profile must be undertaken
 Further, profits must be sufficient to cover the cost of debt, liquidity must be high

FINANCIAL CONTROLS

 Financial controls (such as policies and budgets) must be employed to ensure business objective are
effectively being met due to the risks which can occur; theft, errors in record systems etc.
 DEBT AND EQUITY FINANCE

 Businesses must determine a balance between debt and equity finance

Debt Finance Equity Finance

 Lenders have first claim
 Shareholders have residual
on recovered finance in
claim on assets
the
incident of liquidation
 Debt must be paid by
 Equity has no maturity date
Features periodic repayments
 Interest payments are
 No interest payments exist
tax deductible
 Lenders require a lower rate  Shareholders require higher
of return rate of return
 Debt providers have no  Equity holders have voting
voting rights rights
 No interest payments -
 Readily available
cheaper source of finance
 Low gearing (use resources of
 Tax deductions available
Advantages the owner – not external
on interest payments
source of finance)
 Less risk for the business and
owners
 Increased risk due to principal
 Lower profits-returns for the
+ interest charges that must be
original owner
repaid
Disadvantages  Collateral required by  Owner loses complete control
the lender as security of decision making
 Lenders are payed first in  Lower profits-returns for the
cases of liquidation original owner

MATCHING THE TERMS AND SOURCE OF FINANCE TO BUSINESS PURPOSE

 Matching principle: involves using appropriate finance for the intended use of finance
o Current assets fund current liabilities
o Non-current assets fund non-current liabilities
 Various things influence the source of finance a business uses:
o Terms of finance o Flexibility of the source
o Cost of each source of funding o Availability of finance
o Structure of the business o Level of control maintained by the business
 MONITORING AND CONTROLLING

 Accounting info must be monitored and regularly reviewed to ensure its consistent
o This is essential since managers base decision making process on such information

CASH FLOW STATEMENT

 Cash flow monitoring is essential for a business since it reveals the business’ ability to:
o Generate a favourable cash flow i.e. inflows > outflows
o Pay its financial commitments  setting its credit rating
o Have sufficient funds for future expansion
o Pay dividends to owners/shareholders
 The cash flow statement summarises cash transactions that have occurred over a period of time
o Gives info regarding a firm’s ability to pay debts on time
o Can identify trends and be a useful predictor of change

INCOME STATEMENT

 The income statement summarises the income and expenses of a business over a period of time
o Indicates the operating efficiency and profitability of a business
o By examining figures from previous income statements, managers can analyse trends as
expenses, income, and consequently profit levels fluctuate

BALANCE SHEET

 The balance sheet summarises the assets, liabilities and equity in a business at a given time in the year
o Taken on any particular day - usually the last day of the financial year
o Gives an indication of the financial stability of the business (short term/long term) - liquidity

𝑨𝑠𝑠𝑒𝑡𝑠 = 𝑳𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 + 𝑬𝑞𝑢𝑖𝑡𝑦

 FINANCIAL RATIOS

 Accounting: a tool managers use to help manage a business’s finance and make informed decisions
o Financial reports give a detailed measure of the achievement of financial objectives
o Provide financial trends for the management to analyse
 Analysis involves analysing the financial info into acceptable forms that make it more meaningful
 Interpretation is making judgements/decisions based on the data gathered from analysis

LIQUIDITY

 Liquidity involves how efficiently a business can meet its financial commitments in the short term
o Business must have sufficient resources (current assets) to pay debts (current liabilities)

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 (𝐶𝐴)

𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒓𝒂𝒕𝒊𝒐 = = 𝐶𝐴 ∶ 𝐶𝐿
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 (𝐶𝐿)

 Also known as the working capital ratio

o A ratio of 2:1 indicates a sound financial position for a business
 Very high ratios may be criticised as inefficient use of working capital
 This does not apply to all industries/businesses
o Only gives a limited indication of the business to meet liabilities

PROFITABILITY

 Profitability refers to the earning performance of the business

o Indicates capacity to use its resource to maximise profits

Gross profit
𝑮𝒓𝒐𝒔𝒔 𝒑𝒓𝒐𝒇𝒊𝒕 𝒓𝒂𝒕𝒊𝒐 = × 𝟏𝟎𝟎
Sales
 GPR measures the business’ profitability before expenses
o The higher the ratio, the better
o Low ratios suggest that maybe alternative (cheaper) suppliers should be sourced

Net profit
𝑵𝒆𝒕 𝒑𝒓𝒐𝒇𝒊𝒕 𝒓𝒂𝒕𝒊𝒐 = × 𝟏𝟎𝟎
Sales
 NPR measures the business’ profitability after all expenses have been paid
o Higher NPR’s indicate a business’ ability to reduce expenses efficiently
o When comparing with other businesses, NPR must be calculated before tax since tax
liabilities will vary from one business to another

Net profit
𝑹𝒆𝒕𝒖𝒓𝒏 𝒐𝒏 𝒆𝒒𝒖𝒊𝒕𝒚 𝒓𝒂𝒕𝒊𝒐 = × 𝟏𝟎𝟎
Total equity

 The ROE ratio reflects the return owners receive as a result of their investments
o Higher ROE often reflects a less equity finance (and thus more dependence on debt finance)
o As a result, investments may be more riskier
 GEARING

 Gearing determines the firm’s solvency, i.e. its long-term financial stability

𝑇𝑜𝑡𝑎𝑙 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝑫𝒆𝒃𝒕 𝒕𝒐 𝒆𝒒𝒖𝒊𝒕𝒚 𝒓𝒂𝒕𝒊𝒐 = × 𝟏𝟎𝟎
𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦

 There is no optimal level of gearing, although it is rare for a company to have no gearing
o Higher ratio = less solvent business = greater risk = greater potential for profit
o Furthermore, greater risk from high gearing may discourage investment

