Bsia Prelim 5e Business
Bsia Prelim 5e Business
Bsia Prelim 5e Business
BUSINESS STUDIES
IN ACTION
PRELIMINARY COURSE | 5TH EDITION
STEPHEN CHAPMAN
ROSALINDA GALLINA
NATALIE DEVENISH
Fifth edition published 2019 by
John Wiley & Sons Australia, Ltd
42 McDougall Street, Milton, Qld 4064
Fourth edition published 2014 © S. Chapman, R. Gallina, N. Devenish
Third edition published 2011 © S. Chapman
Second edition published 2006 © S. Chapman, N. Devenish, M. Dhall
First edition published 2000 © S. Chapman, N. Devenish, M. Dhall
Typeset in 10.5/12.5 pt ITC Berkeley Oldstyle Std
© S. Chapman, R. Gallina, N. Devenish 2019
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ISBN: 978-0-7303-5639-4
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10 9 8 7 6 5 4 3 2 1
CONTENTS
2 Types of businesses 20
2.1 Introduction ���������������������������������������������������������������������������������������������������������20
2.2 Classification by size �������������������������������������������������������������������������������������������21
2.3 Classification by geographical spread ����������������������������������������������������������������23
2.4 Classification by industry sector �������������������������������������������������������������������������28
2.5 Classification by legal structure���������������������������������������������������������������������������33
2.6 Types of companies���������������������������������������������������������������������������������������������37
2.7 Factors influencing choice of legal structure �������������������������������������������������������44
8
Management process 198
8.1 Introduction�������������������������������������������������������������������������������������������������������198
8.2 Different ways of coordinating key business functions for a SME��������������������200
8.3 Operations���������������������������������������������������������������������������������������������������������202
8.4 Marketing�����������������������������������������������������������������������������������������������������������217
8.5 Finance��������������������������������������������������������������������������������������������������������������234
8.6 Human resources����������������������������������������������������������������������������������������������254
8.7 Ethical business behaviour��������������������������������������������������������������������������������282
9
Management and change 290
9.1 Introduction�������������������������������������������������������������������������������������������������������290
9.2 What is organisational change?������������������������������������������������������������������������291
9.3 Responding to internal and external influences������������������������������������������������294
9.4 Managing change effectively�����������������������������������������������������������������������������299
TOPIC 2 Suggested assessment tasks............................................................................312
iv CONTENTS
12 The business planning process 394
12.1 Introduction�������������������������������������������������������������������������������������������������������394
12.2 Business planning process��������������������������������������������������������������������������������398
12.3 Sources of planning ideas���������������������������������������������������������������������������������401
12.4 Vision, goals and/or objectives��������������������������������������������������������������������������403
12.5 Organising resources�����������������������������������������������������������������������������������������410
12.6 Forecasting��������������������������������������������������������������������������������������������������������414
12.7 Monitoring and evaluating���������������������������������������������������������������������������������417
12.8 Taking corrective action — modification�����������������������������������������������������������424
Appendix ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 457
Glossary ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 462
Index ������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 470
CONTENTS v
HOW TO USE THIS BOOK
The following examples highlight the structure and main features of Business Studies
in Action Preliminary Course 5th Edition. An electronic version of the textbook and a
complementary set of targeted digital resources — the eBookPLUS — are available
online at the JacarandaPLUS website (www.jacplus.com.au).
TOPIC 2
focus area of the topic • explain the internal and external influences on businesses
• assess the processes and interdependence of key business functions
observing mentors and other leaders he was able to develop and learn these skills.
Thorburn spends a lot of his time mingling and talking to customers and frontline
and lists the syllabus • examine the application of management theories and strategies
• analyse the responsibilities of business to internal and external stakeholders
staff when he should be talking strategy in the boardroom. He encourages them
to say what they think because he recognises that he doesn’t always have all the
• plan and conduct investigations into contemporary business issues answers. Thorburn believes one of the most effective ways of problem-solving is to
outcomes� A concept • evaluate information for actual and hypothetical business situations
• communicate business information and issues in appropriate formats
listen to different perspectives. One of his favourite parts of the job is to visit different
cities, including regional areas, and talk to staff in order to obtain a view from the
map allows students • apply mathematical concepts appropriately in business situations. ground. He encourages two-way communication as he feels he can learn so much
from his employees about what needs to be done to support them.
❛ … he embraces
change and views it as
to visualise the key
Thorburn believes leadership is all about people; the ability to engage with,
Achieving business
and lead, people. He always wears a name badge (the same type worn by staff an opportunity … ❜
in the bank’s branches) so that when he meets people he can introduce himself
concepts in the topic�
goals
and encourage them to talk to him. While he is often described as ambitious and
someone who can make tough calls, staff have found Thorburn to be caring and
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consistently in all waiting staff to electronically send orders to the kitchen. This means better service
for the customer because the order is taken more efficiently and more time can be
questions to prepare
devoted to other tasks such as the prompt delivery of food and drinks.
Business
(b) John is the manager of a function centre that hosts large weddings and Products Location Management Resources
culture
conferences. He makes sure to include an acknowledgement of the traditional
students for HSC study. owners of the land, the Wurundjeri people and their elders, in his opening remarks.
(c) Mia has to design and print new labels for the foods sold in her deli. This is
FIGURE 3.19 Internal influences on business
because changes to the food labelling laws require that all foods list the ingredients
Questions are graded by particular portion size. This allows customers to more easily compare different
food items. She thinks that this may affect which foods customers choose.
3.4.1 Product influences
Product influences affect a range of internal structures and operations within the
according to low-, (d) Michael, the owner of a local bottle shop, is no longer allowed to sell imported
premixed alcoholic drinks because of a government ban on food and beverage
imports from particular countries.
business. The main product influences on a business are as follows.
1. The type of goods and services produced will affect the internal operations of a
middle- or high-order business. If the goods are physically large or require many raw material inputs,
there will need to be structures in place to organise and monitor the processes
EXERCISE 3.1 EXTENSION involved in production. In contrast, a service may be delivered by a home-based
thinking skills. The ‘key 1 Explain the impact each of the external influences has on a business and how the
business or a franchise business, such as Jim’s Mowing, and will influence the
internal structures or processes differently.
business’s management responds. The first factor has been completed for you.
process verbs’ are The range of goods and services refers to the number produced by the business.
The larger the number, the more internal impact it will have on the business as
listed and defined in Factor influencing the Brief explanation Management response it will need to expand operations and internal structures to accommodate the
internal environment changes. Companies such as Coca-Cola have continually expanded their product
range over the last 20 years, and this has meant that internal changes to operations
an appendix for ready
Political influences Elected governments at all Must comply with the
levels in Australia regulate laws and regulations and management have been necessary to allow this expansion to occur.
markets and have the power introduced by 2. Product influence will be reflected in the type of business (service, manufacturer
reference.
to make or change laws. governments or retailer). Internally, a service provider will be structured differently to a
manufacturer or retailer, and the influences will vary. Some goods or services
require extensive preparation, while others are merely deliverers. Consider the
difference between the product influences of a clothing manufacturer and that
of a clothing retailer.
3. The size of the business, as previously mentioned, will be based on the range and
type of goods and services produced, the level of technology utilised, and the
volume of goods and services produced. The larger the business the more goods
and services being produced, which will in turn influence the internal structures
and operations of the business. A café will operate at a different scale to a club
2 Using an example, determine how the development of global consumers bistro and therefore the influence on business functions will be relative.
encouraged the process of globalisation.
3 (a) Demonstrate how technology has affected the way consumers can purchase
goods and services.
(b) Predict what will happen if an Australian business does not provide the
opportunity for consumers to purchase online.
4 In small groups, examine and report on a social issue confronting businesses in
your local area. You may wish to either prepare a PowerPoint presentation or use a
word-processing package for your report.
(a) Outline the issue.
(b) State how the local businesses have reacted to the situation.
(c) Determine what indicators you would use to decide the success or failure of a
business’s response to the situation. FIGURE 3.20 Manufacturing
businesses must have a physical
their own input into the firm. This style of leadership is most effective when a busi-
performance. Through his leadership skills he has been able to successfully align
ness is operating in an environment undergoing rapid change. Individual employees
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employees with each company’s purpose.
accept responsibility and can implement changes themselves, making the business
more responsive to change. Through activities such as brainstorming, a diverse range SNAPSHOT QUESTIONS
of opinions and ideas can be generated resulting in improved decision making. 1. Demonstrate how Jack Stahl adopts a democratic leadership style.
The main advantages of the participative or democratic management style 2. Explain the impact his leadership style would have on his employees.
include the following:
• Communication is a two-way process.
• Employer/employee relations are positive and there is reduced likelihood of
industrial disputes because employees are more likely to accept management
SUMMARY Straightforward
• A manager who adopts a behavioural approach will tend to use a participative or
decisions.
• Motivation and job satisfaction are optimal as employees feel they have played
democratic leadership style.
• Participative or democratic leaders share their decision-making authority with
explanations of
complex concepts
an active role in allocating tasks and implementing actions to meet objectives.
their subordinates.
• Employees have a greater opportunity to acquire more skills.
• This style of leadership is most effective when a business is operating in an
• Power sharing encourages the development of work teams, and employees
are reinforced by
environment undergoing rapid change.
display high levels of commitment.
• There is a high level of trust, often resulting in improved employee performance.
7.4 Contingency approach to
The main disadvantages include the following:
• Reaching decisions and introducing tasks can be time consuming with differing
management numerous up-to-
views having to be considered. The quality of decisions may also suffer because
compromises are made rather than decisive, clear directions given.
• The role of management, and the control of the manager, may be weakened and
While the classical and behavioural management approaches continue to provide
important lessons for managers, other ideas have also emerged during the last
date statistics and
BizWORD
undermined, with employees given too much power in some cases.
• Internal conflict can arise with so many views and opinions being shared. More
couple of decades (see figure 7.22). These contemporary management approaches
represent major innovations in ways of thinking about management and appropriate Contingency approach stresses the
need for flexibility and adaptation of
easy-to-read graphic
management practices. One of the most important contemporary viewpoints is the
organisers. Summaries
involvement may actually bring about disagreement. management practices and ideas to
• The importance of the organisational structure may be minimised, leading to an contingency approach to management. It stresses the need for flexibility and the suit changing circumstances.
informal system that could result in a complete collapse in management. adaptation of management practices and ideas to suit changing circumstances.
• Not all employees want to contribute.
There is no simple answer to the question: ‘What leadership style does a good
throughout each
manager possess?’ Management is an art, not a science. This means that no simple
management formula can be applied to deal effectively with all workplace situations.
Political
chapter encourage a
SNAPSHOT Case study: Jack Stahl — democratic leadership style Contingency progressive revision
Jack Stahl is a former Chief Operating Officer and President of Coca-Cola, as well
as a former CEO of Revlon. Through his democratic leadership style and knowledge, Systems
of concepts. Weblinks
are provided to key
he brought these two companies to higher profitability. During his tenure at Coca-
Cola, the net worth of the company grew from $3 billion to over $130 billion.
Jack Stahl believes that working with others is the best way to work. He knows Behavioural
how to delegate work to employees and can take a step back when necessary.
Stahl achieves this through investing in training and development of staff. Training business bodies and
his employees to concentrate on the details reduces the need for micromanagement
and allows him to pull back and worry about things from a more strategic
perspective.
Classical–scientific/bureaucratic
further resources.
As a democratic leader, he encourages his employees to be involved in decision
making. He keeps staff informed about matters relating to their work and shares 1780 1900 1920 1940 1970 1980 2000
problem-solving and decision-making responsibilities. While Stahl ultimately has the BizFACT
final say, he consults with staff before making a final decision. The teams he has led FIGURE 7.22 Timeline of management thought Managers are increasingly finding that
felt trusted and responded favourably to his style. Employees under his management creating a sustainable competitive
demonstrated higher morale, team spirit and cooperation. advantage is not just about being
Stahl is a charismatic and visionary leader who is able to effectively communicate 7.4.1 Adapting to changing circumstances the best at doing a particular thing.
his vision to all relevant stakeholders, as well as inspire his employees to turn that Contingency theorists point out to managers that no two situations are absolutely Instead, businesses must be really
vision into a reality. Stahl’s inspirational qualities have enabled him to foster both identical. Each situation, therefore, requires its own unique solution. For example, good at learning to do new things.
❛ … working with individual and team effectiveness. He possesses an ability to produce results through Those businesses that thrive are the
you may have used a particular strategy to complete a task for assessment. Although
others is the best way the use of intrinsic rewards such as recognition, as well as rewarding successful this strategy may have been quite successful for that particular task, another
ones that are quick to read and act on
signals of change.
to work. ❜ assessable task may well require a completely different approach.
TOPIC 2 SUGGESTED ASSESSMENT TASKS 6. Fletcher & Sons Construction has developed a plan to guide the business over the
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next five years. What type of planning is this an example of?
(a) Operational
(b) Tactical
allocated.
(d) Competition-based pricing
What would be the value of the stock?
(a) 2000 14. Michael is able to manage change in his business by always scanning the
(b) 4000 environment and attempting to understand the factors that will have an impact on
(c) 16 000 the business. Which of the following best describes the method of managing change
(d) 68 000 effectively used by Michael?
(a) Setting achievable goals
(b) Reducing resistance to change
(c) Identifying the need for change
(d) Utilising management consultants
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Stephen Chapman is an active teacher, author, HSC marker and consultant, with
28 years’ experience as a classroom teacher and head teacher. He has authored/
co-authored 24 textbooks in the areas of Commerce, Business Studies and
Economics. He has won awards for teaching excellence and pedagogical writings,
as well as a Commonwealth Parliamentary Teaching Fellowship. As a consultant,
he works with schools to develop teaching programs and educational resources.
Rosalinda Gallina is a teacher of Business Studies, Legal Studies, Commerce
and Business Services, with over 14 years’ teaching experience. She is a Business
Studies HSC marker and has been the co-convenor of the Business Studies Trial
HSC Examination paper for the Catholic Secondary Schools Association NSW for
three years. She also lectures and presents at student workshops on HSC Business
Studies.
Natalie Devenish is a teacher of Business Studies, Economics, Legal Studies and
Commerce, with over 15 years’ teaching experience. She has been an HSC marker
for seven years and has completed a Masters in Education. She has co-authored
three textbooks in the areas of Business Studies and Commerce. Natalie has a
specific interest in the development and implementation of literacy strategies to
support student learning.
The authors would like to thank those people who have played a key role in
the production of this text. Their families and friends were always patient and
supportive, especially when deadlines were imminent. Stephen Chapman wishes
to acknowledge his father, Jack, late mother, Lorna, mother-in-law, Thelo, and late
father-in-law, Rae, who have encouraged him as a student, educator and writer for
many years — and special thanks to Wendy and Max. Rosalinda Gallina would
like to express her appreciation to her husband, Michael, and precious daughter,
Alessia, who supported and encouraged her in spite of all the time it took away
from them. She would also like to sincerely thank her parents, her sister, Isabella,
and her brother-in-law, John, for their never-ending help. Finally, she would like to
acknowledge Lucy and the team at Jacaranda for all their assistance. Natalie Devenish
would like to acknowledge the support of her husband, Mark, and children James,
Georgia and William. Natalie would like to dedicate her contribution to previous
editions to her late father, Graham Kennedy.
The authors and publisher would like to thank the following copyright holders,
organisations and individuals for their assistance and for permission to reproduce
copyright material in this book.
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374/Ribah; 378/alexmillos; 379/roibu; 384/Robyn Mackenzie / 123RF; 385/ALPA PROD; 389/
docstockmedia; 395/RAGMA IMAGES ; 396/Dragon Images; 397/g-stockstudio; 399/Andresr;
408/CreatiVector; 412/Ivanko80; 423/ra2studio; 424/PathDoc; 29, 42, 67, 67, 84, 100, 104,
141, 183, 264, 297, 425/TK Kurikawa ; 433/Art_Photo; 440/dotshock; 440/Ragne Kabanova;
440/Kekyalyaynen; 440/Zurijeta; 445/weedezign; 445/Alexander Kirch; 445/Chesky; 447/Ammit
Jack • Stephen Chapman: 339/© Practice Manager 24/7; 358/© Sunrise Mobile Cafe; 360
• The Conversation website: Deborah Ralston & Martin Jenkinson: Derived from RBA: 371 • Tip
Top Australia: 228/Tip Top - a division of George Western Foods • Typefi Systems : 325/Susan
Hudson • WA Govt - Small business development Corporation: 344 • Wesfarmers: 152 • WNA
LOGO: 347 • Yo-Get-It: 330
Text
Key process verbs, Focus areas and Outcomes for each topic from Business Studies Stage 6
Syllabus © NSW Education Standards Authority for and on behalf of the Crown in right of the
State of New South Wales, 2018 • ABC: 63-64/Article ‘Almost 40 per cent of Australian jobs
could be replaced by technology by 2025, report finds’ Loretta Florance and Lily Partland
from http://www.abc.net.au/news/2015-06-16/technology-could-make-almost-40pc-of-jobs-
redundant-report/6548560; 104/Article ‘Topshop Australia goes into voluntary a dministration’
by Lucia Stein taken from http://mobile.abc.net.au/news/2017-05-25/topshop-goes-into-
voluntary-administration/8557044?pfmredir=sm&sf81713921=1&smid=Page:%20ABC%20
News-Facebook_Organic&WT.tsrc=Facebook_Organic; 342, 447-448 • ABS: 10, 22 • BHP
Billiton Ltd: 153-154 • Copyright Agency Limited: 76-77/More companies are adopting a flat
working structure, David Halliday, news.com.au; 255/PWC named Australias Top Company to
work for by LinkedIn, Dana McCauley, news.com.au; 330/Yo! Boosting the hopes of b aby-faced
bosses, Larissa Ham, The Age • Creative Commons: 52/The Conversation website: Jerad A. Ford,
John Steen & Martie-Louise Verreynne; 56/The Conversation Small business gets flexible to
retain quality workers; 79-80/The Conversation Here’s why ‘cool’ offices don’t always make for a
happier workforce; 125/Why Australian workplaces need much better leaders, The Conversation
website: Peter Gahan; 138/Why some companies are becoming environmental activists , The
Conversation website: Steffen Bohm & Annika Skogland; 149-150/Lack of competition is why
government is moving so hard against the banks The Conversation, Harry Scheule; 281/©
Commonwealth of Australia Fair Work Commission 2018 • Ethical Jobs: 292 • Kevin Fouche
pixelfish blog: 367 • Small Medium Enterprises Today: 420-421/Office of the NSW Small
Business Commissioner • The Conversation website: Deborah Ralston & Martin Jenkinson: 371
• Typefi Systems : 325 • WA Government Small business development Corporation: 344
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ACKNOWLEDGEMENTS xi
TOPICS
TOPIC 1 | Nature of business 2
NATURE OF BUSINESS
FOCUS AREA
The focus of this topic is the role and nature of business in a changing business
environment.
OUTCOMES
Students should be able to:
• discuss the nature of business, its role in society and the types of business structures
• explain the internal and external influences on businesses
• analyse the responsibilities of business to internal and external stakeholders
• plan and conduct investigations into contemporary business issues
• evaluate information for actual and hypothetical business situations.
Role of
business
Influences in the
business environment
Role of business
OVERVIEW
1.1 Introduction
1.2 The nature of a business
1.3 Other functions of business
1.1 Introduction
Think of all the different businesses that operate in your local neighbourhood.
Now imagine what the world would be like if they did not exist. Ultimately we
would have to become self-sufficient: providing for our own needs and wants.
Fortunately, in our society, businesses of all sizes play a crucial role in providing
us with a vast array of goods and services. Businesses are at the very core of our
economy and our future wealth depends upon them.
Most people associate the word ‘business’ with large, multinational corpora-
tions, such as BHP Billiton, McDonalds, Apple and Westfield, operating in many
countries, employing thousands of people and earning millions of dollars in profit.
Although these types of businesses are well known, they are few in number. Small
to medium enterprises (SMEs) make up about 98 per cent of all businesses in
Australia. Take a look around your local area and you will see plenty of examples
of businesses that are considered small or medium based on the number of people
they employ.
Business Studies is not a totally new subject to you. In one sense you have been
‘studying’ business ever since you made your first purchase many years ago —
perhaps an ice-cream or lollies. That simple transaction launched you on life’s
journey as a customer — and as an integral part of the business world. As a high
school student, perhaps you have even operated your own ‘business’, mowing
neighbours’ lawns, washing windows or setting up a stall at a local community
market. You may be employed on a part-time basis and work in a local store or
fast-food outlet — both examples of business enterprises.
FIGURE 1.3 Developing an understanding of the world of business will help you in so many ways.
Businesses, through the many products (goods and services) they make and sell,
have an enormous impact on our lives every day. They influence how we live, work
and play.
SUMMARY
• Businesses play a crucial role in our society, largely determining our standard of
living.
• Small to medium enterprises (SMEs) make up about 98 per cent of all businesses
in Australia.
• The one common feature shared by both the largest and the smallest business
is that they produce a product — goods or service — which is sold in a market
where buyers and sellers meet.
• Businesses have an enormous impact on our lives every day.
Management — coordinating
the business’s limited
resources to achieve specific
goals (e.g. the owner buys a
new machine that makes
coffee faster and saves on
labour)
Organising natural,
Production — capital and human
creating products resources (e.g. separate
(e.g. new reproduction rosters are drawn up for
furniture line is created the employees who work
featuring chairs with a in the ‘Eats’ café and the
‘well worn’ look) antiques section)
BizFACT
It is possible to calculate the value
of production within an economy.
Marketing products Distributing goods and The money value of all the finished
(e.g. online services (products) (e.g.
the owner employs a
products produced in Australia during
store established one year is called the gross domestic
to show full range of delivery business to
antiques available) transport antiques to product (GDP). This measurement
various customers is used as an indicator of Australia’s
at a cost) economic growth. In 2016, Australia’s
annual GDP was $1.67 trillion.
Forecasting sales,
expenses and profit
(e.g. café changes to
a supplier providing
cheaper coffee)
FIGURE 1.5 The main activities undertaken by this business, an antiques dealer with an
on-site café, include more than selling furniture and serving coffee.
9 Reflect on what you have learned so far. State how this information would influence
you if you were intending to start a business.
Profit
This is the return, or
reward, that business
Quality of life owners receive for
Businesses offer a vast producing products Employment
array of products that that consumers need Businesses provide
improve our standard and want. employment to people in
of living. their local community.
Incomes
Wealth
Businesses provide
Business activity results
income to business
in higher levels of
owners/shareholders
economic growth
and employees.
and wealth.
Entrepreneurship
and risk
Businesses provide Innovation Choice
individuals with the Through research and Consumers have
opportunity to turn development, existing freedom of choice
their ideas and products are improved and the opportunity
passions into a and new products to purchase products
livelihood. are created. at competitive prices.
1.3.1 Profit
The main activity of a business is to sell products to its customers. A business BizWORD
receives money (sales revenue) from its customers in exchange for products. It must Revenue is the money a business
also pay out money to cover the numerous expenses involved in operating the receives as payment for its products.
business. If the business’s sales revenue is greater than its operating expenses, it Operating expenses are all the costs
has earned a profit. More specifically, profit is what remains after all business of running the business except the
expenses have been deducted from the business’s sales revenue (see figure 1.7). cost of goods sold.
Profit is what remains after all
business expenses have been
deducted from sales revenue.
1.3.2 Employment
BizFACT Employment keeps the economy healthy. To be able to purchase products, consumers
Around 61 per cent of businesses in need money. Employed Australians will use the money they have earned from working
Australia do not employ staff. at jobs provided by businesses to buy goods and services to meet their needs and
wants, supporting business and opening up further opportunities for job creation.
People are employed in many different businesses, as can be seen in table 1.1.
The number of employees hired by a business at any time will largely depend on
the nature of the products and the number of customers who wish to purchase the
products. Generally, the more that is sold the more employees a business will hire.
Large businesses employ thousands of people within their organisations.
Businesses employ large numbers of people. However, the SME sector has
driven employment growth in Australia, hiring more staff than large businesses
do. The SME sector currently accounts for about 66 per cent of all private (non-
government) sector employment — approximately 7 million people. During the
last 20 years, the SME sector has been the major generator of new jobs in the
Australian economy.
Large businesses also make an important contribution. ANZ, for example,
employs 21 000 people in Australia. Businesses, therefore, have an impor-
tant role to play in supporting employment growth in Australia and in reducing
unemployment.
The amount of income a business can generate to pay wages and salaries, profits
or dividends, depends largely on how successful it is in selling its products. A busi-
ness that is aware of what consumers desire and attempts to satisfy this demand
will experience increasing sales. This provides the business with the opportunity
to offer higher income payments to employees, business owners and shareholders.
BizFACT
Each year TIME magazine publishes
1.3.5 Innovation a list of what it considers to be the
The definition of innovation may vary, but it generally refers to the process of year’s 25 great inventions. Some
creating a new or significantly improved product, service or process (way inventions that made the list in 2016
include an artificial pancreas, artificial
of doing something). Invention refers to the development of something that is limbs, Wynd (a portable air cleaner
totally new, but innovation and invention both result in something unique being that monitors the air around you and
created. purifies where needed), a levitating
Ideas for new products, or development of and improvements to existing light bulb, a folding bike helmet, shoes
that tie themselves (Nike Hyperadapt)
products, will often provide the opportunity for the establishment of a new busi- and tyres that spin in every direction.
ness. Many small business concepts are an innovation on an existing product.
Blu-ray players and tablet computers, for example, came into existence in the
same way as light bulbs and car tyres — that is, through people making technical BizWORD
advances with established products. Sometimes, a person has an idea for a totally Research and development (R&D)
new product, an invention, which will satisfy a need that is not presently being is a set of activities undertaken to
improve existing products, create new
satisfied. Patents are legal protection for the exclusive right to commercially exploit products and improve production.
an invention.
The way we listen to music has been the subject of innovation over the last cen-
tury or more. Prior to the invention of the first phonograph by Thomas Edison BizFACT
in 1877, the only way people had been able to listen to music was through live Businesses in the manufacturing and
professional, scientific and technical
performance. Edison’s invention involved playing music that had been recorded services industries were the major
on cylinders, but these were eventually superseded by discs in the 1920s. Tape contributors to the R&D spending.
recording was developed in the 1930s and 1940s, with the cassette tape appearing
in 1964. Compact discs came onto the market in 1982. Since the 1990s digital
recording techniques have allowed for music to be downloaded from the internet, BizFACT
stored on computer hard drives and on solid-state devices such as iPods and USB While Ford closed down their
manufacturing facilities in Australia,
flash drives. New technological developments soon lead to new products, new they retained an Engineering Centre
markets and new business opportunities. in Broadmeadows, a R&D centre in
Many businesses undertake research and development (R&D) in order to expand Geelong and a test facility at Lara.
their knowledge of products and processes. According to the ABS, Australian busi- The CEO believes that the Australian
R&D facilities are instrumental as part
nesses spent $18.9 billion on R&D from 2013 to 2014. Of the $18.9 billion spent, of the company’s capability as an
large businesses contributed $11.1 billion, medium-sized businesses contributed innovator and centre of excellence for
$4.6 billion and small businesses contributed $3.2 billion. the Asia–Pacific region. In 2015 alone,
SMEs have produced many new products that we take for granted. This is Ford spent around $300 million on
R&D, bringing to $2 billion the amount
because SMEs generally display a consistently positive attitude towards innovation.
of money spent on R&D over the past
They constantly research, develop and test new ideas and products. Many SMEs six years.
are built on product innovation.
BizFACT
While Bill Gates topped the Forbes
2017 Billionaires List, the next four
entrepreneurs on the list (in order)
were Warren Buffett (CEO of Berkshire
Hathaway, which owns more than
60 companies, including Duracell and
Dairy Queen), Jeff Bezos (CEO of
Amazon), Amancio Ortega (co-founder
of Zara) and Mark Zuckerberg (CEO of
FIGURE 1.10 Bill Gates topped the Forbes list of the Richest People in the World again in Facebook).
2017 with a net worth of $85.2 billion. He has held the top spot for 18 out of the past 23 years.
1.3.7 Wealth
The more that is produced the more wealth is generated within the Australian
economy. The thousands of individual businesses operating every day act as the
‘engine room’ of society, helping drive the economy forward to achieve greater
levels of economic growth and wealth.
During normal operations, a business receives money from its customers in
exchange for products. At the same time it must also pay out money to other busi-
nesses to cover operating expenses. Operating expenses are the costs involved in
the day-to-day operation of the business. The difference between the two amounts,
the value added, represents the wealth (profit) created by the business. This wealth
is then redistributed to employees, governments, lenders, owners/shareholders and
the business itself (see figure 1.12).
Governments
Taxes such as income tax,
payroll tax, fringe benefits tax
and goods and services tax
Business owners/
Employees
shareholders
Salaries, wages and
Profits and/or
other employment
dividends
benefits
How the wealth
created by businesses
is redistributed
Term Meaning
A. Income
B. Wage
C. A fixed amount of money paid on a regular basis to a
permanent employee of a business.