EFFICIENCY

 The ability of the firm to use resources effectively

o Greater efficiency = greater profits = greater stability

Total expenses
𝑬𝒙𝒑𝒆𝒏𝒔𝒆 𝒓𝒂𝒕𝒊𝒐 = × 𝟏𝟎𝟎
Sales
 Indicates the day-to-day efficiency of the business
o Higher ratios may indicate expenses which are not promoting an increase in profits
o E.g. unsuccessful marketing campaign – advertising costs

Sales
𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝒓𝒆𝒄𝒆𝒊𝒗𝒂𝒃𝒍𝒆 𝒕𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒓𝒂𝒕𝒊𝒐 =
Accounts receivable

 Measures how effectively a business collects its debts

o Avg. length of time for customers to pay accounts is determined by dividing 365 by ratio
o High turnover ratio compared to credit policy indicates the firm’s inability to collect debts

COMPARATIVE RATIO ANALYSIS

 Over different time periods: compare the financial stability & analyse trends of a business over time
o Vertical analysis: compares figures within one financial year
o Horizontal analysis: compares the same figures/ratios from diff. financial years
o Trend analysis: compares the same figures/ratios for periods > 3 yrs.
 Global standards:
o Liquidity: ratio of (1.2-2.5):1
o ROE ratio: should be greater than current interest rates
o Gearing (debt to equity) ratio: less than 60%
 Benchmarking: comparing results to other businesses (competitors)
 LIMITATIONS OF FINANCIAL REPORTS

 Detailed accounts may seem confusing to people without an accounting background

 Profits can be artificially reduced to reduce tax liabilities
 Normalised earnings: the removal an unusual influence from the balance sheet
o Helps to more accurately represent the true earnings of a company
o e.g. sale of a land sale = reflection of large capital gain or cyclical swings in the economy
 Capitalising expenses: process of adding capital expense as an asset
o E.g. R&D, development expenditure, stamp duty on non-current assets etc.
 Valuing assets: process of re-valuing assets of a business by an independent, objective expert
o Due to inflation/depreciation, the historical cost of assets do not reflect their true value
o Accountants may also depreciate assets using standards and applying the matching principle
 Timing issues: seasonal variations may not reflect the businesses success all-year-round
o Accountants may adjust the time of revenue inflows/debt repayments to make the business
appear more profitable
 Debt repayments: statements do not disclose specific details regarding the nature of debt finance
 Notes to the financial statements: details and additional information not included on the statements
o Appear at the end of the financial reports
o Allow managers to justify or explain the nature of unusual statistics in the statements
o E.g. the method of accounting used, the types of loan repayments used etc.

ETHICAL ISSUES RELATED TO FINANCIAL REPORTS

 Financial decisions need to be morally and ethically correct

o Managers must display integrity, confidentiality and professionalism and not misuse
finances
 Audited accounts: independent check of the accuracy of financial records & accounting procedures
o Internal audits: conducted internally by employees to check accuracy of records
o Management audits: conducted to review firm’s strategic plan & determine changes needed
o External audits: firm’s financial reports are investigated by an independent/specialised audit
 Requirement of the Corporations Act 2001 (Cwth.)
 Companies must reveal salary packages of executive… providing
greater pressure for executives to perform according to what they are
paid
 Auditor then issues a statement indicating records are accurate
 Record keeping: source documents must be created for every transaction
o Intentionally evading tax obligations by not claiming transactions and dealing in tax
o Can result in even larger fines and harm the business’ reputation
 GST obligations: business’ have the obligation to comply with GST reporting requirements
o Unethical for business’ to keep GST payments, as opposed to paying the government back
 Reporting practices: Information on financial reports to stakeholders must be accurate and correct
o By pretending profits are lower than actual, the business is defrauding the ATO = unethical
 Furthermore, banks may not lend to the business due to such low profits
 Also, when selling the businesses, investors may be discouraged due to low profits
 FINANCIAL MANAGEMENT STRATEGIES

CASH FLOW MANAGEMENT

 Cash flow management is the management of cash flow (movement of cash) in a business
o Optimal cash flow: 𝑖𝑛𝑓𝑙𝑜𝑤𝑠 = 𝑜𝑢𝑡𝑓𝑙𝑜𝑤𝑠

Cash Inflows Cash Outflows

 Payments to creditors
 Sales
o Interest paid on loans
 Payments from creditors  Payments of dividends
 Sales of assets  Purchase of assets
 Rent  Payment of operating expenses
 Interest (investments/loans etc.)  Loan repayment
 Monitored by cash flow statements: show general patterns of short-term cash flow management

MANAGEMENT STRATEGIES

 Management must implement strategies to ensure cash is available

o I.e. Collecting accounts receivable or using overdrafts to overcome temp. cash shortfalls

DISTRIBUTION OF PAYMENTS

 Ensuring all predictable large expenses are spread out throughout the year
 Stretching accounts payable by paying liabilities/expenses as late as possible
o Keeps money in bank longer = develops greater interest = higher revenue
 Prepay expenses in the future (when large cash inflow occurs and all debts are payed)

DISCOUNTS FOR EARLY PAYMENT

 Offering creditors discounts for early payments (e.g. 2-5%)

o Encourages creditors to pay ASAP = improving cash flow status

FACTORING

 Selling of accounts receivable (debts owed) to a factoring company at a discounted price

o Immediate cash inflow = Increases in cash flow status = improvement in working capital
 WORKING CAPITAL (LIQUIDITY) MANAGEMENT

 Working capital: current assets used in the day-to-day running of the business
o Represents the funds needed to produce profits and provide cash for short term liquidity

𝑵𝒆𝒕 𝒘𝒐𝒓𝒌𝒊𝒏𝒈 𝒄𝒂𝒑𝒊𝒕𝒂𝒍 = 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 − 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

 Working capital ratio: used to determine whether working capital is being manage effectively

CONTROL OF CURRENT ASSETS

 Ensuring there are enough current assets to pay off current liabilities when they fall due

CASH
 The balance in the business’ bank account - most liquid current asset
1. Leasebacks: when assets are sold to a firm who specialises in leasing assets
o Business receives cash from the sale as capital and can lease back the asset
o There is now immediate cash but repayments become an ongoing expense
2. Cash budgets: detailed anticipation of cash inflows and outflows