D. Shareholder
E. Part of a business’s profit that is divided among shareholders.
7 Define the term ‘choice’. Explain how businesses encourage freedom of choice.
8 Outline the role innovation plays within our economy.
9 Outline the role of the entrepreneur in our economic system.
10 Explain why people take risks.
11 Describe the two main risks associated with operating a business.
12 Identify the entrepreneurial characteristics that Yolanda Zurack, Bill Gates and
Amanda Wong have in common.
13 Assess your own entrepreneurial ability by completing the following questionnaire.
Question Yes No
(a) Are you willing to take moderate risks?
(b) Are you easily motivated?
(c) Do you get on well with people?
(d) Is your health excellent?
(e) Do you set realistic goals?
(f) Are you prepared to accept responsibility?
(g) Can you tolerate failure?
(h) Do you have a positive self-image?
(i) Are you well organised?
(j) Are you a hard worker?
Types of businesses
OVERVIEW
2.1 Introduction
2.2 Classification by size
2.3 Classification by geographical spread
2.4 Classification by industry sector
2.5 Classification by legal structure
2.6 Types of companies
2.7 Factors influencing choice of legal structure
2.1 Introduction
As explained in chapter 1, any organisation that sells goods and services to
consumers in order to make a profit is a business.
Businesses may be organised in a variety of ways. Although no two businesses
are identical, some common features that allow similar business types to be classi-
fied and grouped together. Figure 2.1 illustrates the four methods commonly used
to classify businesses.
Micro business
Partnership
Sole trader
Small
Private
Legal structure Size
company
Government
Medium
enterprise
Public
Large
company
Geographical
Industry sector
spread
FIGURE 2.3 Mario and Rosa own Hair to Toe, a hairdressing salon in Drummoyne. They
understand the individual needs of all their clients, and the long-standing support they receive
from the local area is testament to this. They provide a range of professional services to
people in Drummoyne and surrounding suburbs and have established a great reputation in
the area.
2.3.2 National
As a business grows, it increases its range of products and the area it serves. As it
does this, it develops into a national business — one that operates within just one
country. Coles, for example, commenced trading in 1914 as G.J. Coles variety store BizWORD
in Collingwood, Victoria. Started by George Coles and his brother Jim, it employed A national business is one that
six people. Today, Coles is a leader in Australian food retailing, with more than operates within just one country.
99 000 employees and over 19 million customer transactions a week.
FIGURE 2.4 David Jones originally began with one store in Sydney in 1838. They gradually
expanded over the years and now operate 43 stores around Australia.
As a national business expands and increases its sales, it will eventually run out
of new customers to sell to; that is, the domestic market becomes saturated. If the
business wishes to keep expanding, it can decide to export and sell its products in
other countries. This allows the business to tap into new markets.
SUMMARY
• Businesses can be classified as small, medium or large.
• Their classification will depend on such things as number of employees, market
share, ownership and who makes the decisions.
• A micro business (usually a SOHO) employs fewer than five people (including
the owner).
• Businesses can also be classified as local, national or global according to their
geographical spread.
• A local business has a very restricted geographical spread; it serves its surrounding
area.
• A national business operates in just one country.
• A global business — a multinational corporation (MNC) — is a large business
with a home base in one country that operates partially owned or wholly owned
businesses in other countries.
2.
3.
4.
5.
6.
7.
8.
Industry sector
The relative size of each industry sector is shown in figure 2.6. This graph shows
both the percentage of private sector firms and the employment in each industry
sector.
25.2% 4.7%
Quinary Primary
Hospitality 7.1% Agriculture 2.8%
Health 12.1% Mining 1.9%
Arts & 1.8%
Recreation
18.0%
Other 4.2%
Secondary
Services Manufacturing 7.7%
Utilities 1.1%
33.2% Construction 9.2%
Quaternary
Info Media & 1.9%
Communications 18.9%
Finance & Tertiary
Insurance 3.4% Wholesaling 3.2%
Rental & 1.9% Retailing 10.6%
Real Estate Transport 5.1%
Prof. & Tech Serv 8.6%
Admin. & Support 3.3%
Services
Public Admin/ 6.3% 11.72 million employed
Safety
Education 7.8%
FIGURE 2.7 In June 2016, the construction sector experienced its highest level of growth
in 10 months. This was just after the Reserve Bank cut the official interest rate to 1.75% in
May. Residential construction (in particular the sub-sectors of house and apartment building)
showed the largest growth, recording its fastest rate of expansion in two-and-a-half years.
The government’s pledge to spend more than $20 billion on infrastructure will also aid the
construction and engineering sector.
Resources
Weblink: Primary, secondary
and tertiary industries
FIGURE 2.8 Retail sales have been declining in 2017 and growth in the retail industry has
slowed to 2.1 per cent, the slowest rate of growth in almost four years. The decline in retail
sales figures can be attributed to low consumer confidence, low wage growth, increasing
competition domestically and from overseas, high household debt and the high cost of
housing.
BizFACT
It is estimated that by 2050, the
quaternary and quinary sectors
combined are likely to account for FIGURE 2.9 Some of the factors driving the growth in the quaternary sector include: the
two-thirds of the economy. rapid growth in e-commerce and internet-based business activity, advances in
telecommunications technologies and an increased demand for online education.
SUMMARY
• An industry consists of businesses that are involved in similar types of
production.
• Primary industry — businesses involved in collection of natural resources.
• Secondary industry — production of finished or semi-finished goods.
• Tertiary industry — performing a service.
• Quaternary industry — services that involve the transfer and processing of
information and knowledge.
• Quinary industry — services that have traditionally been performed in the
home.
Business
classification according
to industry sector
Quinary Quaternary
3 In your notebook construct a table with five columns. At the top of the columns put
the headings Primary, Secondary, Tertiary, Quaternary and Quinary. From the list of
businesses, determine the correct column for its particular industry group and write
in its name. The first one has been done for you.
4 Outline reasons for the growth in the tertiary sector over the past 50 years.
5 Refer to figure 2.6 and answer the following questions.
(a) Identify which industry sector employs the most people in Australia.
(b) Identify which industry sector employs the fewest people in Australia.
(c) Why do you think the industry you identified in part (b) employs the smallest
number of Australians?
BizFACT
Classification by
ABS data show that the number of
legal structure
partnerships continued to decrease in
2016 by almost 4 per cent. However,
after three years of consecutive
Sole trader Partnership Company negative growth, there was a 2 per
cent increase in sole traders in 2016.
Meanwhile, companies and trusts
Unincorporated increased by 10 per cent each.
Private Public Companies and trusts have always
made up a large portion of Australia’s
business numbers, and in 2016,
Incorporated
they made up over 60 per cent of all
businesses.
FIGURE 2.11 The four main legal structures of privately owned businesses
Trusts 25%
Companies 26%
Partnerships 12%
FIGURE 2.13 Some businesses, such as Myer, start off small, either as sole traders or
partnerships; but because they are limited in size and growth potential they later decide to
become incorporated.
• Personal (unlimited)
Advantages liability for business
debts
• End of business when
• Low cost of entry owner dies
• Simplest form • Difficult to operate if sick
Resources
• Complete control • Need to carry all losses
• Burden of management Weblink: Sole trader
• Less costly to operate
• No partner disputes • Need to perform wide
• Owner’s right to keep variety of tasks
all profits • Difficulty in raising
• Less government finance for expansion
regulation
• No tax on profits, only
on personal income Disadvantages
SUMMARY
• The four main legal structures of privately owned businesses are sole traders,
partnerships, private companies and public companies.
• Privately owned business structures can be either unincorporated or incorporated.
• A business that is incorporated becomes a separate legal entity from the owner/s.
• A sole trader — an unincorporated business entity — is a business that is owned
and operated by one person and has unlimited liability.
Resources
SUMMARY
Weblink: Partnership • A partnership — an unincorporated business entity — is a business that is
owned and operated by between two and 20 people and has unlimited liability.
• The partnership can be made verbally or in writing or by implication.
Advantages
• Cost of formation
• Double taxation —
• Easier to attract public company and personal
finance • Personal liability for
• Limited liability — business debts if
separate legal entity directors knew at the
• Can transfer ownership time that the business
easily was unable to pay loans
• Enjoys a long life — • Must publish a yearly
perpetual succession annual report of audited
• Experienced accounts
management — board • Public disclosure —
of directors reporting of certain
• Greater spread of risk information
• Company tax rate lower • Becomes too large
than personal income resulting in
tax rate inefficiencies
• Growth potential
• Legislation allows
a company to have only
one shareholder and one Disadvantages
director
FIGURE 2.19 The top five public companies in Australia in relation to total revenue in 2016 were Wesfarmers, Woolworths,
Commonwealth Bank of Australia, Westpac Banking Corporation and NAB.
SNAPSHOT QUESTIONS
1. Outline the factors that should be considered when selecting the most
appropriate legal structure.
2. Explain which factor you believe is the most critical to consider when making Resources
this decision.
3. Imagine you were about to start your own business. Identify which legal Weblink: Australian
structure you would choose and justify your decision. Securities Exchange
FIGURE 2.20 Over the past 20 years, there has been a worldwide trend to privatise GBEs. This process is known as privatisation.
During the 1990s, the Australian Government privatised a number of public sector businesses, including Telstra, Qantas and the
Commonwealth Bank.
SUMMARY
• All companies are incorporated enterprises.
• In limited liability companies, the most money a shareholder can lose is the
amount they paid for their shares.
• A proprietary (private) company usually has fewer than 50 shareholders and
must have the words ‘proprietary limited’ (Pty Ltd) after its name.
2.7.2 Ownership
If a business owner wishes to have complete control and ownership of a business,
then becoming a sole trader is the only realistic option. On the other hand, if
the owner wishes to share the ownership with other people, then a partnership
is the ideal legal structure. Of course, a private company would also allow the
owner to maintain a high degree of control and it would also offer the protection
of limited liability. This is because a private company structure provides the
owner with a large degree of control over who can become a shareholder of
the business. As well, in most cases the maximum number of shareholders is
restricted to 50.
Once a company floats and sells shares to the public, ownership will be divided
among thousands of small, individual shareholders and a few institutional share-
holders. The degree of ownership, then, is directly related to the number of shares
owned: more shares, more ownership. Therefore, if the original owner/s wished to
retain ownership and control of the business, they would need to hold more than
50 per cent of all the shares sold.
2.7.3 Finance
As mentioned earlier, when a business expands it will require injections of finance.
This money will be used to purchase new equipment, undertake research and
development, hire more staff, exploit new markets and open new outlets.
FIGURE 2.22 It can be hard for sole traders to get finance. This is because financial
institutions usually consider sole traders to be higher risk, especially if their business is new
and they don’t have a strong track record yet. Finance companies may also want some
collateral to secure the loan.
Sole traders and partnerships, because of their exposure to risk (unlimited lia-
bility) with few business assets, can sometimes find it difficult to obtain adequate
finance, especially for research and development (R&D). Traditional sources of
BizWORD finance, especially banks, perceive this type of finance request as high risk. One
Venture capital is money that is possible source of finance for R&D is venture capital. Venture capital is money that
invested in small and sometimes is invested in small and sometimes struggling businesses that have the potential to
struggling businesses that have the become very successful. The investors take an equity position in the business (own
potential to become very successful.
part of it) and provide supplementary finance.
SUMMARY
• The most appropriate legal structure to select will depend on many variables
including size, ownership and finance.
• As a business expands, it normally moves from an unincorporated structure to
an incorporated structure.
3.1 Introduction
Your school is part of your learning environment: the surrounding conditions in
which you learn. You have some degree of control over the factors that make up
part of your learning environment, such as the subjects you choose to study, extra-
curricular activities you participate in, and your interactions with teachers and
other students. There are many other factors within your learning environment,
however, over which you have little control but that have a direct influence on your
learning. This includes such factors as the syllabus subject matter, the introduction
of new technology and the changes in government education policies. As a student,
you are part of an ever-changing and complex learning environment within which
you must manage your education.
FIGURE 3.1 Your learning environment is made up of factors over which you have some
control and other factors over which you have little control.
If the business can respond positively to these influences, it can achieve profit.
The factors that make up the business environment are not constant and certain.
They are continually undergoing change, and a business must keep ‘in tune’ with
the changes and adapt its operations accordingly.
Markets Geographic
External influences
Competitive situation Social
on business
Technological Legal
Institutional Political
Economic disaster! If this situation continued for a month then the centre’s
businesses would close, employees would be laid off, and landlords and suppliers
would not be paid. Eventually, as the ‘economy’ plunged into a recession,
BizWORD business owners would lose confidence in the economy’s future. However, at the
Economic cycles (or business rival shopping centre, new businesses would open, many new jobs would be
cycles) are the periods of growth created, landlords and suppliers would gain new customers, and the confidence
(‘boom’) and recession (‘bust’) that of the local business owners would soar. The ‘economy’ of this shopping centre
occur as a result of fluctuations in the would boom.
general level of economic activity. Although such an extreme situation would not happen in reality, the Australian
economy does experience economic cycles of ‘booms’ and ‘busts’. These periods of
BizFACT high and low economic activity are referred to as the business cycle. After a period
A commonly cited reason for small of prosperity, business activity gradually slows until a recession or depression is
business failure is adverse economic reached. Eventually, business picks up again until prosperity is restored. This com-
conditions. Some statistical research pletes the cycle. These cycles are a basic feature of our economic system.
on reasons why small businesses fail Economic forces have an enormous impact on both business and customers.
revealed that 12.4 per cent of small
businesses fail due to inflation and
They influence a business’s capacity to compete and customer’s willingness and
economic conditions. ability to spend. The following figure shows the impact of each phase of the eco-
nomic cycle on a business’s performance.
Time
Reduced spending by
Increased spending will
consumers affects
increase business profits.
business as profits fall.
FIGURE 3.5 The recessionary and ‘boom’ cycles. The government uses its economic policies to stabilise the economy and
reduce the fluctuations in the business cycle. It can do this by using monetary and fiscal policies.
One important factor to consider in terms of economic cycles is that not all
businesses experience a downturn in revenue and sales during a recession; nor do
they necessarily experience an upswing in trade during a ‘boom’ period. The busi-
nesses most susceptible to the ‘swings’ are those selling consumer or luxury goods,
as consumers will cut back on these when they reduce overall spending. Some
businesses fare very well during a recession, for example ‘bargain shops’ or other
clearance outlets.
SNAPSHOT QUESTIONS
1. Describe the four capabilities that support business success in a bust period.
2. Determine which quality you believe is most important for a business to
ensure survival in a bust period.
BizWORD This process has been strengthened by the impact of globalisation: a pro-
Globalisation is the process that cess that sees people, goods, money and ideas moving around the world
sees people, goods, money and ideas faster and more cheaply than before. Globalisation, assisted by the techno-
moving around the world faster and logical revolution in communications and computers, is radically altering the
more cheaply than before.
shape of world markets, as well as the nature of business and everyday life
(see the following Snapshot).
SNAPSHOT QUESTIONS
1. Identify the impacts of globalisation on business.
2. Recommend strategies businesses can implement in order to manage the
impacts of globalisation.
3. Determine other impacts of globalisation that exist besides those mentioned.
BizFACT
As more and more people select
healthier food options, fresh and
perishable foods like produce and
3.3.4 Social influences deli-prepared items are booming
and the organic goods sector has
Rapid identification and response to changes in tastes, fashions and culture can almost doubled. Packaged goods
lead to sales and profit opportunities, and business growth. Failure to respond to companies, on the other hand, are
social changes can threaten business stability and viability. struggling to survive the shift.
Three social issues are leading to significant change or have the potential to influ-
ence major change in business practices. The first concerns a growing awareness
of our vulnerable environment. Over the past decade, Australians have become BizFACT
aware of a number of practices that lead to deterioration in the environment. This In 2017, Woolworths and Coles
awareness has led to a call for businesses to adopt environmentally sustainable announced plans to phase out
single-use plastic bags over the
practices. Environmental sustainability means that business operations should be next twelve months to prove they
shaped around practices that consume resources today without compromising are committed to taking their
access to those resources for future generations. Many businesses have put in place environmental responsibilities
strategies to reduce and minimise waste, recycle and reduce their carbon footprint. seriously.
Those businesses that are not socially and environmentally responsible can face a
consumer backlash if customers find out. At the same time, many consumers will BizFACT
reward those businesses who are environmentally responsible by purchasing more Recent analysis by the OECD found
of their products. In recent years, many companies are increasingly disclosing their that among working Australian
environmental protection policies. mothers aged 25–45 years, 45 per
The second social issue that is leading to significant change is a growing desire cent work part-time and four-fifths of
for businesses to provide family friendly workplaces. There is a growing belief that those that work part-time cite family
reasons for doing so. They also work
businesses must support families, and the provision of better childcare options and
very short hours on average—less
more flexible hours are increasingly being considered by businesses. Conflict between than 20 a week. Australia’s relatively
work and family responsibilities is a key factor causing women to leave businesses high childcare costs are a major
and this high turnover is expensive for business. Consequently, businesses have been contributing factor to the high number
under pressure to implement family-friendly workplace practices that assist employees of mothers who do not work.
and, at the same time, reduce the associated costs to employers.
SNAPSHOT QUESTIONS
1. Identify some of the ways in which businesses can help employees improve
work–life balance.
2. Discuss the advantages and disadvantages for businesses of investing in
work–life balance programs.
SUMMARY
• Business environment is influenced by both internal and external factors.
–– The external environment includes those factors over which the business has
very little control.
–– The internal environment includes those factors over which the business has
some degree of control.
• External influences on business include: economic, financial, social, legal,
political, institutional, technological, competitive situation and changes in the
market.
• Economic influences on a business relate directly to their economic environment,
which is dependent on changes in economic growth. These changes are
characterised by boom and recessionary periods in the economic cycle.
• Changes in the global and domestic financial markets will influence the cost
of borrowing money and therefore directly affect the level of investment by a
business.
• Three major geographical factors that affect business activity are:
–– Australia’s geographic location within the Asia–Pacific region
–– changing demographic factors BizFACT
–– the process of globalisation.
In 2017, NAB conducted research
• Social influences, such as changes to fashion and culture, have the capacity to exploring what matters most for
affect business sales and profits. Australian SMEs. Their research
• Three social issues that have had a significant impact on business practices revealed that while 65 per cent of
include the growing awareness of the environment, the growing desire for SMEs are confident Australia will
businesses to provide family-friendly workplaces and the growing belief that continue to be a great place to
operate a business, the burden of
businesses must cater for workplace diversity. red tape and taxation is holding
them back. Sixty-nine per cent
cited that the pressure of complying
3.3.5 Legal influences with quarterly BAS and all the other
day-to-day administrative and
Too much government interference! Too much red tape! Too many regulations! regulatory challenges is impeding their
These are familiar cries from many business owners who face an increasing number success.
of legal obligations in every aspect of their businesses. Today, small to medium
FIGURE 3.10 The ACCC took ticket reseller Viagogo to court in 2017 for breaching the
Australian Consumer Law after receiving more than 400 complaints against the company in
one year alone. The ACCC alleged the company misled consumers by making representations
on their website that tickets to certain events were scarce and likely to run out soon. This
created a sense of urgency, even though tickets were still available through other sources. The
ACCC also alleged Viagogo inflated prices and did not disclose additional fees.
Social reforms
Taxation
Current political • Paid parental leave
• Goods and services tax (GST)
issues affecting • Gender workplace diversity –
• Company tax cuts
business requirements to have women
• Tax incentives to keep jobs
on Board of Directors
within the country
• Equal pay
Environmental management
• Environmental regulations on businesses to
reduce carbon emissions
• Banning plastic bags and other disposable
products
Institutional influences
Regulatory
Government Other
bodies
Government BizWORD
Australia has three levels of government: federal, state and local. Each level of Regulations are rules, laws or orders
government imposes a range of regulations on businesses to standardise and that businesses must follow.
protect their dealings with consumers and competitors.
Regulatory bodies
Resources A regulatory body is one that is set up to monitor and review the actions of
businesses and consumers in relation to certain issues (such as advertising) and the
Weblink: NSW Environment
Protection Authority appropriate legislation. This is to ensure that businesses conduct themselves fairly
Weblink: NSW Fair Trading in relation to the consumer, the community and other businesses. A number of
Weblink: ASIC regulatory bodies operate in New South Wales and Australia. They include:
Weblink: ACCC
• the NSW Environment Protection Authority
• NSW Fair Trading
• the Australian Securities and Investments Commission
• the Australian Competition and Consumer Commission.
The roles of these regulatory bodies are summarised in table 3.1.
BizFACT TABLE 3.1 Major regulatory bodies in New South Wales and Australia
In 2016, the EPA commenced
Regulatory agency Role
prosecution action in the Land and
Environment Court against waste
NSW Environment • Primary environmental regulator for NSW
transporter Dib Hanna for alleged Protection Authority • Aims to improve environmental performance and waste
illegal dumping offences. He was (EPA) management for NSW through a wide range of programs and
charged with eight repeat waste initiatives.
offences. Each charge carries a • Offers advice and incentives to help businesses improve their
maximum penalty of $250 000 and/or environmental performance.
two years’ imprisonment. • Governed by the Protection of the Environment Administration
Act 1991
SNAPSHOT QUESTIONS
1. Outline the types of jobs that are most likely to be replaced by technology.
Refer to examples.
2. Explain the influence technology will have on jobs over the next few years.
3. Describe the challenges this creates for government.
4. Recommend strategies businesses can implement to prepare for these
changes.
Ease of entry
into a market
for a new business
BizFACT
Blockbuster was once offered the
opportunity to buy Netflix, but blew
it. Netflix was offered for acquisition
to Blockbuster in 2000 for a mere Number of Factors influencing a Local and foreign
$50 million. Blockbuster CEO John competitors business’s competitiveness competition
Antioco, thinking that Netflix was a
small niche business, declined the
offer.
Marketing
strategies employed
by competitors
Number of competitors
The number of competitors refers to the size and number of firms that exist within
an industry; it is also known as market concentration. There are four main types of
market concentration (see table 3.3).
3.3.10 Markets
Changes in financial/capital markets
Finance (capital) is now more mobile and flows relatively easily between countries,
especially since the 1970s when many countries phased out their controls on
foreign exchange trading. As a result, international financial flows have expanded
very rapidly over the last three decades. Consequently, the world capital market is
now more integrated than ever before.
Capital flows to those countries where the investment opportunities and returns
are favourable. It is now much easier for individuals and businesses to access over-
seas share markets and purchase equity in foreign companies.
However, two trends in the labour market have resulted in the movement of
workers. First, the movement of large numbers of temporary skilled migrant
BizFACT workers has been very important in Australia, Europe and Asia. The Temporary
There are currently 95 758 people Work (Skilled) visa (subclass 457) was introduced in 1996 and was designed to fill
who have the skilled visa, including job vacancies that are difficult to find Australians for. This was replaced in 2018 by
family members. The majority of the
visa holders come from India, which
the Temporary Skill Shortage (TSS) visa (subclass 482). The TSS visa program is
accounted for almost a quarter of made up of a short-term (up to two years) visa or a medium-term (up to four
the intake, followed by the UK and years) visa. It aims to support businesses in addressing genuine skill shortages in
China at 19.5 per cent and 5.8 per their workforce. The employee can also bring members of their family to Australia
cent respectively. There are a range on a secondary visa. The medium-term visa provides a pathway for skilled workers
of different occupations on the list
including neurologists, midwives,
and their dependents to apply for permanent residence under the Migration Pro-
cabinet makers and lift mechanics. gram. Second, the growing demand for highly trained employees means that such
people are increasingly mobile.
Business
Products Location Management Resources
culture
BizFACT
To assist in selecting the best site,
market research companies can
be hired to prepare traffic and
pedestrian flow measurements, an
analysis of demographic data and an
investigation of future trends. When
selecting a suitable site to locate a
new small business, it is crucial to
remember real estate agents’ three
important words: ‘location, location,
location’.
Each individual small business must satisfy its own criteria when deciding on
the ‘best’ location. Figure 3.22 outlines the factors to consider when choosing a
location.
Visibility
Proximity to
Location factors Cost
support services
Proximity to Proximity to
customers suppliers
Visibility
If a business is not visible, customers may
not make the effort to find the business and
optimum customer flow will not be achieved.
A business wanting high visibility would
locate in a prime shopping area such as a
shopping centre or main street. Companies
concerned with manufacturing would not
consider this to be a crucial consideration, FIGURE 3.23 For many retail
so may choose a low-visibility location ‘out businesses, visibility is one of the
of town’ and then advertise their location to important factors to consider when
appropriate customers. deciding on a location.
Cost
Cost is another factor to consider when determining the location of a business.
Leasing or purchasing a central location in a busy shopping centre will be far more
expensive than in a location with lower levels of passing customer traffic. If the
business relies on passing customer traffic and maximum exposure, then the cost
factor is unavoidable. These types of businesses include coffee shops or cafés, fast
food outlets and retail shops. The business owner will need to be confident of
generating sufficient business to justify the higher cost.
On the other hand, location may not be a key consideration if the business does
not rely on passing customer traffic. Such businesses search for a low-cost site,
especially if they are related to manufacturing and require large premises. These
types of businesses include mechanics, car yards, equipment hire, and even solici-
tors and doctors.
Given the rapid changes in technology, many businesses do not consider their
location as important at all. They are able to communicate with their customer
base through the internet, which has become the fastest growing avenue for con-
sumer sales. These types of businesses include telemarketers or businesses that sell
their products via the internet.
Proximity to suppliers
Proximity to suppliers is an important consideration for some businesses but not
others. The main issue is the size and quantity of the raw materials needed for
production, or the size of the finished goods to be supplied. A business that relies
on bulky raw materials or finished goods — such as a logging company or steel
manufacturer — has significant transport costs and will locate closer to the supplier
Proximity to customers
The importance of proximity to customers depends on the type of business being
established. A retail business must be convenient for their customers and locate
close to their customer base, so shopping centres or a shopping strip with off-street
parking will be the primary choice. A manufacturing or wholesaling business may
decide it is more cost effective to transport the product to the customer, particularly
if bulky raw materials are needed. Other location cost factors could include leasing
costs in ‘prime shopping areas’, incentives offered by local councils and general
overheads such as rates or utilities.
Business resources
SNAPSHOT QUESTIONS
1. Discuss the traditional hierarchical approach to management. BizWORD
2. Identify the factors that will impact on the success of flat-structured
Business (corporate) culture refers
businesses. to the values, ideas, expectations
3. Outline the benefits of a flatter management structure. and beliefs shared by members of the
organisation.
BizFACT
3.4.5 Business culture Job seekers are increasingly
concerned about the corporate culture
All businesses have their own business (corporate) culture — the values, ideas, of a potential employer. It is difficult
expectations and beliefs shared by the staff and managers of the business. Each to determine corporate culture — or
business develops its own particular way of doing things. The style or ‘the way things get done’ — at an
character of a business is consequently reflected in its culture. interview. Things to look out for are
Business culture can be revealed officially in the policies, goals or slogans of a the way people dress, how they
address each other and even the office
business. It can also be seen in the unwritten or informal rules that guide how facilities. Some offices have gyms and
people in the business behave, such as the way staff dress, the language staff use cafés to encourage work–life balance.
and the way that staff treat each other and customers.
BizFACT A manager must understand and assess all facets of a business’s unique cul-
Each year, Great Place to Work ture as this is a powerful tool for achieving goals. Knowing and appreciating a
studies the world’s most notable business’s culture makes it easier to get things done faster or to initiate a change
workplace cultures in order to to routine or procedures. Competent, effective managers will use the business’s
discover the Best Places to Work.
culture as a force for positive change. Research has shown that businesses with a
In 2017, the Best Place to Work in
Australia for businesses with between healthy, well-developed and strong culture are more likely to be successful, because
100 and 999 employees was Stryker. such a workplace is perceived by the employees to be more positive and personal-
Stryker is one of the world’s leading ised. Employees who have clear expectations feel better about their work — they
medical technology companies. The develop a sense of belonging. A manager who does not understand a business’s
Best Place to Work for businesses
culture may experience failure or disappointment.
with fewer than 100 employees was
Avenue Dental on the Sunshine Coast,
which operates three dental practices Elements of a business culture
in the area. A business culture normally consists of four essential elements:
1. Values. These are the business’s basic beliefs, shared among its employees.
Business values can include honesty, hard work, teamwork, quality customer
service, employee participation and innovation.
BizFACT 2. Symbols. These consist of events or objects that are used to represent something
ANZ Bank’s core values are integrity, the business believes to be important. It is a case of ‘actions speaking louder
collaboration, accountability, respect than words’. For some businesses, competitive sports are a key feature of the
and excellence. business’s culture. Other businesses have encouraged employee development
and loyalty through the use of training and development programs.
3. Rituals, rites and celebrations. These are the routine behaviour patterns in a
business’s everyday life. Regular social gatherings can be held to help develop a
sense of belonging among employees who normally work in small teams during
the week.
4. Heroes. Heroes are the business’s successful employees who reflect its values and,
therefore, act as an example for others.
Here’s why ‘cool’ offices don’t always make for a happier SNAPSHOT
workforce
Who are Britain’s happiest workers? The people who staff the London office of US
travel tech firm Expedia, according to Glassdoor’s annual workplace satisfaction
survey. In both 2016 and 2017, Expedia rated highest for employee satisfaction,
according to anonymous reviews from current and past workers.
Reading this Business Insider profile of the ‘happiest office in London’ might make
you believe that Expedia’s high level of employee satisfaction is down almost entirely
to the office itself and the various on-site perks — which include table tennis, football,
gaming consoles and a cocktail bar. There’s no doubt that this is a very attractive
office.
But the survey of the employees shows that Expedia’s people like working there ❛ … how do companies
because of the business, not the fancy office. The most positive ratings cite ‘culture’
and ‘career opportunities’. The physical surroundings barely merit a mention.
foster good relations
This is a trend. Workplace contentment is too often incorrectly attributed to the among their people? ❜
aesthetics of the office, disregarding more influential factors such as job security or
work satisfaction. But since we can’t Instagram job security, it’s the offices that get
the credit.
It’s very easy, when profiling a company as Business Insider did, to use their
expensively designed office as a metaphor for happy employees. It’s a false narrative.
Happy workplaces don’t need beanbags, barbecue stations and ball pits.
Those are (arguably) nice to have, but they’re not culture. In their attempts to be
seen as fun, happy places to work, modern businesses are venturing very close to
turning their offices into circuses in order to improve perceptions to potential hires
and journalists.
Yes, Expedia is a happy workplace and yes, it has a very nice office. But that’s
more likely because companies that invest in creating a nice physical environment are
also likely to invest in more meaningful areas of employee contentment too. Expedia
offers its people up to US$14 000 a year in travel perks, for example.
HAPPINESS IS NOT A HAMMOCK
Businesses spend billions of dollars every year trying to make their people happy.
But it’s not working. In America, 70 per cent of the workforce are disengaged. Office
workers want more than toys and breakout spaces.
In fact, a study I was recently involved with revealed that approval-seeking quirky
perks can actually annoy office workers. People rarely want to work in a hammock or
take a crisis meeting in a ballpit.
SNAPSHOT QUESTIONS
1. Why do employees like working at Expedia?
2. Identify what some workplaces have done in an attempt to make employees
happy, that have no bearing on culture.
3. Outline measures businesses can implement to improve employee
satisfaction.
SUMMARY
• The internal influences on a business include product, location, resources,
management and business culture.
• Product influences affect a range of internal structures and operations within the
business.
• Location will have a direct impact on the sales and profits of some businesses.
• Factors to consider when choosing a location are:
–– visibility
–– cost
–– proximity to suppliers
–– proximity to customers
–– proximity to support services.
• The four main resources that influence a business are human, information,
physical and financial.
• Businesses can adopt a traditional hierarchical structure or a flat organisational
structure.
• Business culture can be seen in the unwritten or informal rules that guide how
people in the organisation behave.
• There are four essential elements of a business culture: values, symbols, rituals
and heroes.
3.5 Stakeholders BizWORD
Businesses have many stakeholders: the people and groups that interact in some A stakeholder is any group or
way with the business and have a vested interest in its activities. In this sense you individual who has an interest in or is
are a stakeholder of your school. affected by the activities of a business.
Businesses are expected to be enterprising, to comply with the law, and be socially
just and ecologically sustainable in their operations. They are expected to practise
ethical management and do the ‘right’ thing in the interests of all stakeholders.
Society/
general public
Managers Employees
Stakeholders in
business
Environment Shareholders
Customers
Many businesses are now extremely sensitive to public opinion and strive to be
recognised as being good corporate citizens. Businesses recognise that they increase
their chances of success when they pursue goals that align with the interests and
expectations of their main stakeholders. Every business must be aware of and take
into account the needs of the stakeholders.
3.5.2 Managers
Managers obviously have a major influence on the business. Management has the
responsibility of running a profitable or successful organisation. Most managers
today understand that ethical and socially responsible activities should lead
to increased sales. There are many complex legal issues that managers must
understand and contend with today and it is their responsibility to introduce the
policies and procedures that will affect the workplace.
A manager’s approach or leadership style can have a major influence on
employees and their productivity. This will affect the culture of the business and
can impact on employee morale.
3.5.3 Employees
Employees are vital to an organisation as they manufacture or produce the product
the organisation sells. Employees will influence businesses since the quality of the
product depends on their skill and committment to the process. When employees
are valued, paid fairly, trained properly and treated ethically, they will be become
more valuable to the organisation. If organisations can provide for their needs,
employees will be more inclined to put effort into work tasks and will be motivated
to meet customer expectations.
3.5.5 Society
BizFACT Members of the community increasingly expect organisations to show concern
Since 2005, Toronto-based magazine for the environment. Some might be worried about organisations using valuable
and research firm Corporate Knights land resources or showing disregard for carbon emissions. They may be concerned
has put together the Global 100, about waste disposal or pollution. Others may be concerned about their future
an annual list of the world’s most welfare through their own employment within organisations.
sustainable companies. In the 2017 Therefore, socially responsible businesses will participate in a range of commu-
Global 100 list, two Australian
companies featured: CBA was ranked
nity projects and activities. For example, The Body Shop organises for its employees
6th and NAB 50th. to assist with a local charity of their choice. AGL Limited supports a range of edu-
cational, fundraising and social welfare programs.
Stakeholder Influence
4.1 Introduction
Businesses are similar to people in that:
• no two are identical
• each has its own identity
• they are referred to by name or brand
• they possess individual personalities and physical appearances
• they are confronted by life’s challenges
• they sometimes succeed and at other times fail
• they rely on each other for survival.
BizWORD However, the most striking similarity is that, like people, a business will pass
The business life cycle refers to the through a number of distinct stages as it develops. This is referred to as the business
stages of growth and development a life cycle. The business life cycle is a model; that is, a simplified version of ‘real-life’
business can experience. situations. Using a model makes it easier to understand the complexities of the busi-
ness world. The four main stages in the life cycle of a business are shown in figure 4.1.
Sales Renewal
$
Steady
(size)
state
Decline
FIGURE 4.2 Fairfax Media Ltd constantly implements strategies to renew the business in order
to adapt to changes in the external business environment. Over a decade ago, 80 per cent of
their revenue came from two newspapers — the Sydney Morning Herald and The Age. When
management noticed a decline in print media which was affecting their revenue, they decided
to restructure their business model and diversify by investing in digital media as well as radio
brands.
Occasionally businesses run into financial difficulty and are forced to restruc-
ture. Some of Australia’s large businesses, such as Coles, have followed this pattern
(see the following Snapshot).
Coles–Myer merger
In 1985 Coles and Myer — a major retailer that had started in Melbourne in 1900 —
merged to form one company — Coles Myer Limited. After the merger the business
continued to grow, introducing new retailing strategies such as EFTPOS and Fly Buys,
and developing a number of concept stores such as Officeworks and Harris Technology.
At its peak, Coles Myer Limited was Australia’s biggest retailer with 1900 stores
throughout Australia and New Zealand, and was Australia’ largest single employer
with 165 000 employees.
During the late 1990s and early 2000s, Coles Myer Limited encountered trading
difficulties and was underperforming due to senior management difficulties, IT and
supply problems, and too much of an overlap between each division, resulting in
them competing for the same market share. For example, Target and Kmart attracted
a similar type of customer, as did Myers and Grace Bros. (Myer bought Grace Bros
Holding Limited in 1983.)
Wesfarmers takeover
In 2006 the Coles Myer Limited board finally accepted that the mega-merger had
failed and sold the Myer chain to a consortium led by private equity firm Texas Pacific
Group Capital, with Blum Capital and the Myer Family Company Pty Ltd.
Following the de-merger, the Coles group continued to struggle against its main
rival, Woolworths Limited. Its financial performance deteriorated with a resultant fall
in profits. It was ripe for a takeover (acquisition), which occurred in late 2007 when
the Perth-based conglomerate Wesfarmers — one of Australia’s largest public
companies — paid $22 billion to buy the Coles retail empire. At the time, this was the
largest takeover in Australian history.
Over the past few years, Wesfarmers has been successful in turning around the
performance of the Coles division, largely due to improvements in the performance
of Target and the Coles supermarket chain. It has streamlined the supermarket
❛ Today, Coles is a division by selling 45 Coles stores and eight Liquorland outlets to the independent
leader in Australian food grocer FoodWorks for $35 million. The sale was part of Wesfarmer’s five-year plan to
improve its network of over 800 supermarkets and more than 600 Liquorland stores.
retailing, with more than Today, Coles is a leader in Australian food retailing, with more than 102 000
102 000 employees employees and over 21 million customer transactions a week.
and over 21 million SNAPSHOT QUESTIONS
customer transactions 1. Identify the main reasons for the success of Coles up to the 1920s.
2. Many businesses failed during the 1930s Great Depression. Clarify why Coles
a week. ❜ was able to not only survive but prosper.
SUMMARY
• The business life cycle refers to the stages of growth and development a business
can experience.
• The stages are: establishment, growth, maturity and post-maturity.
• In each stage of the cycle, a business is confronted with new challenges and
presented with different opportunities.
Feature Challenges
Alternative names Start-up, birth, beginning, commencement
Goals Survival, and setting a firm foundation for future growth
Sales Normally begin slowly and are somewhat erratic
Marketing Highlight product advantages by accentuating the
product’s strengths. Undertake inexpensive promotion
strategies
Profit Usually slow to begin with, occasionally a loss.
Sometimes all the profits are put back into the business
to ensure its survival.
Financial management Greatest source of start-up capital is from the owner’s
personal savings. This can be supplemented with a
loan from a financial institution, although such finance
is often difficult to obtain because of the high risks
involved.
Cash flow Sometimes erratic, with a period of constant cash outflow
in the early stages
Costs Very high fixed costs. Major cost items include premises,
equipment, raw materials and insurance.
Customers Establishing a customer base large enough to sustain
future viability is important. Need to develop a positive
relationship with customers. Attempt to accurately
forecast customers’ needs.
Management Informal, with all decisions being made by just one or two
people. Decisions are often made ‘on the run’.
Employees Normally only a few. Owner establishing work routines
and building up relationships
Failure rate Very high, up to 33 per cent within the first year of trading
Main problems Lack of money with possible cash flow shortages
Risk level Extremely high, especially within the first few months.
High degree of uncertainty
Business entity Usually sole trader or partnership
FIGURE 4.3 Since entering Australia in 2009, Costco Australia has experienced significant
growth especially over the past couple of years. In 2015 their revenue jumped 50 per cent to
$1.52 billion as sales grew at their existing stores and the company opened new stores taking
their network of stores to nine. Sales almost doubled between 2013 and 2015, outpacing
the growth of other supermarket chains. They are currently looking to increase their online
presence in response to the arrival of Amazon.
Feature Challenges
Alternative Take-off, growth spurt
names
Goals To constantly increase the average level of sales; to continue
growing through mergers and takeovers; to diversify business activities
Sales Rapid increase, especially in the early stages of the growth phase. New
products introduced and some slow-selling products deleted
Marketing Development of new products to satisfy market niches. Price discounts
due to lower production costs. Extensive promotional activities and a
widening distribution network. Desire to increase market share by using
mass-marketing techniques
Profit Should increase due to rising sales and falling production costs. As well, Resources
profits of other businesses acquired through acquisition (takeover) or
merger are available for use. eLesson: Wildbreads
(eles-2307)
Financial Use of sophisticated, computerised accounting procedures and systems.
management Raising of finance tends to be easier. Main sources of finances are from eLesson: Stuck on You
financial institutions, the selling of shares or taking on more partners. (eles-0835)
Cash flow Difficulties can be experienced if the growth is too rapid. Adequate cash
flow must be maintained to continue expansion. A credit policy needs
to be organised. Forecasting of sales and expenditures becomes more
crucial.
Costs Production costs tend to decrease due to economies of scale — that
is, cheaper unit costs due to larger production runs. Business becomes
more efficient in areas of administration, finance and production.
Customers Concentration on satisfying existing customer base while at the same
time tapping into new market, both domestic and overseas. Mass
markets become a possibility.
Management Delegation of some responsibilities. Development of a formalised
organisational structure. Introduction of line managers (supervisors). Clear
lines of communication become essential. Specialist departments are
established. Some functions may be outsourced.
Employees Increased specialisation of workforce requiring formal and informal
training. Human resource strategies need to be implemented, especially
in compiling job analyses and descriptions.
Failure rate Lessened, especially after successful mergers or takeovers, which result
in increased diversification and reduced competition
Main Expanding too rapidly and therefore losing control of the business’s
problems direction. Moving away from the core business activities — that is,
what the business originally produced. Business may not have enough
experience in the new areas. The need for finance to continue with the
growth
Risk level Reduced, due to diversification and less competition. However,
if borrowings increased too rapidly the business may leave itself
exposed — that is, with liabilities far greater than its assets.
Business Usually some form of incorporated entity; private or public company
entity
During the growth stage the business must continually improve its competitive
edge. Failure to do so will see competitors take away customers and the growth
will stall. Owners tread a fine line in attempting to do this — a desire not to radi-
cally alter a successful formula while at the same time restructuring sufficiently to
match what the competitors are doing.
Business growth and expansion can occur in a number of ways. One method
frequently used is to integrate with other businesses through a merger or an acqui-
BizWORD sition (takeover) (see figure 4.4).
A merger occurs when the owners A merger occurs when the owners of two separate businesses agree to com-
of two separate businesses agree to bine their resources and form a new organisation. An acquisition (takeover) occurs
combine their resources and form a
when one business takes control of another business by purchasing a controlling
new organisation.
interest in it.
An acquisition (takeover) occurs
when one business takes control of
Sometimes a merger or acquisition is motivated by the desire for a business to
another business by purchasing a continually expand its range of products. No product will last forever; eventually, it
controlling interest in it. will become obsolete. A merger or acquisition is often an effective way a company
can quickly increase its range of products. At other times, a merger or acquisition
is undertaken to eliminate competition in the marketplace.
There are several different types of mergers or acquisitions. Three types are
described below.
• Vertical integration occurs when a business expands at different but related
levels in the production and marketing of a product. BizWORD
–– When a business integrates with one of its suppliers this is referred to as Vertical integration occurs when
backward vertical integration; for example, if a bakery acquires a wheat farm. a business expands at different but
related levels in the production and
–– Forward vertical integration is when a business integrates with a firm it sells
marketing of a product.
to. For example, the bakery could merge with a supermarket chain that sells
Horizontal integration occurs when
its bread (see figure 4.5). a business acquires or merges with
• Horizontal integration occurs when a business acquires or merges with another another firm that makes and sells
firm that makes and sells similar products; for example, if a bakery merges with similar products.
or is acquired by another bakery (see figure 4.5).
Horizontal Horizontal
Slice of Golden Crust
Top Line Bakery
Life Bakery Bakery
integration integration
Buy-Rite Supermarket
Buy-Rite
FIGURE 4.5 Types of integration:
backward and forward vertical
integration, horizontal integration and
diversification
SUMMARY
• During the growth stage the business has increased sales, a regular customer
base, develops new products and improves its cash flow.
• With growth comes complexity and responsibility, which creates the need for
long-term planning.
• Growth and expansion can occur either through a merger or acquisition
(takeover).
• A merger occurs when the owners of two separate businesses agree to combine
their resources and form a new organisation.
• An acquisition (takeover) occurs when one business takes control of another
business by purchasing a controlling interest in it.
• Vertical integration occurs when a business expands at different but related
levels in the production and marketing of a product.
• Horizontal integration occurs when a business acquires or merges with another
firm that makes and sells similar products.
• Diversification (or conglomerate integration) occurs when a business acquires or
merges with a business in a completely unrelated industry.
Feature Challenges
Alternative names Market saturation, market hardening
Goals To maintain profits at pre-existing levels
Sales Rate of growth slows and eventually flattens out; plateauing.
Marketing Maintain customer and brand loyalty through extensive advertising. Due to increased competition,
relative market share may decline. Need to improve quality of products
Profit Rate of growth slows, eventually flattening out. Reflects what is happening to the level of sales
Financial management All the correct procedures are in place, but their efficiency needs to be improved to protect the profit
margin. Finances should be devoted to advertising and development of new products.
Cash flow If costs are not able to be controlled, then the cash flow position starts to deteriorate.
Costs Keeping costs under control is now essential. Need to improve efficiency to keep costs down, otherwise
profits will start to fall even further
Customers Due to the size of the business, customers may sense a degree of impersonality. Business is in
danger of losing the personalised service that gave the business success in previous stages.
Management Leadership is crucial. Need to redefine the business’s objectives and vision. The organisation’s
hierarchy becomes too entrenched and unable to quickly adapt to new conditions. Many new
regulations and ‘red tape’ that will strangle any initiative
Employees Introduce a work team approach, devolving responsibility to employees to avoid complacency.
Introduce quality programs such as total quality management or quality circles.
Failure rate Will increase the longer the business takes to react and reverse plateauing sales
Main problems Rate of increase in sales begins to falter, sometimes flattening out. Loss of initial enthusiasm. Air of
complacency starts to dominate.
Risk level If costs are not controlled and management becomes slow to respond to market demand, then cash
flow falls and the level of risk increases.
Business entity Normally, no change in the beginning although, if the situation deteriorates, parts of the business may
be sold off. Program of downsizing and selling off non-core business activities
SUMMARY
• The maturity stage requires a more professional approach to planning.
• In the maturity stage, the rate of growth slows and eventually flattens out; an
early warning sign of possible decline.
• A sense of complacency often envelops the business.
• Managers may need to restructure or reorganise the business.
Steady state
A business in a steady state is neither declining nor expanding. It is much like
an aeroplane flying in a holding pattern. Such a business is satisfying customer
demand and maintaining profit levels. It displays some of the characteristics of a
business in the maturity stage. One significant difference, however, is that it does
not continue expenditure on research and development. The owner is more content
to produce what it has in the past and rely on marketing replacement products.
However, just as an aeroplane cannot maintain this position forever, neither can
a business. Eventually the business environment will change and the business will
be adversely affected. Perhaps customers’ tastes change or new competitors enter
the market with superior products, or more efficient methods of production and
cheaper products. Ultimately, this steady state becomes very unstable and the busi-
ness stagnates. It eventually loses sales and its competitive edge. When this occurs,
the business enters another stage of the business life cycle — decline.
Decline
As customers stop buying the business’s products the cash flow will be seriously
affected. Eventually profits will also decline. This process of decline becomes
difficult to reverse for the following reasons:
1. It becomes difficult to borrow money because financial institutions are reluctant
to lend money to high-risk businesses.
2. Suppliers will restrict their credit facilities and may insist on cash payments.
3. Products become obsolete, leaving the business with unsold stock.
4. Well-qualified employees may begin to leave and seek better opportunities.
The longer the business attempts to ‘stagger on’, lurching from one crisis to the
next, the greater the risk of failing and ceasing operations — cessation. We will
examine the procedures involved in voluntary and involuntary cessation at the end
of this chapter.
BizFACT Renewal
Lego experienced declining revenue Business decline can be avoided by carefully planned strategies that result in new
and profits due to the increasingly markets being tapped and satisfying previously unmet demand. The business
competitive toy market, with more
children using mobile devices for
undergoes a revival. Sales, cash flow and profits all begin to increase once again.
entertainment. To counteract this, Even a business in decline can be turned around and placed on a path of renewal.
Lego has implemented a variety It is very difficult to accomplish and takes an enormous effort by both owners and
of strategies to bring the company employees, but it is possible.
into renewal: they have restructured The key to achieving a long-term, sustainable recovery in sales is to focus pro-
and slashed jobs, signed licensing
agreements with brands like Harry
duction on what the customers are presently demanding — even if this means
Potter and Star Wars, and entered abandoning once-successful products. As well, an extensive market research pro-
into the film industry. The CEO gram needs to be undertaken to assist in the forecasting of future consumer trends.
believes it will take about two years for The more successful the forecasting, the more able the business is to be proactive;
the business to return to growth. that is, it can anticipate and plan for future changes. Businesses that tend to be
reactive; that is, respond to changes after they have occurred, usually respond too
late and lose valuable market share. Renewal is as much about planning and timing
as it is about successful marketing strategies.
The main features and associated challenges of the post-maturity stage of renewal
are outlined in table 4.4.
TABLE 4.4 Post-maturity stage — renewal. Main features and associated challenges
Feature Challenges
Alternative names Regeneration, revival
Goals To increase sales, cash flow and profits. Seek out and exploit
previously unmet demand in new markets. Undertake further
diversification and integration. Sell off any unprofitable non–
corerelated activities or assets.
Sales Increase over time, especially as newer products are brought onto
the market and new markets exploited
Marketing Conduct market research analysis to determine customers’ wants
and identify any changes. Advertise in new market areas. Identify
new market niches.
Profit Will improve over the long term, reaching higher levels than
previously achieved
SUMMARY
• There are three possible outcomes at the post-maturity stage: steady state, decline
or renewal.
• Steady state: the business is neither declining nor expanding.
• Decline: fall in sales, cash flow and eventual business failure.
• Renewal: new products are developed and new markets are created, leading to
increased sales and a positive cash flow.
Ignorance of Increased
existing competition competition
Factors that
Unfavourable can contribute to Lack of adequate
economic conditions business decline cash flow
Failure to price
Poor location
product correctly
SNAPSHOT QUESTIONS
1. Outline the internal and external factors that led to Topshop’s decline.
2. Identify other companies that have recently collapsed.
3. Propose strategies Topshop could adopt in order to avoid failure.
FIGURE 4.8 Business failure is not limited to small businesses. Established in 1990, Pumpkin
Patch enjoyed many years of success. At its peak in 2007, the children’s fashion retailer
was valued at $790 million, with hundreds of stores across the globe. Nine years later, the
company was placed into administration owing $76 million. Increased competition as well as
its too-fast expansion overseas and reliance on debt led to the company’s downfall.
Cessation of
a business
Voluntary Involuntary
(of own accord) (forced by others)
Bankruptcy Voluntary
administration
Voluntary Involuntary
4.4.3 Bankruptcy
Sole traders (businesses owned and operated by one person) and partnerships
BizWORD (businesses owned and operated by two to 20 people) may end up being declared
Bankruptcy is a declaration that a bankrupt. Bankruptcy is a declaration that a business, or person, is unable to pay
business or person is unable to pay his or her debts.
his or her debts. Bankruptcy can be either voluntary or involuntary, with either the business
Realisation is the process of owner or a creditor applying to a court for a bankruptcy order to be made. The
converting the assets of a business
court then appoints a representative to collect any money owed to the business.
into cash.
This money, along with money raised from the sale of any assets of the business (as
well as some personal assets of the owner), is then divided between the creditors.
The process of converting the assets of a business into cash is called realisation.
TABLE 4.5 Main problems arising for stakeholders from company liquidation
13 Complete the statements in your notebook by recalling the correct word from the Interactivity: Chapter
crossword (int-7217)
list below.
Interactivity: Multiple choice
dissolve realise debts financial quiz (int-7218)
Nature of business
MULTIPLE CHOICE QUESTIONS
In the HSC examination you will be required to complete 20 multiple choice questions.
Therefore, it is important that you become familiar with answering this type of question.
For each question choose the best alternative:
1. Globalisation has had a major impact on businesses. Which external influence in the
business environment is this an example of?
(a) Economic
(b) Financial
(c) Geographic
(d) Markets
2. What is the person who risks his or her time, energy and money to start a business
called?
(a) A financier
(b) An employer
(c) An innovator
(d) An entrepreneur
3. Which of the following would be an example of a business in the secondary industry?
(a) Zenon Mining
(b) Heritage Motel
(c) Canberra Legal Centre
(d) Plastics Manufacturing Ltd
4. Which business entity is owned and operated by more than two people and has
unlimited liability?
(a) Sole trader
(b) Partnership
(c) Public company
(d) Private company
5. In which phase of the business life cycle does complacency amongst management
normally occur?
(a) Growth
(b) Maturity
(c) Establishment
(d) Post-maturity
6. What does the business environment refer to?
(a) The surrounding conditions in which the business operates
(b) Those factors over which the business has very little control
(c) Those factors over which the business has some degree of control
(d) A group who has an interest in or is affected by the activities of the business
7. What type of business would National Foods Limited most likely be?
(a) A partnership
(b) A public company
(c) A private company
(d) A government business enterprise
8. Which of the following is an internal influence in the business environment?
(a) Financial
(b) Institutional
(c) Location
(d) Social
BUSINESS MANAGEMENT
FOCUS AREA
The focus of this topic is the nature and responsibilities of management in the business
environment.
OUTCOMES
Students should be able to:
• explain the internal and external influences on businesses
• assess the processes and interdependence of key business functions
• examine the application of management theories and strategies
• analyse the responsibilities of business to internal and external stakeholders
• plan and conduct investigations into contemporary business issues
• evaluate information for actual and hypothetical business situations
• communicate business information and issues in appropriate formats
• apply mathematical concepts appropriately in business situations.
Achieving business
goals
Nature of Management
management approaches
BUSINESS MANAGEMENT
Management Management
and change process
Nature of management
OVERVIEW
5.1 Introduction
5.2 The features of effective management
5.3 Skills of management
5.1 Introduction
Have you ever been shopping and spent all your money on the first few things you
saw, only to later be disappointed when you came across something you would
have liked more? What about the assessable
task you left until the last minute only to find
all the information resources you needed had
been borrowed from the library? Or the dental
appointment for which you were half an hour
late? In these cases you did not manage either
your money, assessment requirements or time
very well. These cases reveal that you have
actually been practising the art of management
for a number of years. Sometimes you have
managed your affairs successfully; at other
times you may have mismanaged them.
Managing is an essential skill that all people
need to develop. How well you perform the
task of management will often determine
whether you achieve the goals you have set
for yourself. In the world of business, just as
FIGURE 5.1 Stephen Cornelissen, Group CEO of Mercy Health, won 2016 CEO
in your personal life, management is a funda-
of the Year for making a notable difference in the corporate world. Cornelissen mental activity. It is what makes the business
joined the not-for-profit organisation as CEO in 2011 and in the 2015/16 financial function.
year, the organisation expanded its aged care services nationally and redeveloped The CEO featured in the opening story of
its current facilities. His traits include a willingness to laugh and have fun, as well this topic highlights a number of important
as placing a significance on integrity through honesty and hard work.
characteristics of management, including:
1. having the ability to analyse information, attend meetings and communicate
with a wide range of people both inside and outside the business
2. possessing the skills to manage change effectively
3. having the vision to see how things could be, rather than just accepting things
the way they are
4. providing leadership through the desire to encourage, motivate and guide
employees
5. understanding your roles and responsibilities in order to achieve the goals of the
business.
FIGURE 5.2 An effective manager is an essential ingredient for achieving business success.
Melinda Gates, co-chair of the Bill & Melinda Gates Foundation, has been recognised as one
of the world’s greatest leaders. Her vision for the foundation has helped improve the lives of
millions of people. The work of the organisation reflects her impatient optimism, passionate
commitment to empowering women and her fundamental belief in human dignity.
Coping with a
Balancing efficiency
rapidly changing
and effectiveness
environment
FIGURE 5.4 A manager’s job is never done! Managers can sometimes feel as if they are
caught in a neverending cycle of meetings, interruptions, paperwork, emails and trivialities.
FIGURE 5.5 A business manager shares many similar features with an orchestra conductor.
Like conductors, business managers bring together all of the varying resources needed to
make the business successful and when it is effective, beautiful music is the result.
TABLE 5.1 The myths and realities of a manager’s job according to management researcher Henry Mintzberg
Myth Reality
1. The effective manager is a methodical planner, reflects on The typical manager is constantly interrupted, with no more
what has been achieved, with time to systematically work than approximately 10 minutes spent on any one activity. The
through problems encountered throughout the day. manager takes on a great deal and has little time for reflection.
2. The effective manager has no regular activities to carry out. It Although managers’ days are constantly interrupted by both
is all a matter of coordinating other people’s responsibilities trivialities and crises, they still have regular duties to perform.
and then sitting back to watch others do the work. They must interpret and analyse information, attend meetings
and communicate regularly with other parts of the business.
3. Management is a science and, as such, can be reduced to a The manager’s job is more art than science. Managers rely
formula and set of ‘laws’ that, if followed, result in goals being heavily on judgement, past experience, perception and
achieved. intuition.
SUMMARY
• Management is a fundamental activity that makes the business function.
• Management is the process of:
(i) coordinating a business’s resources to achieve its goals
(ii) working with and through other people to achieve business goals in a
changing environment.
• Whether the goals of the business are achieved largely depends on the skills and
expertise of the management team in coordinating the business’s resources.
• Every business needs effective management to succeed.
• An effective manager needs to be good at planning, organising, leading and
controlling.
• The role of effective management is to make sure the joint efforts of employees
are directed towards achieving the business’s goals.