ACCOUNTS RECEIVABLE (DEBTORS)

 Business must ensure they monitor the collection of receivables

o Monitoring timing allows the business to maintain adequate cash resources
1. Credit policies: Check credit rating of prospective customers, set credit limits etc
2. Factoring: Sell accounts receivable to factoring firms
3. Invoice discounting: offer discounts to customers to speed up payment
o Conversely, businesses can impose late payment fees

INVENTORIES

 Business must ensure they monitor the levels of inventory they have to ensure liquidity
o Holding unused stock = unnecessary expenses (storage, insurance etc.)
o Further, loss or damaged stock due to poor monitoring will lead to lost cash for the business
1. Computerises inventory management: use of EDI – barcodes and scanners
2. Physical stocktake: to recording inventory
3. JIT system: reduce costs of inventory
 CONTROL OF CURRENT LIABILITIES

ACCOUNTS PAYABLES (CREDITORS)

 Sums of money owed by the business to other businesses from whom it has purchased products
1. Periodically review credit facilities which suppliers provide;
2. Stretching accounts payable until final due date
3. Take advantage of discounts and interest-free credit period offered by creditors

LOANS
1. Interest rates and ongoing charges must be monitored to minimize costs
2. Periodically review alternative sources of funds from diff. banks/financial institutions

OVERDRAFTS

 Overdraft accounts must be monitored to ensure costs are minimized

1. Promptly deposit cash received into overdraft account to balance out the account
2. Overdraft policies: policies for using/managing bank overdrafts

STRATEGIES

LEASING

 The hiring of an asset from another business who retains ownership of it

o Does not require high initial capital
o “Frees up” cash – can be used elsewhere in the business
o Lease payment becomes an expense – tax deductible
 Can increase number of assets (lower short-term cost) = higher profits/revenue achieved

SALE AND LEASE BACK

 The selling of an owned asset to a lessor and leasing the asset back through fixed payments
o Increased business’ short term liquidity – cash obtained from sale is used as working capital
o Consequently, the business can lease newer models of the same equipment if available
 PROFITABILITY MANAGEMENT

 Control of both business’ cost and revenue

 Ensuring business:
o Does not overspend
o Limits writing off assets
o Maintain financials records/records transactions correctly

COST CONTROLS

FIXED AND VARIABLE

 Fixed costs: not dependent on the level of operating activity in the business
o E.g. salaries, rent, insurance and fixed-interest payment on loans
o Reduced by cheaper insurance, rent and loan payments
 Variable costs: varies proportional to the level of operating activity
o E.g. materials, labour etc.
o Reduced by reducing number of employees, sharing resources
with other businesses, using JIT inventory management

COST CENTRES

 A particular section of the business which does not directly add to profits yet adds to the costs
o lE.g. R&D, help desks etc

EXPENSE MINIMISATION

 Establishing guidelines and policies to encourage staff to minimize expenses where possible
o E.g. eliminating waste and unnecessary spending
 JIT system to reduce warehousing costs etc.
 Substituting labour for machinery
 Budgets to help determine greatest expenses contributing to cash flow problems

REVENUE CONTROLS

MARKETING OBJECTIVES

 Sales forecast must be pitched at levels of sales that will cover costs and result in a profit.
 Cost-volume profit-analysis: determines the level of revenue sufficient for business to break even
o Predicts the effect of level of activity, prices and costs on profit
 Cost-based pricing: sets percentage mark-up to ensure fixed amount of profit is received on each sale
o Discounts can be offered on products which will increase sales
 Higher volume sales + lower profit margin = stable revenue
 GLOBAL FINANCIAL MANAGEMENT

 Financial risks are greater when associated with global expansion compared to domestically

EXCHANGE RATES

 Foreign exchange rate: ratio of converting one currency to another via the foreign exchange market
 Effects of currency fluctuations:

Appreciation Depreciation
 Raises the value of the Aus. Dollar in terms of  Decrease in the value of $AU in terms of
foreign currencies foreign currencies
 E.g. $1 AU will buy more foreign currency  E.g. $1 AU will buy less foreign currency
 Exports are more expensive on international  Exports are cheaper on international markets
markets = less sales = more sales internationally
 Imports are cheaper = reduced costs  Imports are more expensive = increased costs

INTEREST RATES

 Business’ often borrows finances from overseas due to cost benefits:

o Lower rates of interest rates
o Business’ can benefit from exchange rate fluctuations (the converse is also true)
o Fewer restrictions on loans (amount borrowed, repayment period, conditions etc.)
o Newer technology in global banking industry
 Despite the benefits, there are often great risks:
o Depreciation of AU currency = increase in repayments costs (vice versa)
o Business is affected by foreign currency’s economic cycle (rates become highly volatile)

HEDGING

 Strategy used to reduce financial risk in global transaction

o Transaction exposure: the risk of unfavourable changes in the value of a country’s currency
which can increase a business’ costs and thus decrease its’ profits
o Exchange rate can change from time of purchase to time payment is made.

USE OF SUBSIDIARIES

 A natural form of hedging where a global business sets up a sub-business which supplies its inputs
o The global corporation can then ensure all transactions occur in the same currency
 DERIVATIVES
 A special contract between global businesses and suppliers
1. Forward exchange contracts: the current exchange rate is agreed on for a future transaction.
Regardless of the true rate on the agreed date, the exchange rate stays the same.
2. Options contracts: The buyer has the option (not obligation) to buy/sell foreign currency when
exchange rate is to their advantage. This means the buyer can lock into buying or selling a set amount
of currency in the future at the current exchange rate.
3. Swap contracts: two parties exchange currency in the spot market with an agreement to reverse the
transaction in the future. The exchange rate is called a spot rate.