• Effective management is usually the major factor influencing the success or
failure of a business.
Contemporary
definition of management
— key aspects
Normally, a manager is not required to use all these skills constantly. What is
important is that these skills and abilities must be available when they are needed
so that managers can organise and motivate staff to work effectively towards objec-
tives. These skills take on added significance, given the two fundamental changes
that have taken place in the structure of many businesses over the past decade:
1. the movement away from the ‘tall’ hierarchical structures of many traditional
businesses, with their multiple layers of management, towards ‘flatter’ business
structures
2. the development of self-managing work teams.
In 2006, Innovation & Business Skills Australia (IBSA) commissioned the Boston
Resources Consulting Group (BCG) to undertake a study into how the role of Australia’s senior
managers is likely to change between then and 2020. Their report, 2020 vision: The
Weblink: 2020 Vision Report manager of the 21st century, reinforces the skills that will be needed to respond to
these changes. The report says that the trend away from traditional ‘command and
control’ forms of management towards team-based, consultative management styles
will continue.
Managers require a range of skills to operate effectively now and into the future.
These skills include:
• interpersonal (people)
• communication
SNAPSHOT QUESTIONS
1. Identify those factors on which the quality of leadership and management
skills has a direct effect.
2. Why are Australian managers sometimes considered bad managers?
3. Identify the management skills that Australian managers lack, according to the
article.
BizFACT SUMMARY
Australian Industry Group’s
• In general, effective managers are those who:
Addressing Enterprise Leadership in
Australia report in 2015 found that a –– possess a range of specific management skills
lack of self-awareness by ineffective –– are able to use these skills in a number of different situations.
company managers is contributing • All managers use their skills to achieve the business’s goals.
to Australia’s declining reputation of • Managers require a wide range of technical, conceptual (thinking) and people
corporate leadership. It found that
skills.
Australian managers overestimated
their company’s management
capabilities, which is concerning as 5.3.1 Interpersonal (people) skills
it leads to an under-investment in
leadership development. Do you know anyone who lacks interpersonal skills? These are the people who are
insensitive to the needs and feelings of others; people who speak before thinking
and consequently ‘put both feet in’; people who say the wrong thing at the wrong
time or to the wrong person; people who rub others up the wrong way. Such
people generally make very poor managers.
BizWORD Managers get their work done with and through other people; therefore,
Interpersonal (people) skills are interpersonal (people) skills are extremely important. Such skills mean a manager
those skills needed to work and can work and communicate with other people and understand their needs.
communicate with other people and
Interpersonal skills centre on the ability to relate to people, being aware of and
to understand their needs.
appreciating their needs, and showing genuine understanding. People skills include
the ability to communicate, motivate, lead and inspire (see the following Snapshot).
Resources
Weblink: Business
communication
BizFACT
Most researchers agree that
70 per cent or more of the meaning
of any message is communicated
through nonverbal channels such
as eye contact, facial expressions,
posture etc. Twenty per cent or so is
transmitted through the tone of voice:
pitch, timbre, inflection, rate, pauses,
volume and so forth. That leaves
10 per cent or less of any message
that can be attributed to the words.
FIGURE 5.8 “It’s not what was said, it’s the way she said it.” Communication can go awry
when the non-verbal aspects conflict with the words being said. For example, if a manager
sits forward and smiles during the part of an employment review regarding an employee’s
strengths, the employee may accept the praise as genuine. When a manager takes the time to
match non-verbal messages to verbal ones, the result can be powerful.
SUMMARY
• Interpersonal (people) skills are those skills needed to work and communicate
with other people and to understand their needs.
• Interpersonal skills include the ability to communicate, motivate, lead and inspire.
• Effective communication of business goals and the strategies to achieve them are
crucial to achieving business success.
• Managers who are effective communicators and who are able to share their
thoughts and plans will find it easy to influence others.
• Miscommunication is to be avoided because it can lead to serious harm to the
business.
• It is important for managers to be aware of the power of nonverbal communication,
especially body language.
• Strategic management allows the manager to see the business as a whole and to
take a broad, long-term view.
• Strategic thinking involves thinking about a business’s future direction and what
future goals the business wants to achieve.
To share their vision and inspire others, managers will have to display effective
BizWORD
leadership qualities. Leadership is the ability to influence people to set and achieve
Leadership is the ability to influence
people to set and achieve specific
specific goals. A manager will use his or her leadership abilities to act as a bridge
goals. on which to support team members as they cross from the existing ideas into new
and unfamiliar territory.
FIGURE 5.11 A common problem managers have to deal with is workplace conflict. Research
shows that up to 30 per cent of a typical manager’s time is spent dealing with disputes. While
conflict in the workplace is unavoidable, it can be minimised with the right strategy, problem-
solving skills and direction.
BizWORD Management will need to develop alternative solutions so that the problem
Decision making is the process of can be solved with an open mind. A list of possible solutions should be made,
identifying the options available and including the seemingly ridiculous ones. After analysing each of the alternatives for
then choosing a specific course of their advantages and disadvantages, the best option should be chosen. The solution
action to solve a specific problem.
to the problem will then be implemented and subsequently evaluated. If the solu-
tion does not work, the process would have to start again.
SUMMARY
• Managers must be able to provide a vision as to where the business is headed and
what it is trying to achieve.
• To share their vision with others and inspire them, managers will have to display
effective leadership qualities.
• Leadership is the ability to influence people to set and achieve specific goals.
• Managers must be able to solve problems — finding and then implementing a
course of action to correct an unworkable situation.
• Managers must be able to make decisions — identifying the options available
and then choosing a specific course of action to solve the specific problem.
• Managers must be flexible, adaptable and proactive rather than reactive.
To maintain its profit, the management of a business may choose to cut costs,
for example, and ignore some of its responsibilities. These types of decisions
can endanger employees or society, or damage the environment through pollu-
tion, raising serious ethical and social responsibility considerations. Manage-
ment might choose to reduce costs by sacking employees or by compromising on
product quality or safety, which also raises other ethical and social responsibility
considerations.
Reconciling these conflicting interests is not always easy. Senior management
must assess constantly the actions of the business and attempt to satisfy as many
stakeholder expectations as possible, while at the same time acting in a responsible
manner.
BizFACT
5.3.9 Strategies that could reconcile the conflicting Corporate social responsibility
challenges each business to be
interests of stakeholders accountable for the consequences of
Individuals and corporations purchase shares in companies for a variety of reasons, its actions. This means businesses
must consider effects on all
not least of which is to make a profit. Shares are sometimes purchased and held stakeholders while pursuing traditional
for only a short time. Such speculation is carried out with the intention of making economic goals.
a quick financial gain. Speculators are not normally concerned with the business’s
Companies as activists
But, increasingly, companies have become environmental activists themselves.
Take Ecotricity, for example, one of Britain’s biggest renewable energy companies,
founded by the ‘travelling hippy’ Dale Vince. The company takes an activist stance
against fracking in the UK, producing campaign videos that don’t look too dissimilar
from those produced by environmental activists. In fact, Ecotricity has teamed up
with Friends of the Earth, one of the largest and most influential green NGOs, in its
campaign to oppose fracking in the UK.
Cosmetics brand Lush is another successful company that has been very vocal
and explicit about opposing fracking in the UK. The company’s co-founder and
managing director Mark Constantine (a major backer of Frack Off) is explicit about
the fact that campaigning is part of the company’s core culture. Lush’s head of
global campaigns, Tamsin Omond, coordinates Lush’s involvement and financing
of a number of environmental groups, some of which use quite radical direct action
tactics to make themselves heard. She herself is a well-known activist who was
arrested in 2013 while protesting in West Sussex. The activist ethos of the company
is underpinned by the fact that its own employees — ‘who are more likely to be
drawn from the world of radical politics than business schools’ — often play a central
role in the environmental causes Lush supports.
SNAPSHOT QUESTIONS
1. Outline some strategies companies have introduced to become more
environmentally sustainable.
2. Explain why some companies have taken an activist stance for environmental
issues.
Many business analysts are now starting to refer to the ‘triple bottom line’ —
BizWORD
economic, social and environmental performance — where shareholder value
The triple bottom line refers to the
increases through the careful management of stakeholder value. More businesses economic, social and environmental
are realising that reconciling conflicting interests and increasing stakeholder value performance of a business.
ensures long-term growth and survival.
Social Environmental
FIGURE 5.13 The Global Reporting Initiative (GRI) is an international standards organisation
that helps businesses, governments and other organisations understand and communicate
the impact of business on critical sustainability issues. They developed Sustainability
Reporting standards and pioneered sustainability reporting in the late 1990s, transforming it
from a niche practice to one that is now adopted by a growing majority of organisations. More
than 8000 organisations use GRI Guidelines when reporting on their ‘triple bottom line’.
SUMMARY
• Stakeholders are groups and individuals who interact with the business and thus
have a vested interest in its activities.
• Society increasingly expects businesses to accept responsibility and accountability
towards all stakeholders.
• Stakeholder expectations can be compatible or incompatible.
• Managers need to reconcile the conflicting interests of various stakeholders.
• Senior managers must attempt to satisfy as many stakeholder expectations as
possible.
• Economic development must be accomplished sustainably.
• The triple bottom line refers to the economic, social and environmental
performance of a business.
• Reconciling the conflicting interests of stakeholders requires competent,
informed, ethical and socially responsible managers.
• Stakeholder engagement is a process that assists in reconciling the conflicting
interests of stakeholders.
BizFACT
When communicating about the
FIGURE 6.2 Once a business has well-constructed goals, the next step is to communicate
business plan and goals, managers
them effectively to employees. Employees who understand a business’s goals are much more
have to focus not only on addressing
likely to work towards achieving them. If employees are unaware of the goals, then goal-
the what, when and how, but more
setting is futile. A study in Harvard Business Review found that 70 per cent of employees were
importantly the why. The why is what
unable to identify their company’s objectives, given a choice of six options. Communication is
most employees want to understand
essential to strategic planning.
and it’s often the one thing managers
leave out when communicating goals
To be most effective, business goals should be S.M.A.R.T (see the following to their staff.
Snapshot).
SUMMARY
• People start a business because they want to achieve something: they have goals
they want to attain.
• A goal is a desired outcome (target) that an individual or business intends to
achieve within a certain time frame.
• Success in achieving your goals is often determined by the amount of planning
you undertake.
• Carefully prepared goals benefit managers by:
–– serving as targets
–– measuring sticks
Resources –– motivation
Weblink: SMART –– commitment.
• The best method of writing effective goals is by using the S.M.A.R.T. technique.
Business goals
FIGURE 6.5 There are many ways businesses can increase profit. Price may be lowered
to increase the volume of sales or clever advertising may convince the consumer to buy a
product.
NAB 16.31%
Westpac 24.38%
Other 17.28%
FIGURE 6.6 Competition between the major Australian banks and second-
tier banks has resulted in a declining overall market share for the big four.
For the third consecutive year, non-major banks and other institutions have
taken market share away from the big four. This is despite the market share
of the big four banks increasing in relation to loans.
80
75
70
Percentage
65
60
55
50
1/06/2002 1/06/2004 1/06/2006 1/06/2008 1/06/2010 1/06/2012 1/06/2014 1/06/2016
Loans Deposits
As you can see, since 2002 their market share has Something needed to be done
grown from 69.7% to 79.6% for loans and from 66.3% The concentration in the banking sector does not provide
to 77.3% for deposits. Also, the gap between market the best outcome to all Australians. It has led to a low
dominance in loans versus deposits has closed since range and low quality of financial services as well as high
the global finance crisis. This means the big banks are costs. This needed to be addressed.
attracting a greater share of bank deposits, which has an The new banking levy will support competition, as it
impact on the smaller banks. pushes up the cost for the big banks. The review into data
With limited access to deposits, which is a relatively sharing could also be a boon to financial startups and
cheap way of raising capital, smaller banks have had to other competitors, although we don’t yet know what the
rely on the more expensive wholesale debt markets. Small outcome will be.
banks also have difficulties to tap other funding sources But even stronger government actions may be needed
such as covered bonds. This makes their products less to create a level playing field. The government should
competitive, and they have struggled as a result. consider separating out of the retail arms, from the other
In part, that’s because a number of banks disappeared areas, of the large banks. Failing that, the low capital
or merged with the big banks after the global financial buffers of the big banks need to be addressed.
crisis. This includes St George, Bankwest, Bendigo Bank, Source: Harry Scheule, ‘Lack of competition is why government is moving so
Aussie Home Loans, Adelaide Bank, RAMS and Wizard. hard against the banks’, The Conversation.
6.2.3 Growth
Most businesses want to grow. They can achieve growth internally (organically) or
externally. Internal growth could involve employing more people, increasing sales,
introducing innovative products, purchasing new equipment or establishing more
outlets. McDonald’s has pursued an ambitious growth program by selecting a large
number of sites for future expansion.
External growth is achieved by merging with or acquiring other businesses. A
merger occurs when two businesses join together to become one — for example,
when the airline company Qantas joined with Jetset Travel. Expansion can also
take place through acquisition. This means that one business purchases another
business — for example, when Coca-Cola Amatil purchased Neverfail Springwater
and Mount Franklin bottled water suppliers; SPC Ardmona, IXL and Taylor’s food
products; and Goulburn Valley packaged ready-to-eat fruit merchandise.
Maximising growth is not a goal
that only large businesses can achieve.
Many successful SMEs have followed
similar strategies and in the process
expanded to become large businesses.
However, some small business owners
are content to maintain the existing size
FIGURE 6.7 Mike Cannon-Brookes
of their business to: and Scott Farquhar co-founded
• avoid the added pressures of Atlassian, an enterprise software
expansion in a desire for a quiet life company currently worth $5 billion,
or a particular lifestyle in Sydney in 2002. Their strategy for
continued growth has been through
• keep control over the business’s
mergers and acquisitions. The
operations pair have expressed their intention
• maintain personal contact with the to continue looking for bolt-on
customers. acquisitions to help them grow further.
TH ENABLER
GROW S
STANDING IN
S OUT TE
ES PEOPLE
N
G
RI
LD
TY
BO
EATING STRA
-CR TE
LUE GI
Y VA Strengthen existing ES
businesses through
IT
AC
operating excellence
CO CELL
EX
FINANCIA UST
AP
and satisfying
MM ENCE
LC
customer needs
ROB
ERCI
Ensure
AL
OUR OBJECTIVE Secure growth
sustainability
TO PROVIDE opportunities
through
through
responsible A SATISFACTORY
RETURN TO entrepreneurial
long-term
RESPON
initiatives
management SHAREHOLDERS
IN G
S O C I B I LI
E
CU WER
UR
IAL TY
S
LT
PO
Renew the portfolio
through value-adding
EM
transactions
AC
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U
TA IN N O V A TIO N
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BI
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Y
BizFACT
Through its numerous values
and campaigns, The Body Shop
expresses its commitment to social FIGURE 6.8 Wesfarmers’ primary objective is to provide a satisfactory return to its
and environmental justice on a local shareholders. The measure used to assess the achievement of the objective is total
and global level. Recent campaigns shareholder return over time. The company measures its performance by comparing its
include ‘Walk in her shoes’, ‘Stop return against those achieved by the S&P/ASX 100 Index, i.e. Australia’s top 100 companies.
sex trafficking of children and young Source: Wesfarmers
people’, ‘Climate friendly’, ‘Rethink
refugees’ and ‘Stop violence in the
home’. The Body Shop prides itself on
being a retail activist.
6.2.5 Social goals
All businesses operate within a community and, like individuals, have certain
social responsibilities. Many businesses develop social goals and adopt strategies
that will benefit the community, while achieving financial goals. Among the main
social goals are:
1. Community service. Business sponsorship of a wide range of community events,
promotions and programs rapidly increased during the past decade. Many
businesses financially support educational, cultural, sporting and welfare
activities.
2. Provision of employment. Most large businesses do not regard employment of people
as a main goal. Many small business owners, however, look at the continuity of
BizWORD their business, sometimes employing family members who otherwise might be
Social justice in business is about unemployed.
adopting a set of policies to ensure
that employees or other community
3. Social justice. Everyone has the right to be treated fairly. A business may be
members are treated equally and fairly. concerned for social justice — that is, it adopts a set of policies to ensure
employees and/or other community members are treated equally and fairly.
Governance
We aim to contribute to good governance with a focus on reducing corruption,
enhancing transparency and strengthening of institutions.
Our strategic theme of Governance is deliberately aligned to the following
UNSDGs:
• Decent work and economic growth
• Industry, innovation and infrastructure
• Peace, justice and strong institutions
• Partnership for the goals.
Environment
We aim to contribute to enduring environmental and social benefits through
biodiversity conservation, water stewardship and climate change mitigation and
adaptation.
Our strategic theme of Environment is aligned to the following UNSDGs:
• Clean water and sanitation
• Sustainable cities and communities
• Climate action
• Life below water
• Life on land
• Partnership for the goals.
SNAPSHOT QUESTIONS
1. Outline how BHP demonstrates its commitment to sustainable development.
2. How does BHP contribute to good governance, human capability and social
inclusions and the environment?
3. Explain how BHP creates meaningful relationships with local cultures.
Sustainable development
So far we have painted a somewhat bleak picture of the possible future. Fortunately,
however, the world is moving away from many of its past practices. Economic
growth must be achieved sustainably. Many in society now argue that economic
growth should not occur at the expense of polluting and degrading the air, water
BizFACT
FIGURE 6.10 Siemens was recognised as the world’s most sustainable company in 2017. According to the Global Footprint
The German company supports a fundamental technological change: a shift toward energy- Network, we currently use the
efficient economic development, renewable energy sources and environmentally friendly equivalent of 1.4 planets to provide
solutions. Its aim is to achieve a threefold benefit: for its customers who improve their the resources we use and to absorb
competitiveness thanks to lower energy costs and higher productivity; for future generations; the waste we produce. This is not
and for Siemens itself, by developing attractive markets and growing profitably. sustainable. Based on estimates from
the United Nations on resource use
Businesses are starting to play their part in achieving sustainable development. and population, the Global Footprint
Pressure to change has come from society’s increasing awareness of environmental Network predicts that, between 2035
and 2050, we will reach the point
issues. As well, governments are imposing stricter environmental regulations on where we need the equivalent of two
business practices. This will provide many new business opportunities for environ- planets to support us.
mental services and products (see the following Snapshot).
A 2008 IBM worldwide survey of senior executives highlights this business shift
towards sustainability. Sixty-eight per cent of business respondents said they were
implementing sustainability ‘as an opportunity and platform for growth’, and more
than 50 per cent said their company’s sustainability activities were giving them an
advantage over their top competitors.
Despite this positive shift, nearly two-thirds of businesses questioned by
IBM admitted they didn’t fully understand their customers’ concerns around
FIGURE 6.11 Coca-Cola Amatil attempts to achieve a mix of business goals. Their current
strategic objectives are to continue to provide sustainable returns that are superior to those of
their competition; to invest in their capacity and encourage business growth; and to conduct
business and operate within the community as a good corporate citizen.
SUMMARY
• A business attempts to achieve a variety of goals. These goals relate to:
–– profits
–– market share
–– growth
–– share price
–– social
–– environmental.
• Profit maximisation occurs when there is a maximum difference between total
revenue (TR) and total costs (TC).
• Market share refers to the business’s share of the total industry sales for a
particular product.
• A small change in a business’s market share can result in a large change to its profit.
• A business can maximise growth either internally (organically) or externally.
• Companies need to satisfy their shareholders by improving the share price and
paying healthy dividends.
• Many businesses develop social and environmental goals and adopt strategies
that will benefit the community.
• There are three main social goals a business attempts to achieve:
–– community service
–– provision of employment
–– social justice.
• Enlightened businesses are adopting sustainable development practices.
• Managers should attempt to achieve a mix of the above goals.
• Managers often have to make a trade-off between conflicting goals.
Environmental Social
Main goals
of business
2 In the following examples, identify which goal the business is trying to achieve.
(a) The business owner wishes to increase revenue so they conduct a large sale.
(b) A board of directors announces that the company’s profits are forecast at
23 per cent over the next 12 months and the dividend will rise by 28 cents per share.
(c) A manager decides to undertake an extensive promotional campaign in an attempt
to attract new customers.
(d) Senior executives knew there was only one way to expand the business and that
was by buying the opposition.
3 ‘The main goal of a business is to maximise profits’.
(a) Define the term ‘profit maximisation’.
(b) Recount under what circumstances a manager may be prepared to accept
reduced profits in the short term.
(c) In your opinion, discuss whether maximising profits should be the only goal of a
business.
4 Describe two strategies a manager can use to maximise profits.
Resources
5 Why is profit maximisation more suitable as a long-term goal?
6 Go online to access the latest Coca-Cola Amatil Fact Book. The Coca-Cola Amatil Weblink: Coca-Cola Amatil
weblink in the Resources tab may assist. Then:
(a) identify the five products that have the greatest market share
(b) discuss why Coca-Cola Amatil wants to increase its market share for each of its
products.
7 Recommend three strategies either Coles or Woolworths could use to increase
their market share. Share your answer with other class members.
8 Distinguish between internal and external growth.
9 Why are some small businesses content to maintain their existing size?
10 Outline the relationship between a shareholder and a public company.
11 Define the term ‘share’.
12 Explain why some companies may not be able to constantly improve their share
price.
13 Summarise the three main social goals of a business.
FIGURE 6.12 There are many benefits of involving employees in decision making. Employees
will feel more valued and, as a result, their motivation and morale will be higher. Also, when
employees are involved in making the decision, they will usually raise their level of effort and
commitment, which will increase the chances of success.
6.4.2 Motivation
Why do some employees work harder than others? Why can an employee
with average skills regularly outperform someone with outstanding abilities?
The difference between the two employees is most probably their level of
motivation.
Communicate Delegate
regularly responsibility
with staff
Tips for motivating
(and keeping) staff Take an interest
Give recognition
in employees’
and
development
appreciation
FIGURE 6.14 Non-financial rewards can have an even more substantial impact on employee satisfaction
and motivation than traditional financial rewards. Motivational techniques that consider the emotional
and physical wellbeing of employees lead to high morale, which in turn improves employee and business
effectiveness.
powerful motivator but only in the short term. As the writer Neil Simon expressed it,
‘Money brings some happiness. But, after a certain point, it just brings more money.’
The reality is that people want to be involved in their working lives. The suc-
cessful businesses today will need to give close attention to involving employees
in the decision-making process. Good managers should, therefore, also be good
motivators, encouraging employees and using positive reinforcement to influence
behaviour. The overall success of the business largely depends on motivated and
skilled employees who are committed to its goals — that is, everyone working
towards a common purpose.
6.4.4 Training
As the nature of the workplace changes, especially due to the introduction of
technology, existing employees must be trained and retrained. New employees also BizWORD
need some training, depending on their level of experience. Employee training Employee training generally refers to
generally refers to the process of teaching staff how to perform their job more the process of teaching staff how to
efficiently and effectively by boosting their knowledge and skills. It may involve perform their job more efficiently and
effectively by boosting their knowledge
teaching them specific skills, and allows existing employees to continually upgrade and skills.
their skills with the aim of developing multiskilled employees.
Multiskilling allows employees to
Mutiskilled employees are better able to: develop skills in a wide range of tasks
• adapt to a rapidly changing technological environment through ongoing training.
• provide better customer service
SUMMARY
• Staff involvement means involving employees in the decision-making process
and giving them the necessary skills and rewards.
• A work environment that maximises employee involvement and satisfaction has
high levels of labour productivity.
• Businesses should encourage an innovative business culture by recognising and
encouraging one of the most important sources of innovative ideas: employees.
• An intrapreneur is an innovative employee who takes on the entrepreneurial
roles within a business.
• Motivation refers to the individual, internal process that directs, energises and
sustains a person’s behaviour.
• Individual employees respond differently to various motivational techniques.
• Good managers should also be good motivators, encouraging employees and
using positive reinforcement to influence behaviour.
• Mentoring is the process of developing another individual by offering tutoring,
coaching and modelling acceptable behaviour.
• Teaching new employees what the business expects of them helps strengthen
their dedication and commitment to the business.
• Employee training generally refers to the process of teaching staff how to perform
their job more efficiently and effectively by boosting their knowledge and skills.
• The goal of training is to improve employee productivity.
Management approaches
OVERVIEW
7.1 Introduction
7.2 Classical approach to management
7.3 Behavioural approach to management
7.4 Contingency approach to management
7.5 Compare and contrast approaches to management
7.1 Introduction
BizFACT Management has been practised for thousands of years. The great pyramids of
Like today’s managers, the ancient Giza in Egypt, for example, represent the combined efforts of more than 100 000
Egyptian managers needed to: individuals who worked on the project over a 20-year period. This remarkable
• develop plans achievement was the result of well-coordinated management practices.
• acquire human and physical
resources
• arrange finance
• analyse information
• keep records and prepare progress
reports
• monitor performance and
coordinate activities
• take corrective action whenever
required.
FIGURE 7.1 Effective management practices were applied to building the pyramids of Egypt.
SUMMARY
• Knowledge about management today is the result of a long and continuing
innovative process as ideas evolved over time.
• The business’s management approach will have an enormous impact on all
aspects of the business’s operations.
Of course, the initial ideas of the classical–scientific theorists have been modified
over time. However, modern managers realise that without motivated and com-
mitted employees, empowered to analyse their own work habits and take responsi-
bility for what they do, productivity will not improve.
PRO
DUC
TION
The process of evaluating and
Changing production procedures if
3. Controlling modifying tasks to ensure that the set
goals are not being achieved
goals are being achieved
Advantages Disadvantages
• Shorter time to make decisions • Specialisation and repetitive tasks could
• Could lead to improved efficiency lead to employee boredom
• Increased productivity • Less job satisfaction, which could lead
• Clear chain of command to increased turnover
• Can discourage creativity and innovation
• Organisation becomes inflexible and less
able to adapt to changing conditions
SUMMARY
• A classical–scientific approach to management, pioneered by Frederick Taylor,
studies a job in great detail to discover the best way to perform it.
• The classical–scientific approach led to the development of assembly line, mass-
production techniques.
• A classical–bureaucratic approach to management, pioneered by Max Weber and
Henri Fayol, advocated:
–– that a bureaucracy is the most efficient form of organisation
–– the main function of management is planning, organising and controlling.
• The main features of classical–scientific and classical–bureaucratic management
approaches include:
–– time and motion studies used to reduce inefficiencies
–– production line methods
–– hierarchical organisational structure (bureaucracy)
–– clear lines of authority (chain of command)
1. The process of evaluating and modifying tasks to ensure that the set goals are
being achieved
2. The process of arranging the resources of the business to achieve the goals
3. The process of setting goals and deciding on the methods to achieve them
FIGURE 7.5 A Venn diagram is used to compare and contrast information. Points of
difference are recorded in the outer parts of the circle and similarities are placed in the
area where the two circles intersect.
FIGURE 7.6 Planning involves looking ahead and mapping out future courses of action.
Action without planning usually ends in failure. It is often said that ‘failing to plan is planning
to fail’.
More
Vision statement
Top/ Board of directors
senior/ Chief executive officer (CEO)
executive Managing director (MD) Strategic (long-term)
management planning
team
Accountability
Responsibility
Authority Departmental/divisional
Department head
objectives
Divisional head
Middle management team Plant manager
Store manager Tactical (medium-term)
planning
FIGURE 7.9 A management hierarchy. The coordinated effort of all three levels of management is required to achieve the goals of the
business.
Board of directors
General manager
SUMMARY
• Management functions include:
–– planning: a predetermined course of action. This involves strategic, tactical and
operational planning.
–– organising: a range of activities that translate goals into reality.
–– controlling: compares what was intended to happen with what has actually
occurred.
• Management hierarchy is the arrangement that provides increasing authority at
higher levels of the hierarchy.
• Senior managers have greater accountability, responsibility and power compared
to lower-level managers of the organisation.
• The traditional hierarchical organisational structure has people grouped
according to the specialised functions they perform.
Autocratic or
Participative
authoritarian
or democratic
(high task/low process)
The two main types of leadership approaches and their characteristics are shown
in table 7.2.
SUMMARY
• The two main types of leadership style are:
–– autocratic or authoritarian — strong, centralised control
–– participative or democratic — authority and power are decentralised.
• A manager using an autocratic leadership style tends to make all the decisions
and frequently checks employee performance.
Step 1 Establish s_ _ _ _ _ _ _ _
Step 2 Measure p _ _ _ _ _ _ _ _ _ _
Step 3 Take corrective a _ _ _ _ _
14 B
enchmark your performance against other groups in your class (that is, compare
the results to the other results). Recommend how you could improve.
Advantages Disadvantages
• Increased empowerment of employees — can take • Lack of control
ownership of their work • Powerful people can disrupt the process
• Worker recognition and appreciation should lead to increased • Communication can often be so large that confusion
motivation may arise
• Improved relationship between managers and staff • It’s difficult to accurately predict employee behaviour
SUMMARY
• The behavioural approach to management, pioneered by Elton Mayo, stresses
that people (employees) should be the main focus of the way in which the
business is organised.
• The main features of behavioural management approach include:
–– humanistic approach: employees are the most important resource
–– economic and social needs of employees should be satisfied
BizWORD –– employee participation in decision making
Leading is the process of influencing
–– team-based structure
or motivating people to work towards –– managers need good interpersonal skills
the achievement of the business’s –– democratic leadership style emerging.
objectives.
7.3.1 Management as leading
Leading occurs when managers endeavour to influence or motivate people in the
BizFACT business to work to achieve the business’s objectives. The type of leadership in a
Research has shown that companies business depends on the attitudes and assumptions that managers have about
led by more humble individuals
perform better. Humble leaders are
people in the business.
more modest, emotionally stable and To act as a leader, a manager should display empathy and possess good listening
eager to learn. Another strength of skills. A leader will have high expectations of employees’ abilities to initiate and
humble leaders is self-awareness — implement ideas. He or she will concentrate on the needs of their employees,
confidence in their abilities paired building high-performance teams that attain their objectives. Less effective man-
with accurate understanding of their
limitations. Finding an authentically
agers tend to focus on tasks and are more concerned with meeting deadlines —
humble CEO is rare, however. that is, they display the natural characteristics of a manager, not a leader. A leader,
however, wants to empower (see the following Snapshot).
The Hawthorne studies revealed that such human factors as recognition, selfworth
and positive reinforcement are at least as important to motivation as external factors
such as pay rates and working conditions. In some cases they may be more important.
From this initial research came a flood of other behavioural management approaches
focusing on the area of motivation. Overwhelmingly, the research highlights the fact
that management would do best to provide a work environment that maximises
employee satisfaction. Good managers, therefore, should also be good motivators,
BizFACT encouraging employees and using positive reinforcement to influence behaviour.
‘If employees feel a real attachment How then does a manager go about the task of motivating the business’s
to the business; it is part of their
employees? This question is often asked and has resulted in a wide variety of
lives, then they will be much more
motivated.’ answers. Numerous studies have identified such diverse factors as trust, respect
Adam Bartlett, Strategic Facilities
for the individual, positive reinforcement, empowerment, enhancing self-esteem,
Manager. employee participation, rewarding team performance, employee encouragement and
so on. Managers can use a variety of techniques to improve employee motivation.
SUMMARY
• According to the behavioural management approach, the main management
functions are:
–– leading: having a vision of where the business should be in the long and short
term
–– motivating: energising and encouraging employees to achieve the business’s
goals
–– communicating: exchanging information between people; the sending and
receiving of messages.
True False
(a) Leading and managing are much the same thing.
(b) Good leaders are important for businesses.
(c) To be a good leader, you must be authoritarian.
(d) Before you lead, you must learn to follow.
(e) Leaders should have only one concern: the task.
(f) To be an effective leader you must be a skilled communicator.
(g) A person’s leadership style should be fixed and unchangeable.
(h) Leadership skills can be learned.
7.3.4 Teams
A not-so-quiet revolution is rapidly transforming workplace cultures, practices,
BizWORD
operations and productivity levels. Many businesses are starting to realise
Teamwork involves people who
interact regularly and coordinate their
that a team approach can be the catalyst for superior performance. Teamwork
work towards a common goal. involves people who interact regularly and coordinate their work towards a
common goal.
Understanding how such teams function — that is, understanding the group
dynamics of teams and teamwork, is vital for managers operating in the modern
workplace. It is essential that managers foster a sense of cohesion between team
members, otherwise the team is no more than a group of individuals all working
separately. Such teams have no common purpose and therefore lack any sense of
belonging to the organisation. In such cases, it is quite common for conflict to develop
between team members. Ultimately, the team’s effectiveness will be diminished.
These self-directed work teams alter some of the traditional roles of manage-
ment. One obvious change is that managers have to work more closely with people
over whom they have no apparent authority. They are required to adopt a team
approach, negotiating consensus decisions rather than imposing demands.
Another significant impact of a team approach is the breaking down of the tra- BizWORD
ditional pyramid-shaped hierarchical organisational structure. Hierarchical bound- Flatter organisational structures
aries are disappearing as people and functions mix together to create much flatter have evolved due to a ‘de-layering’
of management structures resulting
organisational structures. Firms that adopt a flatter management structure reduce
in the elimination of one or more
the number of levels of management, giving greater responsibility to individuals in management levels.
the business (see figure 7.19).
Manager
SUMMARY
• A manager who adopts a behavioural approach will tend to use a participative or
democratic leadership style.
• Participative or democratic leaders share their decision-making authority with
their subordinates.
• This style of leadership is most effective when a business is operating in an
environment undergoing rapid change.
Political
Contingency
Systems
Behavioural
Classical–scientific/bureaucratic
The contingency approach, therefore, advocates that managers extract the most
useful ideas and practices from a wide range to best suit their business’s present
requirements. It stresses that an appropriate management response to one set of cir-
cumstances may be quite inappropriate to another. To adopt this approach, man-
agers must sample all the past and present ideas on offer; some refer to this as the
‘smorgasbord’ approach.
A manager adopting this approach will obviously need to apply the
‘10 commandments for the modern manager’ (see figure 7.24). The advantages
and disadvantages of the contingency approach to management are summarised in
table 7.4.
THE 10 COMMANDMENTS
6. Cultivate the ability to adapt to
FOR THE MODERN MANAGER changing circumstances.
1. Share your vision with all relevant 7. Learn how to access and use
stakeholders. appropriate information and
2. Manage the relationships and manage this knowledge
the coalitions, not the employees. effectively.
3. Manage your own emotions 8. Be aware of how developments
and help others in the business in technology can improve your
to maintain an emotional balance. effectiveness and efficiency.
4. Learn to thrive on diversity 9. Recognise and use the
not conformity. experiences and expertise of
5. Lead, rather than simply all employees.
managing, by inspiring trust and 10. Encourage ethical behaviour in
motivation. order to promote pride and
commitment in employees.
Advantages Disadvantages
• Acknowledges the impact of changes in the business environment • Adapting to constant changes in the business
and enables businesses to be more flexible in reacting to change environment can be challenging for management
• Recognises that there are multiple approaches to management • The process of selecting alternative courses of action
and there is not one best way depending on the situation can be costly in terms of
• Recognises that different situations demand different approaches time and money
SUMMARY
• The contingency management approach stresses the need for flexibility and
adaptation of management practices and ideas to suit a particular situation.
• Due to the unstable business environment, managers need to be flexible and
borrow and blend from a wide range of management approaches.
Behavioural • Emphasises that people • Flatter organisational • Fewer levels of • More participative
approach (employees) should be the main structure with management or democratic
focus of the way in which the emphasis on aspects emerging
business is organised teamwork
• Views management as leading,
motivating and communicating
• Recognition that workers have
social needs in addition to
economic needs
• Teamwork and informal
work groups important for
productivity
Management process
OVERVIEW
8.1 Introduction
8.2 Different ways of coordinating key business functions for a SME
8.3 Operations
8.4 Marketing
8.5 Finance
8.6 Human resources
8.7 Ethical business behaviour
8.1 Introduction
So far in this topic we have discussed only the ‘what’ of management. We have
examined:
• the nature of management: its importance and what skills are needed to be an
effective manager
• achieving business goals: what the manager wants the business to achieve
• management approaches: ideas about different ways of performing the task of
management.
However, we now come to the ‘how’ of management: how the task of manage-
BizWORD ment is actually done. Once a business has established a set of specific goals, the
Strategies are the actions that a next step is to determine what needs to be done to achieve the goals. Strategies
business takes to achieve specific outline how the business will attempt to achieve its goals. Strategies are the series
goals. of actions undertaken to achieve an end result. This requires managers to make
decisions about how best to administer and coordinate the four key business func-
tional areas — operations, marketing, finance and human resources. This responsi-
bility of management is often viewed as the ‘doing things right’ responsibility.
The focus of management’s strategies is to ensure that the key business functions
are performing efficiently and effectively in order to support and implement the
business’s overall intentions. Specialist managers in:
BizFACT • operations focus on strategies to improve production processes and to create the
Strategies are a number of actions ideal factory or office layout
to be undertaken to achieve a goal. • marketing determine the appropriate markets for the business’s products, and
Strategies involve: decide on pricing, product features, promotion and channels of distribution
• what has to be done
• finance are responsible for the financial requirements, budget allocation and
• who is to do what
• when it is to be done financial record keeping
• what resources will be needed. • human resources are concerned with the recruiting, training, employment
contracts and separation of the employees who are required to run the business
successfully.
For example, imagine if one of Toyota’s goals is to increase its market share of
hybrid motor vehicles. This would result in changes to the operations
FIGURE 8.1 Due to globalisation and increased pressure to reduce costs and be competitive,
there has been a huge growth in the outsourcing of business functions. The aim is to take
advantage of specialist skills and to achieve cost savings.
In most businesses, the key business functions are grouped to bring closely BizFACT
related tasks together. Thus, sales and marketing are grouped, finance and admin- For a business to be successful, it is
istration are grouped, and operations is grouped with research and development crucial that all the goals and strategies
(R&D). Consequently, the range of functions is generally reduced to four main are linked and working harmoniously.
functions as is shown in figure 8.2.
The importance of the key functional areas is highlighted by the fact that the
High School Certificate Business Studies course is structured around — and exam-
ines in more detail — the four key functional areas.
Human
Operations Marketing Finance
Resources
These key functions are interdependent (i.e. they all overlap) and each relies on the other.
In many businesses, they are separate functions. Synergy means ‘the whole is greater
than the sum of all the individual parts’.
FIGURE 8.2 The four key business functions
Human
Operations Marketing Finance
resources
FIGURE 8.3 Although a business may separate the key business functions, they are all
interdependent — each relies on the others to perform effectively. The key business functions
work best when they overlap and employees work towards common goals. Each function area
depends on the support of the others if it is to perform at capacity.
Klassikhair Salon
(Dundas, NSW)
8.3 Operations
If you have ever attempted to prepare a meal, you will know that you need
ingredients and a recipe, or a method, to create a final product. Just like you,
businesses will follow a recipe when they are producing their good or service.
BizWORD The area of management that is responsible for this is known as ‘operations’.
Operations refers to the business Operations refers to the business processes that involve transformation or, more
processes that involve transformation generally, ‘production’. It is a term that applies both to the manufacturing and the
or, more generally, ‘production’. services sector. As explained in section 8.1, all businesses establish a set of goals.
Operations management consists Next, the business implements strategies to achieve these goals. The core goal of all
of all the activities in which managers
businesses is to maximise profits. This is often best achieved through the efficient
engage to produce a good or service.
production of a good or service. Operations management is the strategy used to
achieve this goal. The HSC course investigates operations in greater depth, so this
chapter will provide an elementary understanding of the main concepts.
Operations management consists of all the activities in which managers engage to
produce a good or service. It is concerned with creating, operating and controlling
a transformational process that takes inputs from a variety of resources, and pro-
duces outputs of goods and services that are needed by customers. When you buy
a loaf of bread from the supermarket, for example, the bakery will have undertaken
a number of processes from buying the ingredients, to mixing and blending them,
baking, cooling then wrapping the finished loaves and, finally, delivering the loaves
to the retail outlets.
Operations management, therefore, is at the heart of the success of all businesses.
Production involves the skilful bringing together of a number of resources, such as
finance, equipment, management, technology and people, to create finished goods
and services through a series of operations (see the following Snapshot).
Processes
Visy has eight paper machines across Australia that are used to produce high-quality
recycled paper for the packaging and building industries. The machinery used to
manufacture this paper offers flexibility so that they are able to produce a variety of
different papers using the same machines. In 2015–16, their machines produced
over 1.4 m tonnes of paper, coated liner and plasterboard liner, and over 670 000 ❛ … increased
tonnes of unbleached kraft paper. productivity, profitability
Visy’s Reliability and Manufacturing Systems teams ensure that the extensive
equipment and systems in their mills are reliable, effective and efficient. and safety. ❜
Technology
Visy’s Automation team specialises in the engineering and integration of robotic
handling and packaging equipment solutions in order to achieve their main objectives
of increased productivity, profitability and safety.
Visy also continuously invests in research and development and leading-edge
technologies. The company is committed to continuous growth and improvements to
ensure it offers the best facilities and services to its customers.
Quality management
Visy is committed to continuous improvement in both product quality and service.
Many areas of its business operations are accredited, which is achieved by
compliance to stringent externally audited standards that are stipulated by
internationally recognised regulatory bodies. The company also regularly implements
benchmarking programs to compare its business operations against world’s best
practice.
Visy offers superior technical back up and support and works cooperatively with
customers to establish continuous improvement processes to reduce damage and
waste throughout the entire supply chain.
SNAPSHOT QUESTIONS
1. Outline Visy’s manufacturing processes.
2. Discuss Visy’s investment in leading edge technologies.
3. Explain the importance of continuous improvement.
BizFACT The nature and type of operations vary considerably from one type of good or
Due to the enormous costs involved service to another. However, how the operations management function is carried
in operations processes, many out will directly affect a business’s competitive position because it will:
businesses try to gain a competitive • establish the level of quality of the good or service
advantage through cost leadership.
• influence the overall cost of production, given that the operations function is
This involves aiming to have the
lowest costs in the market. To achieve responsible for the largest part of a business’s capital and human expenses
this, operations managers aim to • determine whether sufficient products are available to satisfy consumer demand.
continuously find ways of minimising The operations management function has a considerable influence on the quality,
costs. cost and availability of a business’s goods or services. These, in turn, have a direct
bearing on whether the business achieves its other main goals — specifically, to
maximise profits, to increase market share, to maximise growth or to provide a rea-
sonable return for investors.
SUMMARY
• Operations management is about producing goods and/or services based on
business goals.
• The operations management function has considerable influence on the quality,
cost and availability of a business’s goods and/or services.
• Operations management is responsible for transforming inputs into outputs.
• The characteristics of operations management differ according to whether the
business is a manufacturer of goods or a provider of services. Manufacturers
produce tangible products (physical), while service organisations produce
intangible products (services).
• Most modern businesses produce a combination of both manufactured goods
and services.
2 Use the internet or look at the careers section of the newspaper to find a job
advertisement for an operations manager (sometimes called a factory manager).
The advertisement will most probably list responsibilities involved in the position.
Classify these into the four management roles (planning, organising, leading and
controlling).
3 Anita’s Cosmetic and Beauty therapy is a business specialising in a range of
cosmetic and beauty enhancement treatments and products. Determine the range
of operations activities offered in such a business.
4 Demonstrate how an operations manager of a manufacturing plant that produces
confectionery might use the roles of planning, organising, leading and controlling in
his or her daily job.
BizWORD Inputs
Inputs are the resources used in the Inputs are the resources used in the transformation (production) process. Some
transformation (production) process. resources are already owned by the business, while others come from suppliers.
Transformed resources are those Inputs differ between manufacturing businesses and service businesses. Inputs
inputs that are changed or converted may be divided into those that are transformed and those that are transforming
in the operations process.
resources.
Transforming resources are
Transformed resources are those inputs that are changed or converted in the
those inputs that carry out the
transformation process. operations process; they are transformed by the operations process. Transformed
resources include:
• materials: the basic elements used in the production process.
• information: the knowledge gained from research, investigation and instruction,
which results in an increased understanding.
• customers: customers become transformed resources when their choices shape
inputs.
Transforming resources are those inputs that carry out the transformation pro-
cess. They enable the change and value adding to occur. The two main trans-
forming resources are:
• human resources: the people that are employed by the business.
• facilities: the plant (factory or office) and machinery used in the operations
process.
The term ‘transformation’ implies physical changes, but today it also includes
the conversion of resources into services. Your school takes its main inputs — the
students, the syllabus, the teaching and ancillary staff, and the buildings and other
capital — and produces educated, employable graduates. What occurs in this edu-
cational setting is a transformation process. It is the task of the operations manager
to create, operate and control the transformation process, and table 8.1 illustrates
how this happens in a number of different businesses.
Manufacturing
Services
BizFACT
Businesses can become more
competitive by looking at their
production processes. For example,
the ‘better mango project’ identified
why so many mangoes were arriving
at retail outlets bruised or overripe.
Better handling techniques and
temperature control have resulted in
more consistent fruit quality and better
profits.
FIGURE 8.8 The transformation process in a clothing factory and a private hospital
Inputs supplied by existing resources or external Transformation process Outputs — either goods
supplier or services
Clothing factory Computer-based designing, dyeing, hand and Dresses, shirts, suits,
Pattern cutters, designers, drivers, machine machine cutting, machining, branding, manual trousers etc.
operators, material, sewing machines, labourers random checking
Private hospital Consultation, diagnosis, assessment of Patient returned to health
Nurses, doctors, operating theatre, computers, beds, alternatives, treatment (referral to specialist or
drugs, laboratory, X-ray facilities done by a general practitioner, GP)
Owing to the vastly differing nature of business, the transformation process varies
from business to business. It is often useful to look at the transformation process
in a manufacturing business separately from the process in a service-based business
because the transformation processes in manufacturing are far more visible and
more easily quantified.
Inputs
FIGURE 8.10 An operations system for a manufacturing company producing building products
Inputs
Table 8.2 highlights the main differences between manufacturing and service
operations.
BizWORD Outputs
Outputs refer to the end result of a Essentially, outputs refer to the end result of a business’s efforts — the good or
business’s efforts — the service or service that is delivered or provided to the consumer. So far, a distinction has been
product that is delivered or provided drawn between service and manufacturing operations, but in many cases businesses
to the consumer.
carry out both types of operation. Toyota, for example, separates its vehicle
manufacturing operation from its customer service operation, although both
elements are critical to the business’s overall success.
All businesses carry out many activities that can be
isolated from direct involvement with the customer.
Insurance companies employ mathematicians called
actuaries who use formulas to determine risk and
probability in setting the level of insurance
premiums. Actuaries never deal directly with the
public, but are instrumental in forming parameters
or boundaries in which operations will occur.
The operations manager must be able to link
transformation processes to the activities per-
formed by other areas of the business. Output must
always be responsive to customer demands. Issues
of quality, efficiency and flexibility must be bal-
anced against the resources and strategic plan of the
business.
FIGURE 8.13 The Australian Business Award for Service Excellence While the most obvious output of the transforma-
recognises small, medium and large organisations that have achieved tion process is the goods made or services provided,
outstanding results and demonstrate leadership to service excellence. there are other, more subtle outputs. For example,
The Observatory hotel in Port Macquarie won the small business award customer service (which refers to how well a busi-
in 2016 due to their commitment to service improvement. The hotel has
ness meets customer expectations) (see figure 8.13)
created an extensive framework for reviewing guest feedback. Once
issues are identified, fortnightly meetings are held to project manage and warranties (promises made by a business to
improvement initiatives. The hotel also has a loyalty program and uses correct any defects in the goods they produce or the
incentives to create staff engagement. services they deliver).
BizFACT
Samsung continuously upgrades its
quality management system, in an
effort to achieve the best quality in all
products and services that surpass all
expectations. The quality management
system consists of four evaluation
criteria: reliability, functionality, process
and application. Samsung uses state-
of-the-art facilities and equipment for
all its tests and analysis in order to
achieve and maintain the best quality
at all times.
FIGURE 8.15 Beneath the grass of the MCG lies five kilometres of PVC drainage pipe that
stops the surface from becoming waterlogged. This pipe is made by Vinidex Pty Ltd,
Australia’s leading manufacturer of thermoplastic pipe systems. The high-quality pipes
produced are also used to pump gas through vast pipelines in NSW and South Australia.
Vinidex use meticulous quality control, as well as quality inputs, to maintain excellent
customer service. New materials, as well as the processing technology and manufacturing
equipment, are carefully examined to make sure that Vinidex continues to achieve high
standards in the industry.
Quality improvement
Quality improvement focuses on two aspects: total quality management and
continuous improvement.
A system for ensuring quality in the The use of inspections at various points
processes by which products are in the production process to check for
developed so that a business achieves problems or defects.
set standards in production.
Has the goal to improve processes Has the goal to find defects after a
so that defects do not occur during product is developed and before it
production. is sold.
❛ Quality management Establishes standards and procedures Verifies that procedures are followed
that need to be adhered to in order to and standards are met.
process: Plan, Do, meet customer requirements.
Check, Act ❜ Sets up measurements to evaluate Verifies if products meet specific
processes. measurements.
The quality management process can be summarised into four key steps:
• Plan = perform quality assurance by determining the product’s quality
requirements and standards and establish processes about how these
will be met
• Do = develop the product and apply the quality requirements and
processes
• Check = undertake quality control by inspecting the product to ensure
standards are being met and that there are no defects
• Act = take corrective action if needed
FIGURE 8.16 Kaizen is the heart of the Toyota Production System. The Toyota
mass-production process requires that all tasks, both human and mechanical, be very
precisely defined and standardised to ensure maximum quality, eliminate waste and improve
efficiency. Employees have a responsibility to not only closely follow these standardised work
guidelines but to also seek their continual improvement. The day-to-day improvements that
employees make to their working practices and equipment are known as kaizen.
SUMMARY
• Quality management is the strategy that a business uses to make sure that its
product meets customer expectations. Three quality approaches are quality
control, quality assurance and quality improvement.
• Quality control involves the use of inspections at various points in the production
process to check for problems and defects. Performance is measured in relation
to set standards or benchmarks.
• Quality assurance involves the use of a system where a business achieves set
standards in production. This is a proactive approach to quality management
that aims to prevent problems from occurring.
• Quality improvement focuses on two aspects: total quality management and
continuous improvement.
• Total quality management (TQM) is an ongoing, business-wide commitment to
excellence that is applied to every aspect of the business’s operation.
• Continuous improvement is a process that involves an ongoing commitment to
achieving perfection.
8.4 Marketing
Marketing is vital to the existence of the business. Just because someone invents a
new product or improves an existing one does not guarantee customers will buy it.
Without some form of marketing, customers may not even be aware of a product’s
existence regardless of how ‘record breaking’, ‘new and improved’ or ‘revolutionary’
it may be. Statistics reveal that more than 70 per cent of new products launched
on the market self-destruct in the first year of operation, mainly because of
poor marketing. Businesses make few sales if they do not market their products
successfully, eventually ending in failure (see the following Snapshot).
FIGURE 8.18 The four main marketing strategies are commonly referred to as the four Ps of
the marketing mix. They include strategies regarding the product, price, promotion and place
(distribution).
7. Always deliver
what you promise.
4. Differentiate your
5. Regularly communicate product in ways that
with your present and will make it special in
potential customers. the eyes of your
customers.
SUMMARY
• For a business to make a profit, it needs to create and market products that
consumers will purchase.
• Marketing is a total system of interacting activities designed to plan, price,
promote and distribute products to present and potential customers.
• Successful marketing involves bringing the buyer and seller together and making
a sale.
• Contemporary marketing refers to those strategies that stress the importance of
customer orientation.
• Businesses that adopt a customer-oriented approach base their marketing
decisions and practices on the needs and wants of their customers.
• Businesses should also focus on relationship marketing, i.e. developing long-
term, cost-effective relationships with customers.
Segment Segment
3 3
A mass marketing approach seeks a large range of customers. The business develops
a single marketing mix and directs it at the entire market for the product. This means
there is one type of product with little or no variation, one promotional program
aimed at everyone, one price, and one distribution system used to reach all customers.
Few products today, apart from basic food items, water, gas and electricity, are
marketed to the mass market. As a result of greater choice, higher personal incomes
and customers seeking more individualised products, the mass market has been
replaced by segmented or niche markets.
A business segments its market so it can better direct its marketing strategies
to specific groups of customers, rather than the mass market. The ultimate aim of
market segmentation is to increase sales and profits by better understanding and
responding to the desires of the target customers.
Once the market has been segmented, the business selects one of these seg-
ments to become the target market (see figure 8.22). For example, a rural supplies
Segment 2
Segment 1 Segment 3
Female, 40+, middle income
Resources Female, 40+, high income Female, 40+, low income
TARGET MARKET
Weblink: Smiggle
FIGURE 8.22 Selecting a market segment to be the target market is important. In this
example, the fashion retailer makes clothes for women over 40 years of age. The clothes
are of a reasonable quality but would not be classed as ‘designer’ clothes. In this business,
female middle-income earners are the main target market.
BizWORD
Sometimes, a business may be able to identify both a primary and secondary
The primary target market is the target market. For example, Lush, a cosmetics retailer, primarily targets women of
market segment at which most of the
higher socioeconomic class, specifically middle to upper class, aged 18–45 years.
marketing resources are directed.
They also have a secondary target market of men, as well as children. The ability to
A secondary target market is
usually a smaller and less important
choose the correct target market is an important marketing function because it will
market segment. influence the entire marketing plan (see the following Snapshot). Use the Smiggle
weblink in the Resources tab to investigate their approach to their target markets.
Once the four Ps have been established, the business must then determine the
emphasis it will place on each of the variables. This will largely be determined by BizWORD
where the product is positioned or its stage in the product life cycle. For example, The product life cycle describes
a product that is being marketed with an image of exclusivity and prestige will the life of a product over four stages:
require a marketing mix totally different from a no-frills, generic item. A different introduction, growth, maturity and
decline.
marketing mix will also be required for a product in its introductory stage than
when it reaches the decline stage.
Product
This element of the marketing mix involves much more than just deciding which
product (goods or service) to market. The business owner needs to determine the
product’s:
• quality • packaging
• design • labelling
• name • exclusive features
• warranty and guarantee.
FIGURE 8.25 Tip Top recently redesigned their packaging and branding. The objective of
the new look was to modernise the image and create packaging which stands out, while also
maintaining quality and trust for the iconic brand. They changed the colours to richer tones,
modernised the typography, maximised opportunity for brand visibility and added ‘established
in 1958’ to reaffirm Tip Top’s heritage and experience. Falling wheat, grains and fruit are
included in the relevant bread packs in an effort to reinforce food cues and add appetite
appeal and health credibility.
Source: Tip Top — a division of George Western Foods
FIGURE 8.26 It takes 2.6 seconds for a consumer to choose one product instead of
another, so the packaging has to be right. A design student from NSW won the Southern
Cross Packaging Design Awards in 2015, conducted by the Packaging Council of
Australia. Each part of her packaging can be used to construct a ramp, a racetrack and
a garage for the small wooden cars inside.
Source: Packaging Council of Australia
Promotion
To sell more of its products, a business has to change customers’ behaviour through
information or persuasion. This is achieved through promotion. The role of BizWORD
promotion is to inform, persuade and remind consumers about a business’s Promotion refers to the methods
products, with the aim of: used by a business to inform,
• attracting new customers by raising awareness of a particular product persuade and remind customers
about its products.
• increasing brand loyalty by reinforcing the image of the product
• encouraging existing customers to purchase more of the product.
Branding
Given that flowers cannot be identified as being sourced from a specific wholesale
supplier, Beau will implement strategies to identify purchases from the Floral Studio.
These strategies include:
• Introducing distinctively coloured and environmentally friendly gift wrapping
paper and packaging. The name of the business, with its logo, telephone ❛ Setting prices too high
and facsimile numbers, and the address of its website will be prominently
displayed. will result in customers
• providing a complementary satchel of Euro Fleur (a special food for cut flowers) being lost to the
with every purchase of fresh flowers. The satchel will also carry the name and
all contact details of the business.
competitors. ❜
• placing a distinctively coloured and designed sticker on all items sold
• designing a new and distinctive business logo
Pricing
Beau’s Floral Studio is presently a price follower, being the most recent entrant into
the flower market within the area. Setting prices too high will result in customers
being lost to the competitors. Prices that are too low will damage the image of the
business and give the impression that the quality of the product is inferior.
As a result of the strategies that make up this marketing plan, Beau’s floral
Studio will be able to raise its prices and thereby increase its profit margin by
an average of 35 per cent over the next 18 months. These price rises are not
expected to lead to a significant loss of customers, given the increased product
range, product differentiation, accurate positioning and the high quality of the
products and service.
Promotion
Presently, Beau’s Floral Studio relies on
the following five methods of promotion:
1. local newspaper advertisements:
2. word-of-mouth recommendation
3. packaging that displays the business
name and logo
4. a Yellow Pages advertisement
5. eye-catching window displays.
Two new promotional stratergies are
planned within the next six months:
1. the use of the website to promote
contemporary floral arrangements
and the new product lines
2. a personalised direct mail campaign
to existing account holders, with
exclusive offers for special occasions
such as Mother’s Day, Easter,
Christmas and Valentine’s Day.
Expenditure on all forms of promotion
will be increased by 15 per cent over
the next 12 months and by a further
10 per cent over the following two years.
This increased promotional expenditure A Yellow Pages advertisement is also an
is required during the establishment important promotional tool.
phase of the business.