METHODS OF INTERNATIONAL PAYMENT

PAYMENT IN ADVANCE

 Exporter receives payment first and then goods are sent

o Exposes the exporter to virtually no risk
o Used if party is a subsidiary or when credit rating of buyer is uncertain
o Very few importers agree to these terms because it exposes them to the most risk
 No guarantee they will receive what they ordered

LETTERS OF CREDIT

 Commitment by importer’s bank: promises payment to exporter with proof of shipping

o Cannot be withdrawn

BILL OF EXCHANGE

 International bank used as an intermediary: ensures goods are received - payments are made
o Exporter sends documents to importer’s bank along to allow importer to collect
goods
o Importer’s bank hands over documents once payment has been made
o Importer’s bank then transfers funds to exporter’s bank

CLEAN PAYMENT (REMITTANCE)

 Export ships goods before receiving payment

o Quickest method of settling an international transaction
o Requires complete trust between both parties
HUMAN RESOURCES
ROLE OF HUMAN RESOURCE MANAGEMENT

 The role of HRM is the process of managing an organisations workforce

STRATEGIC ROLE OF HRM

 The strategic role of HRM involves making decisions that will meet the strategic goals of the business
o Remunerating staff
o Works with other departments to recruit the appropriate staff
o Ensures the working conditions/benefits of employees comply with legal regulation
o Implement a range of training and development programs for staff
o Develop a number of rewards to motivate valued staff

OUTSOURCING

 Outsourcing refers to the transferring of a certain business function to a third party business
o Aims to become more cost effective
o Enables the business to spend more time on its core function

HUMAN RESOURCES FUNCTION

 By outsourcing the HRM function, a business can gain advice and knowledge from a specialist and
experienced third party HR company
o However, may back-fire if external business does not understand culture/staff of the bus.
o Further, a business may neglect dealing with manager-employee relations since the HR is
outsourced, although the business is still responsible to monitor these relations

USE OF CONTRACTORS

 Contractors are third-party providers of a service to a business

o Achieves cost-savings, greater competitiveness and more time to spend on prime-function

DOMESTIC CONTRACTS

 Occurs when the contractor is located domestically in Australia

o Contract of service occurs when an employee is offering their service to a business on a
regular basis and is subject to the lawful control and authority of the employer
o Contract for service occurs when a third-party individual or business provides a service for a
fixed period at an agreed fee

GLOBAL CONTRACTS

 Occurs when the contractor is located globally, outside Australia

o Cheaper costs
o Access to labour without WHS/minimum labour requirement issues
 May have a negative impact on CSR
o Cultural differences may pose a threat to product quality
 KEY INFLUENCES

STAKEHOLDERS

EMPLOYERS

 Employer: refers to the individual or organisation that pays others to work for its business
 Shareholders may appoint a group of managers to take on this responsibility (HRM)
o Works with other departments to recruit the appropriate staff
o Ensures the working conditions/benefits of employees comply with legal regulation
o Implement a range of training and development programs for staff
o Develop a number of rewards to motivate valued staff

EMPLOYEES

 Employee: refers to an individual who provides their skills to a business in return for a regular income
o Have the responsibility to complete tasks in a manner described by the employer
o Businesses seek to introduce initiatives aimed at developing family-friendly practices
 Provision of child care centres
 Flexibility in starting and finish times
 Allowing various staff to work from home (due to advancements in tech)

EMPLOYER ASSOCIATIONS

 Employer associations: organisations that aim to promote the interests of employer

o They lobby governments to develop policies at the interest of the employer
o Advise members who are employees on current government workplace legislation
o E.g. National Farmers’ Federation or Employers First

UNIONS

 Unions: organisations that aim to protect and promote the interests of employees in the workplace
o Assists employees with disputes in the workplace
o Advise members on workplace rights, wage levels, WHS issues, etc.
o E.g. NSW Nurses’ Association and Workers Union
o Shop steward: the union representative of a workplace
 Deals with workplace disputes and refers major grievance issues to the union itself
o Employ industrial officers to assist members with workplace concerns
 Employers can deny these officers access to conduct meetings with members onsite
 Since the mid-1980s there has been a steady decline in union members; this is due to:
o Move towards private-sector organisations providing services on behalf of the government
o Move from manufacturing-based economy towards service-based economy
o More employees hired as part-time or casual;  joining a union is not worth the costs $$

 NOTE: The following is not seemingly necessary – Australian Council of Trade Unions (ACTU)
o Lobbies government for improved working conditions/wage increases for all Aus. Employees
o Works with other unions to provide submissions to Fair Work Australia for national wage
case hearings (when all stakeholders approach Fair Work Australia to increase min.
wage)
 GOVERNMENT ORGANISATIONS

 Government organisations establishes the legal framework for stakeholders to follow

o One of the most influential stakeholders in the employment relationship process
1. Fair Work Australia (FWA): established by the Fair Work Act 2009 (Cwth.)
o Encourages the prevention and settlement of industrial disputes by conciliation/arbitration
o Determines minimum wages through national wage case hearings
o Arbitrate on unfair dismissal claims
o Applies the Better Off Overall Test to certain enterprise agreements
2. Federal Court of Australia: acts as an avenue for appeal regarding decisions made by the FWA
o Applies penalties to parties who breach legally binding decisions made during arbitration
 Other agencies/organisations (NOTE: These are not necessary, again.)
o Human Rights and Equal Opportunity Commission: enforces Gov. legislation on
discrimination `
o Equal Opportunity for Women in the Workplace Agency (EOWA): promotes equal
opportunity for women  Equal Opportunity for Women in the Workplace Act 1999
(Cwth.)

SOCIETY

 Society sets expectations for workplace practices and employment conditions

LEGAL – THE CURRENT LEGAL FRAMEWORK

 The employment relationship is subject to considerable number of regulations and laws

THE EMPLOYMENT CONTRACT

 The legislative conditions outlined in this contract apply to all workplaces

o An employee is any person subject to a contract of service

COMMON LAW

 Developed by courts– judges make decisions based on the facts of a case, guided by precedent
 Duties of employers: – CWW
o Duty of care: it is the employer’s legal obligation to provide employees w/ a safe workplace
 Employees must be provided with necessary skills, knowledge, equipment, clothing
 Employers must warn employees of risks that usually don’t arise (e.g. slippery
floors)
o Duty to pay the agreed wage: when an employee commences employment, the business is
legally obliged to pay the employee the collect, legal wage according to the award
o Duty to provide work: it is the responsibility of the employer to provide a constant source of
employment  in the case of no work, they employer must pay out a redundant package
 Duties of employees: – OSD
o Duty to obey lawful commands: when employed by an employer, the employee is expected
to follow the lawful instructions of management
o Duty to work with skill: the employee is obligated to use their skills in a competent manner
o Duty to disclose relevant information: an employee must disclose relevant information which
may affect their performance as a precautionary measure
 MINIMUM EMPLOYMENT STANDARDS (NES)

 The FWA 2009 provides a safety net of 10 enforceable national employment standards
 For the list of all 10 see: 10 NES Entitlements
 NOTE: You should try your best to memorize these. Acronym:
HPAC-FaLS-PR : Hours, Parental leave, Annual leave, Carers/compassionate leave, Flexible
arrangements, Long service leave, community Service leave, Public holidays, Redundancy
pay.

MINIMUM WAGE RATES

 Refers to an employee’s minimum rate of pay for hours worked

o FWA reviews and makes adjustments to the minimum wage each year
o FWA is responsible for ensuring employers pay employees at the minimum wage or above

AWARDS

 The legal doc specifying the minimum wages and working conditions for all employees in an industry
o Wage: an hourly rate of pay; may include overtime payments for extra hours worked
o Salary: an annual rate of pay, divided in equally pay periods; expected to work extra hours
(at no extra pay) to complete tasks
o Working conditions: non-wage aspects of an award (e.g. work hours, tasks, responsibilities)

ENTERPRISE (CERTIFIED) AGREEMENTS

 An agreement negotiated between an employer and all its employees, exclusive to each business
 Agreement process:
o The agreements must be negotiated by staff and employees
 Unions may assist employees in the negotiation process – enterprise bargaining
o The agreement must then be approved by FWA
o Here, they are subject to the Better Off Overall Tests: where Fair Work Aus. examines
whether employees will benefit from a new agreement as opposed to current
awards

TYPES OF EMPLOYMENT CONTRACT

 Part-time: involves an employee working a fixed set of hours per week

o Entitled to all the benefits of full-time staff (sick/annual leave, holiday loading) on a pro rata
basis (entitlements are proportional to the hours an employee works)
 Permanent (Full-time): involves an employee who is provided with continuing employment
o Work between 35-40 hours/week
o Are often paid an overtime allowance for extra hours (according to wage agreement)
o Entitled to minimum of four weeks holidays per year and one week long-service leave a year
 Casual: an employee who is employed for short periods of time
o Must work for a minimum of one to three shifts a week
o Employer is not obligated to provide ongoing, regular work
 Their employment is subject to the employer’s demands
o Do not receive any entitlements, yet are paid 1.5x the full-time wage
 Fixed-term contracts: when an employee is only held for a specific period of time
o Both parties are in agreement to this time period
o Contract can only be cancelled upon consent of both parties
 WORK HEALTH AND SAFETY (WHS) AND WORKERS COMPENSATION

 Workers Compensation: governs the process of employees gaining compensation for injuries
o Workers Compensation Act 1987 (NSW)
o Workers Compensation and Workplace Injury Management Act 1998 (NSW)

ANTIDISCRIMINATION AND EEO

 Various anti-discriminations laws, enforced by the Human Rights and Equal Opportunity
Commission, prohibit discrimination in the workplace:
o Sex Discrimination Act 1984 (Cwth.)
o Racial Discrimination Act 1975 (Cwth.)
o Disability Discrimination Act 1992 (Cwth.)
 Such laws seek to protect employees, yet it is the responsibility of the employee to report claims

SOCIAL

 Workforces are now characterised by greater diversity in ethnicity, culture and gender
 Social influences impact the methods by which a plan manages its employment-relations functions

CHANGING WORK PATTERNS

 Women: more women in the workforce, despite under-representation of women management

o Increased women in workforce coincides with growth in the part-time work sector
o Employees may seek to incorporate heavier discrimination acts
 Flexibility: Traditional hours of work in from 9am-5pm are beginning to disappear
o Employers may seek to change awards on the basis of overtime pay
o Greater casualization of the work force
 Service-based country: fewer unskilled jobs available within the market
 Greater cultural diversity

LIVING STANDARDS

 Education: There is a direct relation between higher education and higher earning capacity
 Publicity and Politics: Businesses are now more exposed to the public.
o E.g. after the GFC, business’ were forced to reveal

TECHNOLOGICAL

 Technology has had great impacts on human resources management.

o However, has also seen the decline in the manufacturing sector to decrease physical labour

Advantages Disadvantages

 Allows the business to develop more  Loss of employment as technology

efficient production techniques and replaced workers in the production
products line

 Reduced employee drive and

 Reduces the repetitive nature of
confidence in fear of being made
labour-intensive work
redundant due to technology
 ECONOMIC

 Economic cycle

Businesses (w/ more $$) hire more labour for the provision of these products (↑employment) (↑job
In growth, an employee may spends more $$$ on products (↑consumer demand)

 Impact of inflation

Businesses increase production Employees

In growth, consumers spends
(↑employment); demand higher wages Business reduces workforce
more $$$ on products
yet also increase price of products (↑business costs) (↓employment)
(↑consumer confidence)
(↑cost of living)

 Globalisation
o Government has encouraged foreign-owned business to establish operations in Australia
 In hope of providing consumers with greater choice, lower prices, and employment
 However, has created increase competition for domestic businesses

ETHICS AND CORPORATE SOCIAL RESPONSIBILITY

 Corporate social responsibility is the duty of care that a business has towards its stakeholders.
 Effective CSR strategies can enhance the reputation of a business within the community
o Further, this may be used to promote recruitment of staff for the business
 A business meets its CSR through its actions, by:
o Engaging in strategies that promote work-life balance and enhance workplace flexibility
o Encourage staff to volunteer their time into community-building projects
o Complying with WHS measures and anti-discrimination legislation
o Adopting environmentally friendly practices
o Applying a code of conduct to company operation
 HUMAN RESOURCES PROCESSES