SNAPSHOT QUESTIONS
1. Why doesn’t Beau just sell flowers?
2. Summarise the branding strategies Beau’s Floral Studio has implemented.
3. Describe the positioning of Beau’s Floral Studio.
4. Identify the pricing methods used by Beau’s Floral Studio.
5. Predict the effect of the business’s new promotional strategies.
Product promotion
strategies
(Promotion mix)
8.5 Finance
A thorough understanding of accounting and finance is essential for business
managers. Accounting is a management tool that is concerned with providing
information on the financial affairs of a business, while finance is concerned with
where the business sources its funding.
Management of business finance is a crucial aspect of business success.
Management of finance starts with sourcing — where will the funding come from?
Competitors
General public Owners / shareholders
Internal
Suppliers stakeholders Government
FIGURE 8.30 The stakeholders interested in the accounting information given by business
SUMMARY
• Businesses need to be led by managers with a good understanding of accounting
and financial management.
• Accounting is a financial management tool that is involved with the recording
and analysis of all the business’s financial transactions.
• The financial transactions are summarised into financial statements. The main
ones are:
–– cash flow statement
–– income statement
–– balance sheet.
• Finance details how a business funds its activities.
• It is vital for a business to be able to manage its borrowings and to use appropriate
types of borrowings.
Cash sales
Payments
for stock
Credit sales
when paid Payments for
expenses
(wages, insurance, etc.)
Other income
(e.g. interest from investments, Payments for
non-operating income) non-operating expenses
FIGURE 8.33 The format of cash flow statements for large businesses and public companies
It can be seen from figure 8.33 that there are various classifications of cash
that derived from operating, investing and financing activities. These terms are
distinguished below:
• Cash from operating activities — these are the cash inflows and outflows relating
to the main activity of the business; that is, the provision of goods and services.
FIGURE 8.34 Typical income statement (or statement of financial performance) format
(simple)
Figure 8.34 is a simple income statement that enables you to see the general
format. There are several important features to note. First, the statement must have
a heading that states the period of time over which the business was operating for
the purposes of the statement. Usually this is one year, but it may be half yearly,
quarterly, or even every month or six weeks.
Second, there are only five main categories of items:
1. revenue or income
2. cost of goods sold (COGS)
3. gross profit BizFACT
4. expenses Occasionally a business will
5. net profit. receive money from non-trading
Third, the income earned (or revenue) is always stated at the top of the report. sources. Such income is termed
If the business had absolutely no expenses then this would be the profit figure. ‘non-operating’ income and includes
money from investments that provide
This is not realistic. In truth, the business would have had costs that arose from a return whether or not the business
selling. So, we then deduct the expenses that occurred while the income was trades.
being earned.
$
Sales 100 000
Less discounts allowed to customers 2 000
Less returns of sold items 3 000
Net sales 95 000
BizWORD Step 2. Calculate cost of goods sold (COGS) and gross profit
Gross profit is the term given to Gross profit is the term given to the revenue less cost of goods sold (COGS) or,
the revenue less cost of goods sold mathematically:
(COGS).
The cost of goods sold (COGS) is
the value of stock that a business has
sold to its customers. Gross profit = Revenue − COGS
The gross profit calculation is important as, essentially, it tells the business how
much its mark-up is on the cost price of the goods it has sold. This varies some-
what from business to business but is generally between 50 and 100 per cent. If
the mark-up was enormous (say 800 or 1000 per cent), then it would attract other
businesses to compete in the market.
The cost of goods sold is an expense to the business. However, it is not grouped
with other expenses. This is because the mark-up (or ‘contribution margin’) on
the cost of goods sold determines the level of overall income. In a service-based
business, there is no stock and therefore no mark-up. Therefore, income and gross
profit are the same. Cost of goods sold affects only businesses that on-sell items
they have purchased.
The calculation for COGS is determined as shown below:
BizWORD
Opening stock is the value of stock
(or inventory) that the business has at COGS = Opening stock + Purchases − Closing stock
the start of the financial year.
Closing stock is the value of stock
Opening stock is the value of stock (or inventory) that the business has at the
on hand at the end of the financial
year. start of the financial year. Closing stock is the value of stock on hand at the end of
the financial year. Here is an example showing how COGS is calculated:
Expenses
Selling Administrative Financial
Selling expenses: hese relate to the process of selling the good or service
T
and can be directly traced to the need for sales.
Administration expenses: Costs directly related to the general running of the business.
Finance expenses: Costs associated with borrowing money from outside
people or organisations and to minimising business risk.
FIGURE 8.35 Income statement (or statement of financial performance) expense breakdown
by type
If all this information is combined, we can draw a much more realistic income
statement (see figure 8.36).
U Win Pty Ltd income statement for year ended 30 June 2018
$ $ $
Sales 5 000 000
Less COGS 3 200 000
Less expenses
Selling expenses
advertising 200 000
sales salaries 300 000
depreciation on cars 10 000
delivery 3000
telephone 9000 522 000
Administration expenses
office salaries 400 000
depreciation on fixtures 5500
stationery 1500
security 12 000
rent 62 500
insurances 3500 485 000
Financial expenses
interest 125 000
insurances 6 000
leases 6000 137 000 1 144 000
Net profit 656 000
FIGURE 8.36 Typical income statement (or statement of financial performance) format
(complex)
SUMMARY
• The income statement is a summary of the income earned and the expenses
incurred over a trading period.
• The main classification of items in the income statement are revenues, cost of
goods sold (COGS) and expenses.
• Gross profit = Revenue − Cost of goods sold (COGS)
• COGS = Opening stock + Purchases − Closing stock
• Expenses are simply costs and can be broken down into selling, administrative
or financial.
• Net profit = Gross profit − Expenses
$
Sales 700 000
Stock (opening) 100 000
Purchases of stock 400 000
Closing stock 50 000
?
Gross profit
Less expenses
Selling expenses:
Advertising 35 000
Cartage 8 400
Administrative expenses:
Rent ?
Financial expenses:
Insurance 7 000
Bad debts 2 500 75 900
Net profit ?
$ $
Revenue from cash sales 500 000 Closing stock 20 000
Purchases for the period 50 000 Telephone 15 000
Salesperson’s wages 80 000 Rates 3500
Insurance 2000 Revenue from credit sales 50 000
Opening stock 100 000 Depreciation 4 000
Rent 20 000 Electricity 2100
Advertising costs 10 000 Water 3500
Interest costs 2500 Lease costs (machinery) 5500
Assets Liabilities
are on the Balance sheet for Real Quest P/L as at 30 June 2018 are on the
left. These right (owed
Assets Liabilities to outside
are items
Current assets $ Current liabilities $ parties).
of value
Cash 4000 Accounts payable 550
owned
Accounts receivable 6000 Bank overdraft 1200
by the
Prepaid expenses 6000 Credit cards 6 200
business. This side
Stock 10 000 Accrued expenses 550
represents
Total current assets 26 000 Total current liabilities 8500 the business’s
sources of
Non-current assets Non-current liabilities
funds; i.e.
Land and buildings 50 000 Mortgage 65 000
where they
Fixtures and fittings 10 000
got the
Intangibles 44 000
money from.
Total non-current 104 000 Total liabilities 73 500
assets
Owner’s equity Owner’s
Owner’s capital 35 000 equity is
Retained profits 21 500 on the right
(owed to the
Total owner’s equity 56 500 owners —
also called
Total assets 130 000 Total liabilities and owner’s equity 130 000
net worth).
FIGURE 8.37 Typical balance sheet (or statement of financial position) showing division into main parts
Assets BizWORD
Assets are items of value owned by the business that can be given a monetary Assets are items of value owned
value. Assets can be divided into several different types: current and non-current, by the business that can be given a
tangible and intangible. monetary value.
Current assets are assets that a business can expect to use up, or turn over, within
12 months. Examples include cash, accounts receivable (also called debtors) and BizFACT
inventories (stock). Intangible assets, such as goodwill,
Non-current assets are those assets that have an expected life of longer than are very hard to value in dollar
terms. After ASIC reviewed Nine
12 months. These include large physical items such as buildings, land, machinery, Entertainment Corp’s 2016 full-year
technology, vehicles, furniture, fixtures and fittings. financial report, they raised concerns
Intangible items are also included here. Intangible items are things of worth that regarding the value of goodwill relating
have no physical substance. Examples include goodwill, trademarks, designs, copy to the Nine Network. In response,
right and patents. A good name or reputation (‘goodwill’) or an easily identifiable Nine reviewed the value of their assets
and reduced the value of goodwill
logo obviously has worth — but how do you value in dollar terms something like from $422 million to $162 million
good product design, a creative staff or reputation? Nevertheless, intangible assets in 2017.
are a resource that the firm owns and must be recorded in the accounts.
Liabilities BizWORD
Liabilities are items of debt owed to outside parties and/or other organisations (like Liabilities are items of debt owed to
suppliers or the banks) and include loans, accounts due to be paid by the business, other organisations (e.g. suppliers,
mortgages, credit card debt and accumulated expenses. The business will divide banks) and include loans, accounts to
be paid by the business, mortgages,
the liabilities into current and non-current items. credit card debt and accumulated
Current liabilities are those in which the debt is expected to be repaid in the short expenses.
term (12 months or less) and include bank overdrafts, credit card debts, accounts
payable (also called creditors) and accrued expenses.
Non-current liabilities are long-term debt items such as mortgages, leases, deben-
tures and retirement benefit funds (money owed to employees upon their retire-
ment from the business). Some of these non-current liabilities can last up to
30 years.
FIGURE 8.38 The proportion of liabilities (debt) compared to equity is referred to as gearing.
Gearing measures the relationship between debt and equity. A business that has more
debt than equity is said to be highly geared. The higher the gearing, the greater the risk the
business has of not being able to meet its long-term financial commitments.
A = L + OE
Assets = Liabilities + Owner’s equity
You will immediately see that the balance sheet is set out in a way that mirrors
the accounting equation, with assets on the left, and liabilities and owner’s equity
on the right.
Assets 145 000
Liabilities 110 000
Owner’s equity ?
Since
Example 2
$
Accounts receivable 12
000
Cash at bank 65
000
Mortgage 250 000
Capital 230 000
Accounts payable 3000
Visa Card debt 6500
Land and buildings ?
Step 1: Identify all assets, liabilities and owner’s equity items and group them as shown
(into the format of the balance sheet).
Assets $ Liabilities $
A/cs Rec. 12 000 A/cs Pay. 3000
Cash 65 000 Visa Card debt 6500
Land and buildings ? Mortgage 250 000
77 000 259 500
$
Owner’s equity
Capital 230 000
Step 2: Apply the equation and find the unknown quantity.
A = L + OE
$77 000 + ? = $259 500 + $230 000
$77 000 + ? = $489 500
? = $489 500 − $77 000 = $412 500 (value of land and buildings)
By applying the equation we can find the missing item. In general, whenever
you see a balance sheet, it is wise to quickly do this equation to satisfy yourself that
it is correctly drawn.
SUMMARY Resources
• The balance sheet shows the overall financial stability of the business. Weblink: Balance sheet
• The main items in the balance sheet are assets, liabilities and owners’ equity.
• Assets are items of value to the business and can be either current or non-current.
• Liabilities are debts or business borrowing and can be either current or non-
current.
• Owner’s equity items refers to the owners’ claims and is considered a liability
from the point of view of the business.
• The balance sheet should always balance.
• This means the assets must equal the liabilities.
• The balance sheet equation is: Assets = Liabilities + Owner’s equity or A = L + OE.
Assets $ $ Liabilities $ $
Bank 3400 Motor vehicles 30 000
Creditors 2500 Debtors 2 000
Capital 46 000 Stock of 1 600 33 600
materials
Loan 10 000 Owner’s equity
Equipment 23 000
+ Drawings 4 000
27 000
− Net profit 5 500 21 500
61 900 55 100
13 Calculate the total value of assets, owner’s equity and liabilities from the balance
sheet in question 12.
14 If retained profits and owner’s capital totalled $23 000, instead of $35 000, calculate
the new value of the mortgage.
15 An artist, Candice Wahler, has asked you to help her construct a balance sheet.
(a) Briefly explain to her how a balance sheet is set out.
(b) Construct a balance sheet for her as at today’s date from the following information:
cash at bank $1500, motor vehicle $10 000, accounts payable $6000, equipment
$8200, accounts receivable $3000, bank loan $13 500 and stock $3000.
Most businesses that are successful in the long term maintain a balance between
concern for success (expansion or profit) and regard for their employees. Better
work and employment relationships, therefore, begin with the business recruiting
and selecting appropriate staff members (see the following Snapshot).
SNAPSHOT QUESTIONS
1. Outline the strategies employed by PwC that make it one of the best places
to work.
2. Explain the benefits to the business of being viewed as one of the best places
to work.
BizWORD
The human resource/employment
cycle covers all stages in the process The main functions of staffing are to attract and acquire, train and develop,
of employing staff, from initial planning reward, maintain, and separate the people — the human resource/employment
through to recruitment, selection, cycle — needed to achieve the business’s goals. It is crucial for all businesses to
induction, training and development,
performance management, and
select employees whose business approach complements that of the business. How
eventual separation of employment. well these functions are managed will largely determine the success of any business.
Once a person is selected for a position they must be ‘maintained’ in the workplace.
FIGURE 8.40 It’s important to hire the ‘right’ person for the ‘right’ position. Employees are
often one of the most untapped aspects of a company’s ‘brand’. Not only are they the face of
the business and living representatives of a business’s brand, they also differentiate one brand
from its competitors. They therefore need to be projecting the right image to the outside world.
If an employee’s behaviour is not in sync with the image of the business, the consequences
can be detrimental.
2. Development
4. Separation
• Training
• Voluntary and involuntary • Development
3. Maintenance
• Monetary and
non-monetary benefits
FIGURE 8.41 The four main elements of the human resource cycle/staffing process
TABLE 8.5 Elements of the human resource/staffing process and their related activities
Element Activities
Stage one
Acquisition
• Hiring new employees • Planning: identifying staffing needs; job analysis
(determining the exact nature of the position to be filled)
• Recruitment: attracting people to apply for the position
in the business; internal and external recruitment
• Selection: choosing and hiring the most qualified;
testing and interviewing
Stage two
Development
• Improving employees’ • Induction and training: teaching employees new skills
skills and abilities and helping them learn tasks associated with their jobs
• Development: the process of improving the skills,
abilities and knowledge of staff
Stage three
Maintenance
• Motivating employees to • Monetary benefits: rewarding employees’ efforts
remain with the business through financial compensation; pay rates
• Non-monetary benefits: rewards such as conditions;
fringe benefits
Stage four
Separation
• Employees leaving the • Voluntary: employees leaving on own accord;
business retirement, resignation
• Involuntary: employees being asked to leave;
retrenchment, dismissal
The successful applicant will have excellent design skills and can
format supplied text both quickly and accurately. A thorough
Job
knowledge of Adobe CS6 studio software package for the Mac
specification
is vital. GoLive, PowerPoint, or website design experience, as
well as strong English skills, would be very advantageous.
John Wiley & Sons Australia, Ltd A.C.N. 009 673 081 is an
Equal Opportunity Employer which supports Affirmative Action.
BizWORD The job analysis for a particular position typically consists of two parts:
A job description is a written 1. Job description: a written statement describing the employee’s duties, tasks and
statement describing the employee’s responsibilities associated with the job (see figure 8.42).
duties, tasks and responsibilities 2. Job specification: a list of the key qualifications needed to perform a particular
associated with the job.
job in terms of education, skills and experience (see figure 8.42).
A job specification is a list of the Once the job description and specification have been completed, it’s on to the
key qualifications needed to perform
a particular job in terms of education,
process of recruitment and selection.
skills and experience. Recruitment involves finding and attracting the right people to apply for a job
Recruitment is the process of finding vacancy using advertisements, employment agencies and word of mouth. When an
and attracting the right quantity and organisation decides to recruit staff, it may choose internal or external recruitment
quality of staff to apply for employment methods.
vacancies or anticipated vacancies. Internal recruitment occurs when a business decides to appoint someone already
Internal recruitment involves filling within the business to a vacancy. This usually involves an opportunity for a person
job vacancies with present employees,
rather than looking outside the
business.
Internal recruitment
Advantages Disadvantages
Employees are already known to the employer, so choice There may be no-one suitable from within the business.
may be easier.
Applicants are already familiar with the business and its If there is more than one internal applicant, it can lead to
objectives, culture and processes. conflict or jealousies between those employees.
If the position is a managerial or supervisory position, it creates Applicants may be set in their ways and not open to new ideas.
a career path within the business to reward valued employees.
Costs of advertising the position are reduced, and no external The successful applicant from within may have to be replaced, so
agencies need to be paid. an external recruitment process may be necessary anyway.
External recruitment is used to find suitable applicants from outside the busi- BizWORD
ness, because staff planning has identified the need for a new position, an existing External recruitment involves
employee has resigned or retired, or the person previously performing the duties filling job vacancies with people from
has been transferred or promoted to a new position within the business. Table 8.7 outside the business.
outlines the advantages and disadvantages of external recruitment.
TABLE 8.7 Advantages and disadvantages of external recruitment
External recruitment
Advantages Disadvantages
There is a wider range of applicants to choose from. The applicants are all unknown, so the choice may be more
difficult.
Outside applicants may bring new ideas and fresh approaches There are costs associated with advertising the position.
to tasks.
Different qualifications or experience from those already within The field of applicants may be larger, so the process of
the business can be specified in the advertising process. selection may become more time-consuming.
This method allows for rapid growth of the business because it Qualified employess from within the business may resent
allows for an increase in actual staff numbers. outsiders coming in, particularly if it is a managerial or
supervisory position.
The recruitment method chosen will depend on the size of the business, the type
of position available and the nature of the labour force in the business’s particular
area. The main sources of employees available to a business include:
• advertisements in the media
• private employment/recruitment agencies
• schools, TAFE colleges or universities
• government employment agencies — for example, Australian Job Search
• internal searches
• online services
• temporary/casual agencies
• word of mouth
• family members.
Most businesses will want to advertise as widely as possible to attract the greatest
number of applicants, so they will often use more than one avenue. Many busi-
nesses use employment agencies to handle the recruitment of staff. Some agencies
specialise in particular industries and will handle all the advertising of vacancies.
Many jobs are advertised online. Businesses, such as Seek Limited, provide
an efficient way for job seekers to search online for jobs that meet their quali-
fications and expectations. Employers and recruiters use businesses like Seek to
advertise positions online and therefore reach a wide audience, although some
still choose the traditional method of advertising in the newspaper. Advertising
in the general media means that a business has to screen applicants and then pro-
ceed with interviews. This is often time consuming if the business receives a large
number of a pplications; however, it does prove effective in many cases and small to
medium-sized businesses often use this method.
Resources
Weblink: SEEK
SUMMARY
• Acquisition refers to the process of attracting and recruiting the right staff for
roles in a business.
• A job analysis is a systematic study of each employee’s duties, tasks and work
environment. It comprises a job description and job specification.
• After the planning stage, the recruitment of staff commences to find the best
person for the job.
• Recruitment involves finding and attracting the right people to apply for a job
vacancy.
• A business can recruit from staff within the business or seek new applicants from
outside sources.
• Once job applicants are found, the process of selecting the right applicant
begins.
• Employee selection is the means by which the employer chooses the most suitable
applicant for the vacancy.
10 Select three sources of employees available to a business and propose why each is
an effective method of recruitment.
11 Describe two options that can be used in the selection process.
12 ‘In the current business environment it is crucial that small business owners recruit
and maintain the right people for the job.’ In small groups, discuss the relationship
between good staff and business success.
13 Read the above job advertisement and answer the following questions.
(a) Identify the job description and job specification.
(b) Outline the information people should include in their application.
8.6.3 Training
BizWORD Training and development are aimed at improving employees’ skills and abilities —
Training generally refers to the
they are necessary for both personal and business growth. New employees may
process of teaching staff how to need some training and development, depending on their level of experience.
peform their job more efficiently and Existing employees also need training and development to continually upgrade
effectively by boosting their knowledge their skills. Training is teaching staff to perform their job more efficiently and
and skills. effectively by boosting their knowledge and skills. Development is the process of
Development refers to activities preparing employees to take on more responsibilities in the future through
that prepare staff to take greater
acquiring better knowledge and skills, and gaining more experience in a particular
responsibility in the future.
area. Developing staff often involves training. It is interesting to note that many
employees expect their business to provide them with opportunities to grow and
BizFACT learn, and ultimately improve their employability.
Ford Australia claims that employee The aim of training and development is to seek long-term change in employees’
training has led to halving skills, knowledge, attitudes and behaviour in order to improve work performance
absenteeism and reducing labour in the business. Many businesses do not, however, spend enough on staff training.
turnover. Can you account for this
relationship?
SUMMARY
• Training provides employees with the right knowledge and skills to perform
their job effectively and efficiently.
• Development focuses on preparing the employee to take on more responsibilities
within the business in the future.
• Ongoing training for all employees can be promoted by the business becoming
a learning organisation.
• Some common training methods include formal off-the-job training, informal
on-the-job training, action learning, competency-based training, corporate
universities and training technologies.
• Training needs must be identified well in advance of any proposed technological
implementation.
• Training should be viewed as an investment in the human capital of the
business.
Employer obligations
Employee obligations
including reasonable travelling time and rest time immediately after the activity.
Usually this is unpaid leave, although employees on jury service leave can claim
make-up pay.
• Public holidays — employees are not required to work on public holidays, but
will still be paid for the hours they would have worked. If the employer requests
the employee to work on a public holiday, the employee may be entitled to a
penalty rate or other compensation.
• Information in the workplace — employers are required to supply all employees
with a ‘Fair work information statement’ when they commence employment.
This is a government document which contains information about the National
Employment Standards and other employment related issues.
• Notice of termination and redundancy — most employees are entitled to minimum
periods of notice of termination of their employment (or pay in lieu of notice),
based on their period of continuous service. Fixed-term and casual employees,
and employees serving a probationary period of employment, are not included.
• Long service leave — permanent employees, whether full time or part time,
are entitled to long service leave after a qualifying period. This period varies
between different occupations and industries.
Awards
BizWORD Awards have been the traditional means of establishing working conditions for
An award is a legally binding employees. An award is a legally binding agreement that sets out the minimum
agreement that sets out the minimum wages and conditions for a group of employees. Modern awards came into effect on
wages and conditions for a group of 1 January 2010. The ten matters that can be included in modern awards are listed
employees.
in table 8.9. Some businesses will provide above-award payments, especially if they
wish to attract more workers to their firm or if they want to hold on to their
existing staff. Awards have the following advantages:
• set a minimum for pay and conditions
• cover all employees performing a similar job.
Awards have the following disadvantages:
• can be inflexible and therefore may not suit all employees or businesses
• prevent recognition of individual initiative because all employees are guaranteed
the minimum pay and conditions regardless of how productive they are.
Currently there are just over 100 different awards in Australia, providing min-
imum standards for workers in those industries and occupations. Many of these
awards provide the basic terms of an employment contract.
Enterprise agreements
An enterprise agreement provides an opportunity for employers and employees
within a particular business or enterprise to negotiate a set of conditions that BizWORD
improve on the standards in an award. Enterprise agreements are collective Enterprise agreements are
agreements made at a workplace level between an employer and a union, acting on collective agreements made at a
behalf of its employees, or between the employer and a group of employees, about workplace level between an employer
and a union, acting on behalf of its
terms and conditions of employment. In addition to the 10 National Employment employees, or between the employer
Standards, enterprise agreements must include the following: and a group of employees, about
• a nominal expiry date, usually two or three years after the commencement of terms and conditions of employment.
the agreement
• procedures for settling any disputes that might arise in the implementation of
the agreement, including the right of employees to be represented in the dispute
settlement procedure
• terms that allow for individual flexibility, so that arrangements can be made
between the employer and individual employees
• provisions for consultation with employees on major workplace change.
Imagine all the students in your Business Studies class sitting down with your
teacher and negotiating a set of working conditions for your class. Apart from the
essential conditions, such as completing all the work and respecting each other’s
opinions, you might negotiate a homework-free month in return for one extra
assessment task. You have just entered into an enterprise agreement.
SUMMARY
• An employment contract is a legally binding, formal agreement between an
employer and an employee.
• Under common law, both employers and employees have basic rights and
obligations in any employment relationship.
• Employees are entitled to 10 minimum employment conditions, known as the
National Employment Standards.
• An award is a legally binding agreement that sets out the minimum wages and
conditions for a group of employees.
• Enterprise agreements are collective agreements made at a workplace level between
an employer and a union, acting on behalf of its employees, or between the
employer and a group of employees, about terms and conditions of employment.
Types of separation
Voluntary Involuntary
Retirement Retrenchment
Resignation Dismissal
Redundancy
BizWORD
FIGURE 8.54 An employee may leave a business for many reasons. This results in significant Redundancy occurs when a
costs for the business. As a general rule of thumb, it costs 40 per cent of the annual salary of a person’s job no longer exists, usually
departed worker to replace them. due to technological changes, an
organisational restructure or a merger
or acquisition.
Usually the employee needs to give the employer sufficient notice of his or her
intention to resign. The length of notice varies from job to job, ranging from a few
hours for casual employees to a month for some permanent employees. BizFACT
Whenever a business wants to downsize, that is decrease the size of its operation, In 2017, the ABC announced that
it will not fill vacancies that have come about due to retirements and resignations. between 150 and 200 positions would
be made redundant due to a major
Redundancy — voluntary and involuntary internal restructuring of the company.
The company is moving towards
Redundancy is when a particular job a person is doing is no longer required to be a flatter structure by reducing the
performed, usually due to technological changes, a merger or acquisition. Therefore, layers of management, as well as the
unless the existing employee can be retrained for another job, they will be made number of divisions. They therefore
redundant. Redundancy can be either voluntary or involuntary. want to increase the number of staff
Voluntary redundancy occurs when the business wishes to reduce either the for whom each of the remaining
managers will be responsible.
size or nature of its workforce and decides how many employees should be ‘let Middle managers and supervisors
go’. Employees are then informed of the situation and given the opportunity to will therefore bear the brunt of the
nominate themselves for voluntary redundancy. Employees who choose voluntary redundancies. The money saved
redundancy are offered a redundancy package: a payout of a sum of money. If not will be used to pay for a $50 million
enough employees volunteer, then the business may be forced to decide which content fund.
employees will be made redundant — involuntary redundancy.
Would it be faster to
send these dismissal notices
as an audio file or an MP3?
And what about adding some
marching music?
Dismissal
There will be occasions when the behaviour of an employee is unacceptable and it
BizWORD then becomes necessary for a business to terminate the employment contract of an
A dismissal is when the behaviour employee. This is called dismissal.
of an employee is unacceptable and The most serious form of dismissal is summary dismissal — when an employee
it then becomes necessary for a commits a serious breach of their employment contract. For example, an employee
business to terminate the employee’s
employment contract.
who is drunk at work or is found to have engaged in criminal activity may be sum-
marily dismissed. If an employee is given a summary dismissal, no notice is
required. Another form of dismissal, referred to as dismissal on notice, is when an
employee is not performing the job satisfactorily. Poor performance may be identi-
BizFACT fied during an appraisal or performance process. The amount of notice (or pay-
Vicky Oliver, author of Bad Bosses, ment given in lieu of notice) will vary depending on a number of factors, such as
Crazy Coworkers & Other Office Idiots, whether the employee is governed by a particular award or contract, the age of the
named the fake sick day as a major employee and how long they have worked for the employer on a continual basis.
reason bosses fire their employees. Selecting staff for dismissal can be risky and requires awareness of legislation
and industrial agreements to avoid litigation and industrial action. Employees must
be given proper notice and employers must comply with procedures established
in law, including the unfair dismissal laws in the Fair Work Act 2009. To avoid
misunderstandings, written warnings and/or notice is preferable. Written confirma-
BizWORD
tion of resignation is also preferable to verbal statements made in the ‘heat of the
Unfair dismissal occurs when
moment’. This way, a lengthy unfair dismissal case can be avoided.
an employee is dismissed by their
employer and they believe the action Unfair dismissal occurs when an employee is dismissed by their employer and
is harsh, unjust or unreasonable. they believe the action is harsh, unjust or unreasonable. This is an issue of which
both employers and human resource managers need to be aware.
FIGURE 8.56 In 2016, a cleaner who was fired for having a cup of coffee on the job won an
unfair dismissal case in the Fair Work Commission. One night, the cleaner arrived 45 minutes
early for his shift and had a cup of coffee while waiting for his shift to start. Two days later, he
was summarily dismissed by his employer, Glad Group Pty Ltd, who characterised the coffee
drinking as theft. The Commission awarded the cleaner $9187.20 in damages and the right to
get his old job back, after concluding the dismissal was ‘unjust and unreasonable’.
SUMMARY
• The final stage in the employment cycle is the ‘separation stage’, in which
employees leave the workplace on a voluntary or involuntary basis.
• This stage must be handled carefully and sensitively by the human resource
manager.
• Voluntary separation occurs when an employee decides to give up full-time or
part-time work and includes:
–– retirement
–– resignation
–– redundancy.
• Involuntary separation occurs when an employee is asked to leave the business
against their will and includes:
–– retrenchment
–– dismissal
–– redundancy.