 The HR cycle:
o Acquisition
o Development
o Maintenance
o Separation

ACQUISITION

IDENTIFYING STAFF NEEDS

 This process may simply involve training the existing staff to cope with business changes or
implementing incentives to increase their productive capacity
 However, if the staff need is not met, the specific job must be identified and analysed, involving:
o A job description: describes duties, tasks and responsibilities of a job
o A job specification: outlines key skills, experience and qualification of the needed staff –
- Independence here with other functions to determine skills needed
o A remuneration figure: determines the value of the job; outlining payment and entitlements

RECRUITMENT

 Recruit: to accumulate a pool of potential candidates for a job:

o Internal: promotion existing staff
o External: recruiting new staff outside the business
 Outsourcing the recruitment function
 Recruiting students from universities and schools via cadetships or grad programs
 Online career sites such as SEEK.com.au
 Traditional advertisements in newspapers
 Poaching/Headhunting from competitors by offering better remuneration packages

SELECTION

 Selection: is a screening process

1. Information gathered from applicants is reviewed (depends on budget
 Application forms
 Interviews – individual or group based
 Assessment centres
 Tests – theory-based, logical reasoning, handwriting
2. The best candidate is chosen
3. There may be a process of negotiation over pay and entitlement issues
4. The candidate is often placed on a 3-month probation period before made permanent
 The selection process must be completed quickly and effectively since applicants may have applied
for several other jobs
 DEVELOPMENT

 Induction programs: introduces the new employee to the business and its culture
o Reveal to the employee the goals and structure of the business
 Training programs: activities aimed at improving an employees present and future performance
o Results in upgrading of skills, knowledge and competency to better meet business goals
o On-the-job training: apprenticeships and traineeships
o Off-the-job training: TAFE, university and college courses
 Development programs: preparing employees for future responsibilities within the business
o May be due to change in business’ strategies or growth
o Development programs must be evaluated to determine they are achieving their objectives:
 Performance appraisal: a formal assessment of how well a person is working
 Provides a basis of the individual’s weaknesses (where training is needed)
 Possible promotions and further developments
 Training and Development will often result in:
o Increased motivation of employees and thus efficiency
o Greater business flexibility
o Improved use of technology

MAINTENANCE

MAINTENANCE OF DATABASES

 A database is used to maintain the records of a business

 A skills inventory is used to store the skills, expertise and qualifications of all staff
 Databases must be kept highly secure by the implementation of full-proof technology

MAINTENANCE OF HR

 Databases can be used in a number of areas of employee administration

1. Firms must provide a comfortable work environment to maintain and motivate valuable staff
2. Developing rewards to motivate staff
3. Managing workplace disputes and implementing grievance procedures to prevent relation issues
 Consequences on staff:
o Increasing productivity
o Improving the level of morale and loyalty among staff
o Improving communication between management and workers
o Decreases costs through lower staff turnover (rate at which employees leave the business)
 SEPERATION

 Separation: the ending of the employment relationship (termination of the employment contract)
 Must be handled well to ensure effective employment relations with the remaining workforce

VOLUNTARY

 Retirement: the decision of a person to withdraw from active working life

o Dominant reason is age, yet can be health, lack of motivation or a change of lifestyle
o The increased life expectancy has meant that people do not retire in their 60s anymore
 Resignation: occurs when a person decides to leave their job
o Employees need to give notice of their intention to leave the job – generally 1-4 weeks
 Voluntary redundancy: when a business needs to downsize, individuals are allowed to nominate
themselves for redundancy
o A business may need to reduce staff due to mergers and takeovers, new tech, downsizing
o Individuals may find it in their financial interest to leave the job earlier and find another +
receive the redundancy package

INVOLUNTARY
 Involuntary redundancy: involves removing a position when its duties are no longer needed
o Retrenchment occurs when there is not enough work for the employees
o Employer must ensure the steps are set out in the Employment Protection Act 1982 (NSW)
and the Fair Work Act 2009 (Cwth.)
 Must provide a redundancy package based on years of service
 Selection process must be clear and transparent
 Other options must first be explores and analysed
 Dismissal: occurs when an employee has not met their terms of the employment contract
o Employees have the right to appeal the employer’s decision to an industrial relations tribunal
o Federal government has passed unfair dismissal legislation e.g. anti-discrimination acts
o The classification of their employees (casual, part or full-time) 1may affect the way the
worker is dismissed
o Dismissal can be instant or after warnings according to their company’s dismissal policies
 Instant or summary dismissal: the immediate termination of the employee’s
contract without notice
 due to Misconduct; e.g. absenteeism, drunkenness, gross negligence, theft
 After warnings: occurs after the employer has issued a series of warnings
 May occur due to continual lateness, failure to perform duties
 Employers must be issued with written warnings and provided with
assistance to improve behaviour
 HUMAN RESOURCE STRATEGIES

 Effective human resource strategies ensure the businesses employees are loyal and committed:
o Increased productivity
o Increased level of morale among workers
o Improved communication between management and workers
o Reduces the level of absenteeism
o Reduces the costs due to lower staff turnover
 All these factors will develop a competitive advantage for the firm

LEADERSHIP STYLE

 Leadership style is the manner and approach in which leaders of a business interact with staff
 Leaders will often make use of a combination of three styles:
o Authoritarian (autocratic) – management makes all decisions with no input from staff
 Allows no room for employees to contribute to the process of making decisions
 Advantage: Decisions are made quickly
 Disadvantage: Low employee morale and productivity
o Participative (democratic) – management includes employees in the decision making process
 Advantages: boosts employee morale and motivates staff to empower them
 Disadvantages: Decisions may take longer time
o Delegative (laissez-faire) – employees make all decision with no input from management
 Advantages: staff feel a strong sense of worth and empowerment
 Disadvantages: There may be conflict of interests, and decisions take longer time

JOB DESIGN

 The process of defining the work activities and tasks the need to be done by an employee
o Must satisfy both the needs of the business and employee
 Effective job design leads to increased productivity and efficiency
o Job satisfaction: extent to which employees are satisfied with their role
o Job enlargement: enlarging the roles associated with a job
o Job rotation: moving an employee through different tasks to overcome boredom
o Job enrichment: making use of the employee’s talents/abilities in their workplace

GENERAL TASKS

 Job design using general tasks allows employees to engage in a variety of areas in the business

Benefits Disadvantages
Eliminates repetition and boredom No specialisation and weaker skills set
Boosts morale and satisfaction

SPECIFIC TASKS

 Job design using specific tasks involves specialisation of labour where an employee only has one role

Benefits Disadvantages
Greater productivity/efficiency (short term) Employer dissatisfaction and boredom
Lowered morale and productivity (long term)
 RECRUITMENT

 Internal recruitment: occurs when the position is filled by existing employees within the business

Benefits Disadvantages
Incentive for staff to improve performance/ Staff which have been overlooked for the
Promotions are seen as reward for hard work position may lose motivation
Employee has existing understanding of Then business is closed to new ideas which
culture within the business may be offered when recruiting externally
Cheaper than external recruitment

 External recruitment: occurs when the position is filled by an individual outside of the business

Benefits Disadvantages
May take time for the new employee to
Wider applicant pool
settle into the organisation
The new employee may offer unique ideas The employee feel resent by existing staff

 Recruiters often look for two types of skills in employees:

o General skills: Business often look for general skills when recruiting
 Also known as “soft” skills; e.g. communication techniques, attitudes, flexibility etc.
 These are important to an employer since they can’t be taught
o Specific skills: In most cases, businesses require specific skills to fill a job
 These skills are outlined in the job specification; e.g. qualifications, experience etc.

TRAINING AND DEVELOPMENT

 Training and development (T/D) allows employers to provide employees with an avenue to develop
and enhance their skills
o Training: is focused on building on the current skills of an employee to enhance the quality of
their current work
o Development: focuses on teaching the employees skills to build them up for future roles
 T/D may be formal or informal:
o Formal training includes lectures, trainee and apprentice schemes and external classes
o Informal training includes the use of coaches or mentors in the workforce, or experience
gained from working on the job
 PERFORMANCE MANAGEMENT

 Performance management is the process of recognising the efforts/contributions of employees. This

occurs through communication between employers and employees:
o Clarification of expectations
o Evaluation of employee performance
 Benefits of performance management:
o Employees have a clear understanding of how to succeed in their job
o Employees understand their role in the business
o Employers can identify any issues early and assist the employee to improve performance
 Performance management can be undergone to meet two different purposes:
o Administrative purposes which aim to use data from performance management to
promote/sack employees, reward employees, or even as a “paper-trail” for documenting
HRM in the case of legal action
o Developmental purposes involve providing the employee with training opportunities to
further their skill and ability. Discussing strengths/weaknesses also improve performance.

PERFORMANCE MANAGEMENT CYCLE

1. Planning: focused on goal setting between the employer and

employee
o Expectations are developed
Assessment Planning
o Goals are established – SMART goals
2. Checking-in: management observe the employee’s performance
to provide feedback.
o Here, they should reward achievement and Checking-in
encourage improvement where needed
o This will improve communication, productivity and employee
motivation through recognition of the employee’s works
3. Assessment: the process of measuring an employee’s performance against objectives planned
o Discuss the employee’s accomplishment/failure of goals  suggest possible causes
o Developing and implementing new goals where necessary
 REWARDS

 Monetary: the most common form of rewards in an business; extend beyond legal entitlements
o According to sales: a commission type bonus (paid extra as a percentage of their sales)
o Piece rates: a commission based according to individual’s output and productivity
o Bonuses: paid at end of the year, Christmas etc. to reward hard work
o Shared ownership schemes: where employees are offered shares in the business as a reward
 Non-monetary: extra benefits not characterised by money
o More flexible working hours
o Increased status in the job
o Annual leave/long-service leave etc.
 Intrinsic: rewards gained from within the employee themselves;
o Satisfaction of a job well done, or that the job is socially rewarding (e.g. charity)

REWARDING METHODS

 Individual or group: businesses must decide whether they want to reward employees individually or
in the groups they succeed in:

Benefits Disadvantages
Encourages a sense of team work Group members may not have worked equally as hard
Improves communication between Employees may have different personal goals not
staff working in the teams recognised through team achievement

 Performance pay: when a portion of an employee’s wage is based on their performance

o Based on the belief that employee motivation is derived through increased financial benefits

Benefits Disadvantages
Financial rewards are often a key motivator, Not all employees are motivated by money;
thus pay may improve performance some rather other rewards, e.g. recognition
Good employees are attracted to work for Performance of an employee is affected by
the organisation as they feel they will get more than just motivation (e.g. health
paid for their successful work attributes conditions)  thus it is difficult to measure
Encourages unmotivated/inefficient Conflict may arise due to the performance
individuals to improve performance measuring process

GLOBAL

 Seeking human resources globally can offer many advantages:

o Cost: countries with weaker labour policies can be exploited for cheap labour
o Skills: the skills required may be provided better overseas (e.g. IT departments in India)
o Supply: the employers required may not be abundant in Australia, and thus require
global sourcing
 WORKPLACE DISPUTES

 Workplace disputes are problems that arises between employers and an employee(s) at a workplace
o They can lead to strikes (withdrawal of labour) or lockouts (halting of work)
o They can ruin a company’s brand and reputation
 Workplace disputes can arise from:
o Wage demands or other entitlements
o Current working conditions
o Management policies
 Disputes are unavoidable, however they can be minimized and resolved effectively with proper
management procedures:
o Autocratic: Management takes a hostile approach to resolve the dispute without considering
the issues of the employees  this may lower workforce morale
o Behavioural: Management considers staff concerns, provides feedback and aims to resolve
the dispute  this is mutually beneficial in addressing the problem
 Grievance procedures are the procedures that HR stakeholders must follow to resolve a dispute
o Provides a clear outline of issues regarded as workplace grievances
o Provides a mechanism to achieve quick resolution of disputes
 Employees are allowed avenues to communicate and air problems
 Employers are able to reprimand staff for unsatisfactory work or conduct
o Illustrates the correct process to raise complaints