• Unfair dismissal occurs when an employee is dismissed by their employer and
they believe the action is harsh, unjust or unreasonable.
FIGURE 8.57 In 2013, the Rana Plaza building in Bangladesh collapsed, killing 1134
garment workers and injuring many more. The horrific event once again shed light on the
questionable behaviour of over 150 international brands, which source the cheapest possible
garment suppliers on the planet, ignoring crimes inflicted on the impoverished workers. The
collapse was caused by a complete disregard of health and safety standards. Subsequently,
many consumers boycotted the retail outlets that were sourcing garments from Rana Plaza
suppliers.
The majority of business owners, however, regard the cost of ethically and
socially responsible actions as a necessary expense — they make such a commit-
ment an essential part of their business operation. They take a great deal of pride
in the reputation their business has established and wish to protect its good name.
These businesses want to be seen as responsible corporate citizens, conscious of
the high standards expected of them by their customers and society at large (see
the following Snapshot).
Businesses that take their social and ethical responsibilities seriously are often
‘rewarded’ with improved business performance. Many businesses today are very BizWORD
much concerned with reporting on the triple bottom line. This means that they are Triple bottom line refers to the
no longer simply focused on making a profit at all costs; but rather, they recognise economic, environmental and social
that environmental and social performance are also important. performance of a business.
Sustainability expert John Elkington coined the term ‘triple bottom line’ and
argued that there should be three bottom lines:
1. The ‘profit’ bottom line, which is a measure of the traditional ‘profit and loss’
financial bottom line
2. The ‘people’ bottom line, which is a measure of how socially responsible a
business has been
3. The ‘planet’ bottom line, which is a measure of how sustainable and
environmentally responsible the business has been.
A growing number of small businesses today, such as Etiko, exist purely for
socially responsible and ethical reasons. Etiko is a small business based in
BizWORD
Fairtrade is a trading partnership
that seeks greater equity (fairness)
in international trade. It promotes
the rights of marginalised workers,
especially in low-income countries.
FIGURE 8.59 Gloria Jean’s Coffees ensures that it purchases resources from suppliers that
look after their employees and the environment. Its coffees contain a percentage of beans
from farms that have been certified by the Rainforest Alliance. The company’s coffee beans
are sourced from all over the world and from farms of a variety of types and sizes — large
plantations, cooperative groups and tiny family farms.
Much of the evidence that ‘good ethics is good business’ is anecdotal. However,
when James Burke, the former head of US company Johnson & Johnson, looked at
the performance of a select group of companies committed to best ethical practice,
he found that their stock value had increased by 11.3 per cent over a 40-year period.
Over the same period, all other stocks increased in value by only 6.2 per cent on
average.
Financial management
Businesses have ethical and legal responsibilities in relation to financial
management. In recent years, unethical practices have been highlighted and
increasingly questioned. There are growing calls for codes of behaviour to regulate
the activities of businesses in relation to financial management.
Truthful communication
Advertising can represent real ethical dilemmas. False or misleading advertising is
not only unethical, it is also illegal. Terms such as ‘special’, ‘sale’, ‘low fat’ or ‘light’
can be misleading. For example, what precisely does the word ‘special’ mean when
it is displayed above a product for sale? Most consumers would take this to mean
the item is for sale at a cheaper than normal price; however, this may not necessarily
be the case. The business owner may interpret the word ‘special’ to mean that
the product has a distinct or particular character, that it can perform a particular
function or it is different from what is ordinary or usual. The two interpretations
can easily be confused. If the businessperson uses this word attempting to
knowingly mislead customers, it would be classified as unethical behaviour. If the
businessperson wants to advertise the fact that the product is available at a bargain
price, then the words ‘on special’ would have a clearer meaning.
Training may be given to employees to ensure they understand the values of the
business. Most businesses also establish formal proceedings for reporting unethical
behaviour in the workplace.
SUMMARY
• The majority of businesses want to be seen as responsible corporate citizens.
• The triple bottom line refers to the economic, environmental and social
performance of a business.
• Ethics are standards that define what is acceptable and unacceptable behaviour.
• Business ethics is the application of moral standards to business behaviour such
as:
–– fair and honest business practices
–– decent workplace relations
–– conflict of interest situations
–– accurate financial management
–– truthful communication.
• A corporate code of conduct encourages ethical business behaviour.
BizFACT
9.1 Introduction
With many car manufacturers ‘The only thing that is constant in life is change.’ Although these words were
investing in some sort of vehicle written around 2500 years ago by the Greek philosopher Heraclitus, they are as
autonomy, driverless cars could true today as they were then, especially in the world of business. For example,
be around sooner than you think. imagine the type of motor vehicle you will be driving in 20 years. It might look
For example, in 2017 Fiat Chrysler
Automobiles (FCA) joined BMW
like the futuristic car shown below. You might even be able to take to the sky
Group, Intel and Mobileye to develop if there is a traffic jam. The motor vehicle industry has to effectively manage
an autonomous driving platform for change due to dwindling oil supplies, stricter pollution controls, greater safety
other car manufacturers to use. The requirements and broader recycling legislation. Businesses only survive in today’s
partnership allows the companies highly unpredictable business environment if they effectively manage change.
to draw on each other’s individual
capabilities and resources.
Businesses that embrace change will profit; businesses that resist change will be
left behind.
FIGURE 9.1 Could this be the type of motor vehicle you will be driving in the future?
Technology is constantly changing. So too is the world of business. Responding positively to
these changes is often a recipe for long-term survival, because well managed changes can
become the foundation for future growth and success.
So what’s been the most challenging aspect for you of leading the
organisation through change?
I think the most challenging aspect is that I have to deliver the message that change
is a part of our lives — it’s not an end in itself. And it’s part of our lives because the
context in which we’re operating continues to change. It’s part of our lives because
we’re continuing to try to remain relevant and legitimate as an international NGO so
that we can have the sort of impact that we want.
We’re also in a challenging market in a general sense, so in order for Oxfam to
continue to be able to, for example, raise revenue or do the work we want to do, we
have to be looking always to the long game and not the short game. In order to get
the kind of change we want globally through our advocacy and policy, again, we have
to not only be part of the global movement but we need to be saying, ‘What are the
implications for the change context we’re operating in?’
So that’s the most challenging thing — to bring the responsiveness to a change
context into our day-to-day operation, and in the case of structural change or
organisational change to really apply the principles I raised above.
Source: ethicaljobs.com.au
SNAPSHOT QUESTIONS
1. Identify the internal and external influences that have led to change at Oxfam.
2. Outline the strategies Helen adopts to lead her staff through change.
3. Explain the greatest challenges Helen has faced when implementing change.
SUMMARY
• Organisational change is the adoption of a business’s new idea or behaviour in
response to internal or external influences.
• The ability to embrace, manage and adapt to change will increasingly determine
a business’s competitive advantage.
• Successful managers are the ones who anticipate and adjust to changing
circumstances.
FIGURE 9.4 Ken Kutaragi, an electrical engineer at Sony, bought his daughter a Nintendo
game console and was displeased with the quality of the gaming system. Sony wasn’t
involved in computer games at the time, but Kutaragi negotiated to keep his job at Sony while
working as a consultant for Nintendo on their gaming devices. Kutaragi saw the market and
business opportunity of computer gaming systems and pressed hard to convince Sony to
enter the market. The CEO supported Ken’s intrapreneurial abilities, which led to the creation
of one of the greatest new business inventions in history, the ‘Playstation’.
Legislation
Whenever new laws are passed, businesses must comply with the new legislative
requirements. For example, businesses had to alter their unfair dismissal practices
in response to the new industrial relations laws implemented by the federal
Government in 2009.
In another example, between 2012 and
2014, Australia was subject to a carbon tax.
The tax was introduced in November 2011
and established a price on the carbon emis-
sions of businesses in Australia. The pricing
mechanism, known generally as the ‘carbon
tax’, was intended as a measure to combat
climate change and came into operation on
1 July 2012, but after much opposition,
legislation to abolish this tax was passed in
July 2014. Businesses had to make changes
to respond to the legislation relating to the
introduction and removal of this tax in both
2012 and 2014.
FIGURE 9.6 Businesses regularly
While most of us consider legislation to have to adapt to legislative changes.
be a national issue, laws can be made by The carbon tax became a political
the state governments (for example, laws issue between 2012 and 2014.
Technology
A business that wants to be locally, nationally or globally
competitive must adopt the appropriate technology. If it is
slow to exploit technology, a business is likely to fail, because
its competitors will strive to capture greater market share and
develop a sustainable competitive advantage.
Technology allows a business to operate its processes
and practices more efficiently and effectively, cutting costs
and improving productivity. As such, technology, and any
advances in technology, should be considered as a driving
force for change.
All businesses, regardless of size, are able to take advan-
tage of technology and so all businesses are driven to change
by technology. Local milk bars introducing EFTPOS, couriers
using electronic signatures, clothing stores using scanners
and electronic security tags, and supermarkets introducing
online shopping and self-service checkouts are all examples
of technological advances that have driven change.
Social
Businesses operate within society and must adapt to changes
in society’s attitudes and values. Society’s attitudes of what
is right and wrong evolve over time and the values that are
most important to people also change, affecting the ways
in which businesses operate. Increased access to rapid
communications has made the world’s population more
aware of what businesses are doing, for example in their
supply chain. Pressure from society has forced businesses to
implement procedures to preserve and protect the natural
environment and to ensure their supply chain is ethical.
Society requires that large businesses sell safe products and
treat staff with respect. Businesses today are also expected
to contribute to society by returning something positive to
the communities in which they operate. For example, as part
FIGURE 9.7 The assembly line was a great technological of their ‘Energy for Life’ community program, AGL Energy
advancement when it was invented in the early 1900s.
helps to pay the winter energy bills for shelters for homeless
Subsequent advances in technology have improved it further, to
the point where fewer and fewer human resources are needed. people in New South Wales, Victoria and South Australia.
The development of self-serve checkouts has decreased the This enables the emergency accommodation services to put
need for shop assistants. funds back into the important work of supporting Australia’s
homeless.
SUMMARY
• Whether the influences driving change come from outside (external) or within
(internal) the business, changes to the business will occur.
• Some of the internal influences that managers will need to respond to include
management and employees.
• Some of the external influences that managers will need to respond to include
competition, legislation, technology and social influences.
BizFACT
9.4 Managing change effectively A 2013 Change and Communication
ROI Survey found that only 25 per
Constant change has made the task cent of change management initiatives
of management more demanding and are successful over the long term.
Why does organisational change
exciting than ever before. Change
usually fail? A study in 2016, ‘Where
is the most daunting challenge Change Management Fails’ by
confronting managers, as well as Robert Half Management Resources,
the most promising opportunity. found that most organisational
Now well entrenched and likely to change efforts fail due to ineffective
communication.
accelerate, change must be considered
a fundamental aspect of a business’s
strategic planning. FIGURE 9.8 Management researcher
Businesses often fail to manage John Kotter maintains that the change
change well. Their record tends to management process consists of the
be poor because, in the upheaval of following eight steps:
1. establish a sense of necessity
a restructuring process, employees 2. form a guiding group
— the most crucial group of all — 3. create a vision
are often neglected. As well, existing 4. communicate the vision
communication channels often break 5. empower people to fulfil the vision
down in the highly emotional cli- 6. recognise and reward achievements
7. consolidate improvements
mate that surrounds a change pro-
8. institutionalise the changes.
gram. Strategies to achieve successful
Source: Photo by Caroline Kotter.
change rely on communication, Reproduced with permission of
employee involvement in the change Professor John Kotter.
SNAPSHOT QUESTIONS
1. Explain what is meant by ‘clarity’ when it comes to setting goals for
employees.
2. Why do you think that setting goals that are easy to achieve might lower
motivation?
3. How can management styles affect goal setting and motivation?
4. Why do you think feedback is important in goal setting?
5. Why is ‘task complexity’ an issue in the process of goal setting?
SUMMARY
• To manage change effectively requires the change to be as productive as possible;
to make it a process for revitalising and strengthening the business.
• Managers must develop strategies for managing change effectively.
• Identifying the need for change and setting achievable goals are two strategies to
manage change effectively.
certain things and doing them in certain ways, so too do businesses. As a result,
businesses and employees sometimes vigorously resist change.
The most common reasons why change may be resisted include:
1. Financial costs. A major reason for resistance to change is the financial cost of its
implementation. Even with access to finance, a business contemplating change
must weigh up the costs and benefits of the change.
2. Purchasing new equipment. The purchase cost of investing in new technology,
plant or equipment can be considerable. Although this is expensive, there can
be very significant advantages from making this investment. Prior to making
the investment in new equipment, managers will need to weigh up the cost of
purchase against the cost of leasing new equipment. David Jones, for example,
recently upgraded its network of stores and spent $275 million to increase its
floor space by over 20 per cent.
3. Redundancy payments. Employees who lose their jobs as a result of changes are
entitled to financial compensation in the form of a redundancy payment. A
redundancy payment is the money that is given to employees when they are
forced out of work because their job skills are no longer relevant. Redundancy
payments can be very high, especially if many employees are made redundant.
4. Retraining. When significant changes are introduced such as new technology,
employees must be retrained. Retraining may be performed on the job or off
BizFACT
the job.
Ironically, some people enthusiastically
5. Reorganising plant layout. When new equipment is installed, the layout of the
support the changes in public, but
then ignore the changes in private. plant may require reorganisation to improve efficiency and productivity. There
Management consultant Michael can be high costs associated with reorganising the plant.
Hammer calls this deadly form of 6. Inertia. Inertia refers to an unenthusiastic response to proposed changes. Some
resistance the ‘Kiss of Yes’.Why do managers and employees resist change because it requires moving outside and
you think people behave this way?
away from their ‘comfort zones’. Many employees and managers of the typical
business desire a safe and predictable status quo. Such an attitude is summed up
BizWORD in the phrase, ‘But we don’t do things that way here’. Change can have a major
Inertia refers to an unenthusiastic
impact on people. Feelings of lack of control, fear of the unknown and uncertainty
response to proposed change. about the future can lead to anxiety. The situation is made even worse if there is
poor leadership and management during times of change.
FIGURE 9.11 Driving and restraining forces work against each other, making it difficult for a
business to change.
BizWORD • Change agents. The business should identify an individual (or group of
A change agent is a person or people) who are influential in the business to act as catalysts to help manage the
group of people who act as catalysts, change process. These people should help initiate, stimulate and facilitate the
assuming responsibility for managing change effort within organisations. A change agent can be either internal to an
the change process.
organisation, e.g. a manager or employee, or external, e.g. consultants who are
tasked with overseeing the change.
BizFACT • Effective communication. Managers must be able to communicate with stakeholders
‘Employees who are not informed regarding the need for change and the progress of the change. There should be
about why changes are necessary open communication channels to assist in the transfer of information. Without
will ultimately resist such changes’, clear communication regarding the change, there may be resistance.
says Hannah Russell, a change
• Positive leadership. How a manager treats his or her employees will largely
management consultant. ‘When they
do not get the information they need, determine their acceptance of, or resistance to, change. A manager who acts
they turn to the rumour mill with all its as a leader and has high expectations of employees’ abilities to initiate and
inaccuracies.’ implement a change process will generally be rewarded with people who are
willing to embrace the change. There may still be some points of resistance, but
FIGURE 9.12 Teamwork encourages a supportive culture, which lowers resistance to change.
Provide constant Offer support — this Build trust Make sure the changes
feedback reduces fear and anxiety among employees are reasonable
SUMMARY
• At the same time as managers are undertaking — driving — change for the best
of reasons, there will be restraining forces working against the change, creating
resistance.
• The main reasons for resistance to change include:
–– financial costs (the cost of implementing major changes can be substantial)
–– purchasing new equipment (this can also be expensive)
–– redundancy payments (if employees lose their jobs as a result of change, they
are entitled to financial compensation)
–– retraining (when changes are introduced, some employees will require training)
–– reorganising plant layout (the layout of the plant may need to be reorganised if
new equipment or technology is introduced)
–– inertia (some managers and employees resist change due to a fear of the
unknown).
• Psychologist Kurt Lewin developed a useful model for understanding the change
process. Known as Force Field Analysis, the model describes how you can
determine which forces drive and which resist a proposed change.
• Driving forces are those forces that initiate, encourage and support the change.
• Restraining forces are those that work against the change, creating resistance.
• Resistance to change is common among managers and employees.
• According to Lewin’s model, once management have identified and understood
the restraining forces, managers need to put in place strategies to reduce the
resistance.
• Two strategies for overcoming resistance to change include:
–– creating a culture of change (encouraging teamwork)
–– providing positive leadership (sharing the vision).
• The main role of management consultants is to help businesses improve their
performance and assist with change management.
When change is too rapid or when managers and employees feel they have no
control over it, then __________ to the change is to be expected. Resistance to
change is __________ among employees and organisations. The resistance needs
Business management
MULTIPLE CHOICE QUESTIONS
1. Which of the following would be classified as a social goal?
(a) To increase market share by 10 per cent
(b) To sponsor the local school football team
(c) To provide shareholders with increased returns
(d) To improve the training opportunities for employees
2. Refer to the following information for Question 2.
$
Sales 150 000
Expenses 42 000
ASSETS $ LIABILITIES $
Current Assets Current Liabilities
Cash in bank 5000 Overdraft 3000
Stock (?) Creditors 4000
Non-current Liabilities
Non-current Assets Bank loan 310 000
Building 350 000
Equipment 17 000 OWNER’S EQUITY
Furniture 13 000 Capital 84 000
BUSINESS PLANNING
FOCUS AREA
The processes of establishing and planning a small to medium enterprise
OUTCOMES
Students should be able to:
• discuss the nature of business, its role in society and the types of business structure
• describe the factors contributing to the success or failure of small to medium enterprises
• assess the processes and interdependence of key business functions
• analyse the responsibilities of business to internal and external stakeholders
• plan and conduct investigations into contemporary business issues
• evaluate information for actual and hypothetical business situations
• communicate business information and issues in appropriate formats
• apply mathematical concepts appropriately in business situations.
Small to medium
enterprises (SMEs)
Anyone who seeks to successfully establish a business will Public Health Act 2010
need to go beyond the good idea or business concept. and Public Health
Husband and wife team Steve and Violetta Kola are no Regulation 2012.
strangers to running a business, having run a successful Failure to meet legal
wardrobe and shower company for 20 years. Violetta’s requirements can lead to
passion, however, has always been the beauty industry. After prosecution and possible
years of experience working in day spas and beauty salons, fines, which could both
as well as being a distributor of beauty products, she always cripple the business
had the dream of owning her own medispa. In 2016, Violetta financially and destroy its
had an idea about beginning a new business that would be reputation. ‘This idea became
the first to offer world-class medical aesthetic treatments. ‘I Since this is a a reality … with the
thought it was a great business idea, and I did my research new business in the
and put together a business plan and thought if I don’t do establishment phase of
opening of their Mibu
it now, someone else is going to do it.’ This idea became a the business life cycle, Medispa … ’
reality in 2017 with the opening of Mibu Medispa in Sydney’s potential customers
South West. Steve and Violetta’s success has been built on have to be identified and made aware of the existence of
their unique services, but these services alone would not have the business and what it offers, so a marketing strategy is
been for business success. essential. In order to determine their prices, Violetta and
Mibu Medispa combines the latest medical technology and Steve used a combination of both competition-based and
beauty procedures, together with traditional spa treatments. market-based pricing (based on their market research data).
Since this would be the first business of this nature in the Once the business was almost ready to launch, Violetta and
area, Steve and Violetta had to establish a new business Steve relied on online marketing to promote it. They created
from scratch. After the initial idea, they conducted extensive a business website and pages on social media, registered
market research. They analysed the demographics of the area, their business with a variety of local pages on Facebook,
which they found was a growing area with new homes and e.g. Macarthur and Camden Noticeboard, and set up an
families. At this time, an ideal location became available for exclusive event page through Register Now to draw attention
lease, so they jumped on the opportunity. They were persistent to their launch night. Prior to this night, where invited guests
in securing the lease, as they considered it a prime location. were given an opportunity to test the products and services,
The site had parking, was quite private, was already zoned Violetta generated a lot of publicity via social media. Guests
commercial, was close to a shopping centre and enabled the also received goodie bags and went in the draw to win free
business to gain exposure due to its visibility from a main road. treatments. The mayor attended the launch, as well as friends,
The next consideration was finance. Steve and Violetta family and potential clients, and a few NRL players made an
decided to use a combination of debt and equity to fund their appearance. Violetta and Steve also ensure they provide the
new venture. They sold their previous business and used highest quality goods and services in order to take advantage
the proceeds from the sale as equity. They then organised a of word of mouth, as they rely on repeat business from regular
bank loan for the remainder of the funds. The business also customers to drive growth.
decided to lease some of their equipment to assist with their Before opening, Steve and Violetta had to recruit and select
working capital management. qualified and professional employees. Prior to recruitment,
All businesses have to conform to a number of legal they determined the exact skills and qualifications they were
requirements, and these are important foundations for looking for and devised a job description and specification. In
success. At the time of establishment, Steve and Violetta order to recruit staff, they placed an advertisement on Seek, as
had to register the business name and hire an accountant to well as their social media pages and they sought the services
set up a private company. They also established a financial of Aesthetic Recruitment Agency. They then used interviews to
records system so that they could accurately meet their select potential employees. Mibu Medispa currently has four
taxation obligations. Steve and Violetta then had to lodge a part-time employees, but as the business grows, additional
Development Application with their local council and ensure staff may have to be acquired. Highly skilled and enthusiastic
they complied with certain health regulations, such as the employees are also vital for business success.
Small to medium
enterprises (SMEs)
OVERVIEW
10.1 Introduction
10.2 Definition of SMEs
10.3 The role of SMEs
10.4 Economic contribution of SMEs
10.5 Success and/or failure of SMEs
10.1 Introduction
Small to medium enterprises (SMEs) are the ‘engine room’ of the Australian
economy.
Governments at all levels have recognised the importance of SMEs and have
devised appropriate policies to build on the strengths and overcome the weak-
nesses of these businesses. These policies focus on areas like access to finance,
networking, delivery of government programs, innovation and export programs.
The more adaptive and dynamic SMEs have responded to this environment
through increased spending on research and development (R&D), new product
developments, improved business practices and an export-oriented business
culture.
In recent years the SMEs in Australia have performed better than other sectors
of the economy, even during the 2008–09 economic downturn. SMEs have created
many new jobs, become more innovative and are increasingly entering overseas
markets.
Between 5 and
Small
19 employees
Non-manufacturing
companies, fewer than Not dominant in the
20 employees; manufacturing industry (that is, small share
companies, fewer than of total industry output)
100 employees
Owner basically
Reliant on Bulk of capital
responsible
internal provided by Locally based
for decision
support services owner
making
SUMMARY
• Small to medium enterprises (SMEs) are the ‘engine room’ of the Australian
economy.
• According to the ABS, a SME is classified as a business employing fewer than
200 employees.
• According to the ABS, SMEs account for 99.8 per cent of all private sector
businesses.
• The number of SMEs fluctuates over time according to the state of the economy.
• In recent years, SMEs have created many jobs, become more innovative and are
increasingly entering overseas markets.
BizFACT
10.4.2 Contribution to employment
Between 2014 and 2016, 27 000 Employment keeps the economy healthy. Employed Australians will use the wage
net new micro businesses were they have earned to buy goods and services to satisfy their needs and wants,
established and they alone delivered supporting business and opening up further opportunities for job creation. SMEs
about 90 000 new jobs. employ around 7 million people, which represents about 66 per cent of total
private sector employment (42 per cent are employed by small businesses and
24 per cent by medium businesses). During the last 20 years, the SME sector has
BizFACT been the major generator of new jobs in the Australian economy. During times of
The balance of payments consists of economic downturn, as was experienced between 2008 and 2009, the SMEs were
two accounts, which are always in
balance. The current account records
more likely to try to maintain their existing employees compared with the large
transactions such as exports and businesses.
imports, income and transfers. The In addition to providing employment, SMEs contribute to the revenue raised
capital and financial account records through taxation. Not only do they pay tax, their employees also pay income tax.
borrowing and lending transactions.
Taxation is used to provide goods and services that may benefit the whole commu-
Historically, Australia has recorded
large current account deficits (CAD), nity, such as a better education system.
often importing more goods and
services than it exports. Over the
last 20 years, however, Australian
10.4.3 Contribution to the
exporting industries have become balance of payments
more competitive in global markets.
One of the most dynamic changes to
the Australian SME business culture is
FIGURE 10.6 Circus Oz is one of the increasing awareness of the need to
Australia’s biggest cultural exports. service overseas markets. Evidence of
They were a national finalist in the
this is the fact that the number of SME
2013 Australian Export Awards.
Circus Oz has successfully exported Australian exporters is growing faster than
its world-class, distinctly Australian large exporters. SMEs in agribusiness,
work for the national and international manufacturing and professional services
stage and has been at the forefront
are all experiencing rapid export growth.
of international touring by Australian
performing arts companies since its Over the past two decades, the number
foundation in 1978. of SMEs who have entered the global
Source: Circus Oz market has rapidly increased. Today, over
SNAPSHOT QUESTIONS
1. Outline the factors that have contributed to Typefi’s success.
2. Assess how exporting has impacted on this business.
SNAPSHOT QUESTIONS
1. Identify the source of inspiration for the business.
2. Outline the business planning process undertaken.
3. Describe the marketing strategies employed by Shoes of Prey.
4. Deduce some challenges the business might have experienced when entering
the global market.
SUMMARY
• The SME sector contributes:
–– approximately 57 per cent of gross domestic product (GDP)
–– approximately 66 per cent of total private sector employment
–– to our balance of payments, since they are often more successful at exporting
than large businesses
–– significantly to the level of R&D.
• SMEs can enter the global market by selling directly to customers in export
territories, marketing products through a local distributor, participating in a
joint venture with a local business partner or selling through a website.
Characteristic Summary
Gross domestic product
Employment
Balance of payments
Invention and innovation
13 Outline the ways in which SMEs can enter the global market.
ma
bil
n
atio
so
la
cu enterprise. Attitudes and personalities of owners will vary enormously. Some will
ri a
form
Fo
eu
have drive and enthusiasm, many will set targets and some will take big risks.
en
to in
pr
tre
Some will thrive on the challenge of a potential failure, enjoying the process of
En
ess
solving the problem. The majority will be highly motivated and optimistic, as
Acc
SNAPSHOT QUESTIONS
1. Identify the personal qualities of Scott Bradley and Sean Towner that help
make their business a success.
2. Outline the research the pair undertook before starting their new business.
3. Explain the risks and challenges faced by Scott Bradley and Sean Towner.
SUMMARY
• While many people are successful in their business ventures, many others
unfortunately experience failure.
• The five common ‘keys’ to SME success are:
–– flexibility –– entrepreneurial abilities
–– reputation –– access to information.
–– focus on market niche
Influences in establishing a
small to medium enterprise
OVERVIEW
11.1 Introduction
11.2 Personal qualities
11.3 Sources of information
11.4 The business idea
11.5 Establishment options
11.6 Market considerations
11.7 Finance
11.8 Legal considerations and influence of government on SMEs
11.9 Human resources
11.10 Taxation
11.1 Introduction
The thousands of SMEs in Australia today are owned and operated by all types of
people. These businesses all had a beginning; they all had a person or small group
of people who decided to ‘have a go’. When establishing their businesses, they
needed to consider a range of influences that combine to determine the level of
success achieved.
11.2.1 Qualifications
Hundreds of thousands of people start a new business every year. Would you like
to be one of them? You do not have to be an exceptional champion of legendary
dimensions. Mainly, those who decide to ‘give it a go’ are ordinary people rather
than sensational opportunists who desire adventure. Many start out with only a
5 Do I have good organisational and 11 Am I prepared to work long hours? ___ ___
administrative skills? ___ ___
12 Am I prepared to receive lower
6 Am I willing to take managed risks? ___ ___ financial returns in the early years
than I would receive if I worked
for someone else? ___ ___
FIGURE 11.1 Some questions to ask yourself to assess your entrepreneurial ability
small amount of money, operating informally from home, at least in the beginning
while they are getting established.
Exceptional grades and a dazzling history in business are not essential. What
does appear to be important is the eagerness to work long hours. A recent survey
found that one in five SME business owners work at least 60 hours a week, high-
lighting the level of commitment and time required to run your own business. The
findings were contained in a Suncorp SME vs Me Report, which surveyed around
500 SME business owners from a variety of industry sectors. While the average
SME owner works 41 hours per week, 16 per cent of owners work between 60 and
80 hours a week and a further 6 per cent actually work over 80 hours. The results
demonstrate how hard business owners are working.