DISPUTE RESOLVING PROCESS

Negotiation Discussion with both parties to resolve the process

• Employer associations/unions may be called in to assit with negotiations in small businesses
• Experts in the field of negotiation may be hired to work with HR in large businesses

Mediation Independent party requrest to reach a settlement

• Occurs when negotitation has failed
• Meidator may suggest ideas or present issues in an alternative way

Conciliation Fair Work Australia is asked to mediate the dispute

• Both parties must be satisfied with the final outcome
• Conditions of agreement are not legally binding

Arbitration An independent 3rd party is appointed by FWA as a commisioner

• Arguments are presented on each side
• Such as in a court case
• 3rd party commisioner evaluates and reaches a final decision which is legally binding
 INDICATORS OF THE EFFECTIVENESS OF HRM

CORPORATE CULTURE

 Corporate culture refers to the unique value and beliefs within a business
o A strong culture encourages employees be responsible, take initiative, and work in teams

BENCHMARKING KEY VARIABLES

 Benchmarking key variables is the process of measuring an employee’s performance against

established standards
o Similarly to industry benchmarking in a business, businesses assess the performance of
employees to develop strategies which may improve their performance

CHANGES IN STAFF TURNOVER

 Staff turnover refers to the rate at which employees leave the business
o High levels caused by voluntary separation indicates a poor employment relationship and
the dissatisfaction of employees
 This may be caused due to the culture, management style, or other factors
o High staff turnover indicates high costs due to redundancy payments and recruitment
o Current stag may also move to competing firms and cause a threat to the business

ABSENTEEISM

 Absenteeism refers to an employee unable to attend work due to illness/family etc.

o Frequent absenteeism may occur due to low morale and high dissatisfaction
 i.e. employees may use “sick days” as an excuse not to go to work
o This can have huge costs to a business since labour is not being used, the employee still
must be paid AND replacement staff must be found.

LEVEL OF DISPUTES

 The frequency and number of disputes can indicate the effectiveness of HRM
o More disputes indicates a dysfunctional employee-employer relationship

ACCIDENTS

 Accidents across many areas of the workforce due to human error

o By following WHS standards and recording accidents, management can minimize accidents

WORKER SATISFACTION

 The more satisfied employees are in their work, the more loyal they will become
 Dissatisfaction of employees can be seen by the quality of their work, attitudes, number of disputes
and absenteeism
INTERDEPENDENCE
INTERDEPENDENCE WITH OTHER KEY BUSINESS FUNCTIONS

Business functions must interrelate with each other to achieve goals due to specialisation which must occur in
large businesses. Therefore with specialisation, there is significant interdependence between business
functions due to their great reliance on each other.

Operations Marketing

Human Finance
Resources

OPERATIONS AND HUMAN RESOURCES

Operations use human capital as a major input, especially in the case of a service-based business such as
Qantas. Thus there is great interdependence between the two functions as human resources ensures that
operations has the appropriate staff and skilled labour. At Qantas, this occurs by HR recruiting all the staff in
the operations process. HR is also involved in the training and development of staff involved in operations.
With the introduction of the new Boeing 787 this saw development and re-training of new and existing pilots.
HR is also responsible for motivating staff in the operations function through benefits, both monetary and non-
monetary, such as the flight discounts Qantas provides to their operations staff.

OPERATIONS AND MARKETING

The operations function affects marketing decisions by defining the constraints and capabilities of marketing
campaigns. Further, marketing provides a basis of changing consumer tastes and product features to
incorporate in order to gain a competitive advantage in the market. At Qantas, the operations management
alters flight services according to marketing trends analysed by the marketing function.

OPERATIONS AND FINANCE

The finance function of a business is heavily interrelated to the operations function since it is the one providing
operations with the funding to continue to produce. Financial management sets budgets for operations
management to stick too, and further analyses the financial performance and efficiency of existing operations
schemes. For example, the financial management function at Qantas recently increased their budget on capital
expenditure for operations from $2.5 billion to $2.8 billion in 2013. Many operational activities are also heavily
reliant on funds, thus further amplifying the interrelation between both functions; such as the funding for new
plans (of up to $1.9 billion in 2012) for Qantas.
 HUMAN RESOURCES AND MARKETING

Most notably, human resources provides marketing with the necessary training and acquirement of staff.
Consequently, due to Qantas’ service-based nature, there is a lot of customer interaction, thus requiring a
skilled strong workforce to satisfy customers. Further, HR involves with hiring out and outsourcing additional
support when required as a result of marketing campaigns and analysed marketing trends.

HUMAN RESOURCES AND FINANCE

Human resources require funds to remunerate staff and to fund effective HR strategies such as training and
development. In 2012, one of Qantas’ largest expense was recruitment and training with over $275 million,
further extending the interdependence between these two functions. Further, decisions made by financial
management such as outsourcing, cutting flights and the launch of new airlines in Asia have not only caused
increasing industrial disputes for Qantas, but also had a great impact on staffing levels and HR.

FINANCE AND MARKETING

Finance depends on marketing to generate funds through the marketing strategies employed. Finance
establishes the budgets and forecasts for promotional campaigns. This is seen by the marketing strategies
Qantas has implemented (through a differentiation strategy by creating new lounges, flights and check-in
facilities). Also, by the use of sales promotions during non-peak times, the Qantas marketing team helps boost
sales in times of variation in demand. Consequently, these strategies are judged by finance to analyse the
success of the marketing strategy in yielding the greatest sales and market share. Further, finance can also
provide the necessary funding to modify production as a result of new marketing campaigns.