Starting a SME knows no age limits. From the very young to the very old, people BizFACT
are starting new businesses at a rapid rate. Particularly encouraging is the large Millennials, those born between 1980
number of young people aged between 20 and 25 who are operating a SME (see and 2000, are increasingly breaking
the Snapshot on pages 342–3). Older people are also involved in starting new away from traditional forms of
SMEs; this type of business offers the most opportunities and flexibility to retirees. employment and instead starting their
own small businesses. The Council
For some types of SMEs, few or no formal academic requirements are needed
of Small Business Australia has found
to commence operating. However, for those who want to gain academic qualifica- that this desire has been driven by a
tions in small business, many tertiary courses are available. The Business Studies decrease in job opportunities in more
course you are studying is of enormous value should you decide to become a SME traditional areas. Social media and
owner. Such courses give you knowledge and understanding of what is required to technology have also helped young
people run successful businesses.
successfully own and operate a SME. Knowledge and understanding can also come
BNP Paribas Wealth Management
from experience through working for other businesses. Your part-time job, for surveyed millennials around the globe
example, is providing you with experience in a business’s day-to-day operations, and found that nearly 60 per cent of
how to manage your time and other people, purchasing and pricing decisions, and them want to work for themselves.
a variety of other business functions. They came up with the term
SME owners are a varied group. It is extremely difficult to categorise them or the “millennipreneurs” to describe them.
qualifications they possess that make their business a success. As well, a variety of
personal factors encourage individuals to go into business. However, two factors
that are often mentioned are motivation and the ‘entrepreneurial spirit’. They com-
bine to form a powerful desire to create a new business.
11.2.2 Skills
Luck has little to do with business success. Skills are essential. These skills can be
attained through experience, education and/or training.
Experience
If a person has been working the last few years as a dedicated employee, then during
that time, they will have gained valuable experience. They probably also developed
new skills as a result of training or exposure to various aspects of the business’s
operations. Consequently, apart from well-developed management skills, a person
with hands-on experience will have a greater chance of achieving business success.
The best time for a person to gain management experience is before establishing
the business. This can be done by either completing a management training course
or by undertaking a management role within a business. The best way a person
can gain business experience is to work in the type of business in which he or she
intends to become self-employed.
These experiences provide a platform from which to work. The experienced person
will understand and be realistic about the demands, both financial and personal,
that a business will place on them. Figure 11.3 outlines possible experiences, from
working in other businesses, that could help someone establish their own business.
Administration
Organisational and bookeeping Sales
skills presentation
Stock Time
control management
Customer
Ordering
service
Being an Computer
employee applications
Management
Independence
skills
Leadership Store
skills presentation
Gaining more
control over
Profits
own destiny
Experiencing Having
some excitement something to
leave the children
Improving
own status Security
Possible tax
advantage Developing own
creative ideas
Gaining
recognition in Achieving a
the community better lifestyle
Accepting a Employing
challenge Increasing family members
Capital gains Contributing
personal wealth to society
11.2.4 Entrepreneurship
Resources
As was outlined in chapter 1, an entrepreneur is someone who starts, operates and
assumes the risk of a business venture in the hope of making a profit. The term Weblink: Top Business
can apply to any person — male or female, mature age or young — willing to Entrepreneurs
establish a business in a bid for success. Not all entrepreneurs begin by setting up a eLesson: Global Kidz Oz 1
business premises. An increasing number of people work from home, especially as (eles-2296)
computers have allowed greater access and communication with business markets.
Entrepreneurship is not just an avenue to wealth, but a way of making a living and
achieving job satisfaction.
Society is constantly changing and thus creating new opportunities for innova-
tive products and services to be developed. The entrepreneur must have a range
of personal characteristics that enable them to take advantage of, and be successful
with, these opportunities (see figure 11.5).
First, entrepreneurs must be prepared to take a risk and incur the results of this
risk, whether it is a success or a failure. They must be confident in decision making
and willing to accept all responsibility for their decisions. Sometimes a decision
requires ‘guts and determination’ and such times often lead to success. The entre-
preneur must always have a will to succeed: they may not achieve the desired goal
with the first venture, so they need drive, determination and an ability to recover
from poor decisions or mistakes.
Flair and creativity are also essential for an entrepreneur. They allow the entre-
preneur to create or seize new opportunities for business, new niche markets or
new products and/or services. Success can sometimes depend on finding a new
and more innovative way to sell a good or service. Scott Bradley and Sean Towner,
who established Yo-get-it (pages 330–1), are examples of entrepreneurs who suc-
cessfully developed a niche market. Finally, the most important quality for an
Sets realistic
goals and
Takes
Works attempts to
moderate
well with achieve them
risks
people
Keeps in
Tolerates good physical
failure health
SNAPSHOT Case study: Josh’s eggsellent free range adventure turns pocket
money into big business
SNAPSHOT QUESTIONS
1. Identify some of Josh’s personal qualities that have enabled him to become a
successful entrepreneur.
2. Why did Josh start his own business?
3. How has Josh differentiated his business to achieve a competitive advantage?
SNAPSHOT QUESTIONS
1. How has Rahim Parkar’s life changed since moving to Australia?
2. Why did Rahim choose Perth, Australia to migrate to and open a business?
3. Outline the business planning Rahim undertook prior to beginning his own
business.
4. Identify Rahim’s personal qualities and skills that have helped him become a
successful business owner.
11.2.6 Gender
Governments of developed economies are realising that employment growth will BizFACT
not come from established large businesses but from the creation or expansion Approximately 68 per cent of
of the small business sector. Policies are being created specifically to assist small Australian small business operators
are male and 32 per cent are female.
business in contributing to the national economy. In response to these policies,
and to a general change in social attitudes, many women are setting up their own
businesses (in particular in self-employment) at three times the rate of men (see the
following Snapshot).
Resources
Weblink: Women’s Network
Australia
FIGURE 11.6 The Women’s Network Australia is the nation’s leading networking
organisation for women offering business information, online services, business
education and networking events.
Source: Women’s Network Australia
SUMMARY
• Personal qualities, motivation, experience and entrepreneurship are the primary
influences on an individual’s decision to establish a business.
• Business qualifications and skills can be attained through experience, education
and/or training.
• These factors will affect planning decisions on issues such as the type and size of
business, the business location and the individual’s own role.
• An entrepreneur is someone who starts, operates and assumes the risk of a
business venture in the hope of making a profit.
• An entrepreneur must have a range of skills and characteristics to own and
operate a business successfully.
• Other influences are at work, including cultural background and gender.
4 Refer to figure 11.4 in section 11.2.3 and classify the possible rewards of business
ownership into monetary or non-monetary benefits. Interpret the results.
5 Describe the main characteristics of an entrepreneur.
6 Select the characteristic you regard as the most important and justify your choice.
7 Outline why an entrepreneur should continually set new goals.
8 Prepare a ‘T’ table format to summarise the benefits and burdens of
entrepreneurship. The ‘T’ table has been started for you.
Benefits Burdens
• Sense of freedom and independence.
Australian Bureau
of Statistics Sources of advice Solicitors
AusIndustry Bank
managers
Community-
based services Australian Chamber
of Commerce and
Industry
Other business TAFE
contacts colleges
Universities
FIGURE 11.7 Sources of help and advice for the SME owner
Business Connect
Business Connect aims to support small businesses to start up, create jobs
through growth, help established SMEs become sustainable and increase business
confidence across NSW. Business Connect achieve these aims by:
• providing general and specialist business advice and government information to
startups and SMEs
• promoting business growth through innovation, improving resilience and
boosting productivity
• supporting digital readiness and regional business development.
Federal government
The federal government operates a website, business.gov.au, as a service to
businesses of all sizes. It is an online government resource for the Australian
business community that offers access to all government departments.
business.gov.au offers simple and convenient access to all of the government
information, assistance, forms and services businesses need. Government depart-
ments such as the Department of Foreign Affairs and Trade, and the Department
of Industry provide specific advice and support to businesses on issues such as
exporting overseas and research and development of new products.
Technological advice
Establishing an online business presence, networking a number of computers
within the business premises, or making maximum use of mobile devices can
all improve business efficiency. Purchasing equipment from a dealer who offers
advice and backup support, or establishing a relationship with an ICT consultant,
is another important decision to be made by the prospective business owner. Resources
As a technological support service for small business, the federal government
has established Digital Business Kits (DBK), which provide industry-specific Weblink: Digital business kits
information and resources to help SMEs and not-for-profit organisations engage
in the digital economy and take advantage of the opportunities available through
digital technology.
Local government
This level of government is becoming more involved in encouraging business
because it creates employment. Local councils offer advice on land zoning, assist
with subsidised land and consider development applications.
Trade associations
Trade associations offer specific industry information and assistance. Examples
include:
• Australian Retailers Association
• Plastics and Chemicals Industries Association (PACIA)
• Australian Medical Association.
Each association is made up of organisations that are in the same line of busi-
ness, so it can provide specific details about product development and industry
trends.
FIGURE 11.12 Visiting a business exhibition can provide ideas for a business concept.
SUMMARY
• A variety of support services exist to provide assistance to a business owner
who lacks experience. Some of them are free and some are in the form of other
businesses that charge for their services.
• A business idea describes the core activities of the business, and the specific
features and value of the goods or services it provides.
• A business opportunity is something an entrepreneur can see as an avenue to
success.
• Opportunities may arise due to either a ‘gap’ in the market, or an interest or
hobby.
• Competition is rivalry among businesses that seek to satisfy a market.
• SME owners must decide how to make a business competitive. This can be done
by either reducing the costs of production or providing something not already
available.
FIGURE 11.14 Many prospective small business owners find it difficult to select an
establishment option. Each option has its own advantages and disadvantages, which must be
taken into consideration before making a decision. A wrong choice may place the owner in a
vulnerable position.
TABLE 11.1 The advantages and disadvantages of starting a business from scratch
Advantages Disadvantages
• The owner has the freedom to set • There is a high risk and a measure of
up the business exactly as they uncertainty. Without a previous business
wish. reputation, it may prove difficult to secure
• The owner is able to determine finance.
BizWORD the pace of growth and change. • Time is needed to set up the business, create
Goodwill is the monetary value • There is no goodwill for which procedures, develop a customer base, employ
attached to the reputation of a the owner has to pay. and train staff, and develop lines of credit.
particular business. • If funds are limited, it is possible • If the start-up period is slow, then the business
to begin on a smaller scale. may not generate profits for some time.
Advantages Disadvantages
• Sales to existing customers will • The existing image and policies of the
generate instant income. business may be difficult to change,
• A good business history increases the especially if the business had a poor
likelihood of business success. reputation.
• A proven track record makes it easier to • The success of the business may BizWORD
obtain finance. have been due to the previous owner’s
• Stock has already been acquired and is personality and contacts, so may be A franchise involves buying the rights
ready for sale. lost when the business is sold. from another business to distribute its
• The seller may offer advice and training. • It may be difficult to assess the value products under its name.
• Equipment is available for immediate of goodwill, with the likelihood that the A franchisor is an individual or
use. newcomer will pay more than it is worth. business that grants a franchise.
• Existing employees can provide • There may be hidden problems.
A franchisee is an individual or
valuable assistance. • Some employees may resent any
change to the business operation. business that purchases a franchise.
Advantages Disadvantages
• Immediate benefit is derived from • The franchisor controls the operations,
the franchisor’s goodwill because the with little scope for franchisee
individuality.
BizFACT
name is established.
• The franchisor often provides training • Profits must be shared with the franchisor According to a report of the Franchise
and management backup. through the payment of ongoing franchise Council of Australia in 2014:
• A franchisee can succeed despite fees. – there were 1160 franchisors in
having limited experience. • The franchisor often charges additional Australia in 2014
• Equipment and premises design are service fees for advice. – there were an estimated 79 000
usually established and operational. • The franchisee is often required to franchisees
• Well-planned advertising often exists. purchase stock from the franchisor and – more than 460 000 people were
• Volume buying is possible, often cannot shop around for cheaper supplies.
employed directly in franchising
resulting in cheaper stock. • Contracts may be biased in favour of the
– annual sales turnover of the entire
• A business plan and proven business franchisor.
franchising sector was estimated at
methods already exist. • The franchisee must share any burden of
the franchisor’s business mistakes. $144 billion.
SUMMARY
• Starting a completely new business, purchasing an existing business or
purchasing a franchise are the three main ways of going into business.
• The most common reason for setting up a completely new business is the
recognition of a gap in the market.
• When purchasing an existing business, it is essential for the potential purchaser
to know why the business is for sale.
• People choose to buy a franchise in order to make use of an existing brand and
reputation.
• There are advantages and disadvantages for each option.
0 10 20 30
Per cent
(a) Identify the industry sector in which the majority of franchise networks are
involved.
(b) Why do you think the majority of franchises operate in the industry you identified in
part (a)?
Bianca was bored working for someone else and decided to start her own
business. She lives in a small New South Wales country town with a population
of approximately 2500. The town has no major shopping centre and no
established franchises. Bianca decided to open a café in the town. Her mother
provided the funding for the business and gave her what little advice she
could.
After only six months in business, Bianca realised that the business was
not profitable. Her debts were increasing and she could see no way out of her
problems. She wanted to sell the business but could not find a buyer.
11.6.2 Price
One of the most crucial decisions that any business
owner has to make is to determine the prices at
which goods and services are provided to customers.
This will have a major impact on the success of
the business, as prices set too high may drive away
potential customers, while prices set too low may
make it difficult to achieve a profit.
As discussed in chapter 8, three pricing methods
can be used:
1. Cost-based: a pricing method derived from
calculating the total cost of producing or purchasing
a product and then adding a mark-up for profit.
2. Market-based: a method of setting prices according
to the interaction between the levels of supply and
demand — whatever the market is prepared to pay
(see figure 11.19).
3. Competition-based: choosing a price that is either
below, equal to or above that of the competitors.
FIGURE 11.19 It’s important for a business to know what customers
think they should be paying for a product or service. Customers may
11.6.3 Location see good value from something that isn’t expensive to make or deliver.
Different types of businesses will be suited to To set a price to simply cover costs in this instance will be denying the
owner lots of potential profit. If a product or service is more expensive to
different locations, and the business owner must provide than customers are prepared to pay, then that too is a problem.
consider a number of factors when determining Market research can help owners find out what their customers are
the most appropriate location for their particular prepared to pay.
Many shopping strips in the metropolitan area have struggled to compete with
the growth of shopping centre complexes offering off-street parking and an air-
conditioned environment. Retail shopping strips offer the advantage of high vis-
Resources ibility for passing traffic, but many shopping strips suffer from lack of parking,
particularly those located on major arterial roads that are clearways during peak
eLesson: Sublime
hours. Because many shopping centres close in the evenings, shopping strips have
Greengrocer and Juice Bar
(eles-0839) become popular locations for restaurants and ‘after hours’ entertainment. Norton
Street in Leichhardt is a good example of this.
General costs
Of course, there are a range of general costs that businesses need to pay, regardless
of whether they have an online presence or a street front shop.
Set-up costs
So what are the costs to set up each business?
Let’s compare the initial investment both businesses need to make to get up and
running.
(Please note, these exclude the above general costs and, for the sake of this
exercise, I am assuming that Business A is taking over an existing premises, hence
doesn’t need to build a brand new shop.)
Business A: Street Front Shop
Shop fit-out: $50 000 (typically $30 000 to $150 000)
Shop signage: $3000 (Typically $2000 to $10 000)
Other: $2000
Total: $55 000
Business B: Online Shop
Website: $12 000 (typically $5000 to $25 000)
Photography: $2000
Other: $1000
Total: $15 000
Summary
Here is a summary of how the costs affect each business.
Set-up cost
As you can see the cost for setting up the physical store for Business A is about
$55 000 compared to only $15 000 for setting up an online store for Business B.
That equates to a saving of $40 000 which could easily be put towards promoting
Business B online!
Ongoing costs
Business A has $17 400 of expenses to cover each month. At a profit margin of
50 per cent, Business A would need to sell over $36 000 in sales every month to
break even.
This means Business A needs to be doing $550 000 in annual revenue to run a
stable business.
In contrast, Business B has $11 550 in monthly expenses, therefore would need
only $23 000/month in sales to break even. This means Business B would need to
aim for $350 000 in annual revenue to run a stable business.
Overall
The lesson to be learnt here is that it is quite important to make sure you compare
the costs for your online store with those of a physical store.
Clearly, it can be far cheaper to run an online business than a street front shop.
But you need to remember you will need to put extra effort into both your website
and ongoing online promotion to succeed!
Source: Kevin Fouche
SNAPSHOT QUESTIONS
1. Identify the factors that the success of an online business depends on.
2. Identify some general costs that will be common to both an online and a
physical store.
3. Compare the set-up and ongoing costs of an online and physical store.
Home-based businesses
Many tradespeople and other service providers have traditionally run their
businesses from home. Plumbers, electricians, painters and various other service
providers do not need a dedicated business location as they provide services in
the customer’s own home or business premises. Increasingly, the development of
information and communication technologies has allowed home-based businesses
to use mobile phones, the internet and computer applications. Although home-
based businesses have traditionally been service providers rather than goods
retailers, online ordering and payment has allowed for the expansion of home-
based retail businesses.
Resources
Weblink: Home-based businesses
SUMMARY
• The first thing business owners need to determine is what good or service they
are going to sell.
• Businesses fail without a market (customers) for their goods or services, so they
must always undertake a market analysis.
4 Calculate the selling price for a computer using the mark-up supplied.
5 Clarify two factors to consider when setting a selling price for the item in each of the
following cases:
(a) A small publishing business has developed an idea for a new fashion magazine for
16-year-olds.
(b) John wants to sell his car online.
(c) Troy has won a new mountain bike in a raffle but he doesn’t need it.
(d) Jemma wants to sell her handmade jewellery at markets and online.
6 Explain how local council decisions affect the location of different types of
businesses.
7 Outline the advantages shopping centres have over traditional ‘main street’
shopping strips.
8 Summarise some of the main types of online activities SME operators undertake.
9 Demonstrate how an online presence can assist a business owner to operate from
home.
10 Identify three types of businesses that can operate as home-based businesses and
explain why they are suited to this type of operation.
11 In small groups, propose what factors need to be considered when choosing a
location for the following businesses:
(a) fast-food outlet
(b) dental surgery
(c) agricultural machinery supplier
(d) HSC coaching college
(e) hair salon
(f) panel beater.
Choose a spokesperson to share the group’s comments with the rest of the class.
2 ‘Location is a crucial factor for the success of some small businesses but not for
others.’ Critically analyse this statement and provide relevant examples.
3 Visit the local shopping centre or mall. Identify the best located shops. Determine
why they have the best locations. Arrange to interview the owners of some of these
stores and question them about the reasons for their location.
4 Choose a small business that you are familiar with and explain the ways in which
this business has advantages or disadvantages in relation to:
(a) visibility
(b) cost (in terms of likely premises expenses and transport costs)
(c) proximity to suppliers
(d) proximity to customers
(e) proximity to support services.
11.7 Finance
Finance refers to the funds required to carry out the activities of a business. It is a
crucial issue when an entrepreneur is identifying a business opportunity, especially
considering that it is often difficult to raise (see the following Snapshot).
200
of funds to the SME
100
0
sector can have a
–100 significant impact on
–200 the economy. ❜
2008 2009 2010 2011 2012 2013
Source: Derived from RBA (2014) Table D2
SNAPSHOT QUESTIONS
1. Compare the growth in credit for both housing and businesses.
2. Identify factors that have led to negative credit growth for businesses.
3. Identify the sources of funds being increasingly relied upon by businesses.
4. Explain the impact of restricting the flow of funds to the SME sector.
Source of finance
Debt Equity
FIGURE 11.23 The two main sources of finance available to business owners
TABLE 11.4 Examples of financing options available to businesses and the costs incurred for each type
6 Recall the three factors that will impact on the cost of finance.
3 Analyse why it is important to match the term of a loan to the life of the asset for
which the finance was obtained.
11.8.2 Zoning
Local government controls zoning regulations. In other words, they have the
authority to restrict where certain businesses can locate. Zoning regulations create
areas where land can be used only for particular purposes. These regulations specify
the areas in which residential, industrial, recreational or commercial activities may
take place. This ensures that activities that do not belong together, such as those
associated with factories and residential areas, are kept separate. This function
assists the local community in terms of planning.
When establishing a business, the owner must inquire with the local council
to determine which zoning regulations will affect their business now and in the
future. A manufacturing business that uses heavy equipment and wants to operate
a 24-hour shift, for example, would need to locate where it is allowed to operate
under zoning regulations. It would not be suitable close to a residential area,
mainly because the noise is a problem.
FIGURE 11.27 The ACCC launched legal action against the paint maker, Dulux, over claims
relating to one of its products, InfraCOOL roof paint, which asserted to reduce the temperature
of living areas inside homes by up to 10 degrees. Dulux also claimed that its Weathershield
Heat Reflect wall paint would significantly reduce the inside temperature of a home. The
Federal Court found that both claims were false and misleading and fined Dulux $400 000 after
the company admitted they did not have any reasonable grounds for making those statements.
SUMMARY
• All business owners have a legal obligation to observe the statutory regulations
when commencing and operating a business.
• Of the many laws and regulations that small business owners need to comply
with, some important regulations relate to:
–– business name
–– land zoning
–– health regulations.
• The Competition and Consumer Act 2010 (Cwlth) is a federal government statute
that aims to:
–– promote fair trade and competition in the marketplace
–– protect both consumers and businesses from deceptive or misleading practices.
Temporary/casual
services
Schools, universities
Advertisements in
or
the media
TAFE colleges
Main sources of
employees for a business
Australian
JobSearch Internal searches
Private employment/
Word of mouth
FIGURE 11.28 The main sources of recruitment agencies
employees for a business
11.9.1 Skills
A business owner should always remember that the overriding objective of recruiting
is to attract a pool of qualified applicants — people with the most suitable skills —
from which to choose the most appropriate person for a particular job. Skilled
employees are more productive and create wealth for the business. This is the same
principle that a sports coach uses when selecting a team. To improve the chance of
winning, the coach wants those players who possess the highest level of skills.
The skill base of existing employees should also be detailed so that training
needs can be identified. If the skills level of employees is not adequate enough for
them to fulfil their jobs effectively, then the business owner has two options:
• provide training to improve the skills level of existing employees
• recruit people who have the required skills.
While there will always be job-specific skills that an employer is looking for,
that’s not nearly as important as some general skills that those responsible for
hiring are increasingly looking for. These general job skills are sometimes called
‘employability skills’ and will make people more effective at work, no matter what
job they do. They are sometimes also known as transferable skills because people
develop them over time and take them with them as their career develops. Some
of the most sought after general skills include good teamwork, communication,
problem-solving, initiative, quick learner and the ability to plan and organise work.
❛ … the total cost of 5. Workers’ compensation insurance. The rate charged varies
broadly depending on the risk of the industry. In some instances
2500
employing someone it can be 15 per cent. For this example a rate of 5 per cent will be
used.
on a base salary of
6. Payroll tax. This state government tax is levied once an 2725
$50 000 is $67 054. ❜ employer’s annual payroll (including superannuation) exceeds a
certain amount. In New South Wales the threshold is $750 000 and
the rate is 5.45 per cent.
7. Recruitment. The average cost of recruiting the base-grade 2500
employee is about $5000. This includes the cost of recruiting, lost
production and training of the new employee. For this example,
assume the employee stays for 2 years.
Total of on-costs 17 054
The total of the on-cost for this ‘average’ employee is $17 054. Businesses are
responsible for these costs and must budget accordingly. Therefore, based on this
case study, the total cost of employing someone on a base salary of $50 000 is
$67 054.
The above table only deals with the most common on-costs for the ‘average’
employee. For some employees, especially senior executives, other specialised on-
costs can include fringe benefit tax, car allowance, housing subsidy, travel and meal
allowance, bonus fee and association membership fees.
SNAPSHOT QUESTIONS
1. Calculate the percentage on-costs represent of the base salary.
2. Explain why on-costs are sometimes referred to as ‘hidden costs’.
Superannuation
Under the federal Superannuation Guarantee scheme, all employers must make BizWORD
provision for employees’ superannuation. Superannuation (otherwise known as Superannuation is a scheme set up
super) requires all employers to make a financial contribution to a fund that by the federal government. It requires
employees can access when they retire. The main aim of superannuation is to give all employers to make a financial
contribution to a fund that employees
employees a sum of money that can be used: can access when they leave or
• for their retirement retire from a job. The percentage an
• if they become an invalid employer must contribute will increase
• by the beneficiaries upon a person’s death. gradually to 12 per cent by 2025.
In some circumstances they can access the money if they leave a job, although
tax disincentives apply. Employers are not required to provide for the superannua-
tion of employees earning less than $450 per month or for employees aged under BizFACT
18 years old and working 30 hours or fewer per week.
All contributions must be made to
a complying superannuation fund
that meets the federal government’s
standards, so as to protect the
employee’s superannuation. Since
2005, many employees have been
able to choose into which fund
their employer superannuation
contributions are paid.
FIGURE 11.30 Prior to July 2013, employers were not required to provide superannuation
for workers aged over 70 years. There is now no upper age limit for making superannuation
guarantee contributions. The removal of this limit is to encourage people to stay in the
workforce longer.
SUMMARY
• One of the most important influences when establishing a SME is staffing.
• If a SME owner decides to hire staff, many sources are available.
• The overriding recruiting objective is to attract a pool of qualified applicants
with the most suitable skills.
• Skilled employees are more productive and create wealth for a business.
• A business will employ someone only if the return is greater than the cost.
• On-costs are payments for non-wage benefits, including long service leave,
workers’ compensation and annual leave loading.
Tax Levied by
Income tax — pay-as-you-go (PAYG) Federal
• Imposed on the employee government
• Taken from the employee’s salary or wage directly
• Lodged with the tax department by the business
• Detailed in a group certificate that the employee receives at the Resources
end of the financial year
• Taxed at progressive tax rates — the more you earn, the higher
Weblink: ATO
your rate of tax.
Fringe benefits tax (FBT) Federal
• Tax on the provision of a benefit to an employee — such as cars government
for private use, low-interest loans, entertainment expenses, and
housing and accommodation — in place of salary or wage
• Paid by the employer at a rate of 47 per cent of the value of the
benefit provided.
Goods and services tax (GST) Federal
• A broad-based tax of 10 per cent on the supply of most goods government
and services consumed in Australia
• See page 389 for a detailed explanation
Company tax Federal
• Paid on the earnings of a company and calculated on the government
company’s taxable income (which is income left after allowable
deductions are calculated)
• Currently calculated at 30 per cent of taxable income
Capital gains tax Federal
• Calculated on the profit made on the sale of assets acquired government
after 19 September 1985, including the sale of a business or
properties bought and resold within 12 months
All businesses must pay their taxes if they wish to continue to operate as a legit-
imate business. Small to medium enterprise owners should structure their records
and finances in such a way that they have the necessary information and money to
efficiently manage their taxation obligations. Apart from the moral and ethical con-
siderations, tax avoidance normally results in an Australian Taxation Office (ATO)
investigation and the possibility of a fine or prison sentence.
Different taxes apply to different businesses, so a person operating a SME must
become familiar with all appropriate tax requirements (see the following Snapshot).
Businesses pay taxes to their federal and state governments on the basis of what
they earn, what they own and even what they purchase. One of the most important
tax obligations is the goods and services tax (GST).
GST is paid at each step in the supply chain. GST-registered businesses must
include GST in the price of goods and services they supply or sell. If you’re registered
for GST, you can claim back the GST included in the price of your business
purchases as input tax credits.
Registered businesses collect GST from sales to their customers, then claim back
the GST on business purchases as input tax credits. The cost of GST, therefore,
flows along the supply chain and is finally included in the price paid by the end
consumer.
Consumers cannot claim input tax credits, so while the liability for paying the
GST rests with GST-registered businesses and organisations, the economic cost is
borne by the end customer. This can be seen clearly in the example above of the
manufacture and sale of a piece of furniture.
The example above shows how three businesses, each registered for GST, charge
and pay the GST. The timber merchant sells timber to a furniture manufacturer for
$110, including $10 GST. The manufacturer uses the timber to make a table, which
he sells to a furniture retailer for $220, including $20 GST. The retailer then sells the
table to a consumer for $330, including $30 GST.
The timber merchant pays $10 GST to the ATO. The furniture manufacturer, who is
registered for GST, is entitled to an input tax credit for the $10 GST, which is included
in the price paid to the timber merchant. The manufacturer will offset that $10 against
the $20 collected on the sale of the table to the furniture retailer and pay $10 GST to
the ATO.
SUMMARY
• Taxation is the compulsory payment of a proportion of earnings to the
government.
• Businesses are responsible for checking their obligations concerning income tax
(PAYG), fringe benefits tax, goods and services tax, company tax, capital gains
tax, stamp duty, land tax and payroll tax.
• Goods and services tax (GST) is a 10 per cent value added tax imposed on most
goods and services.
12.1 Introduction
Businesses do not plan to fail, they fail to plan — this quotation is a sad reflection of
reality. SME owners start keen, convinced their idea will succeed. They are full of
optimism. However, while enthusiasm is an essential ingredient in the success
of a business, it is not enough by itself. If prospective business owners neglect
to undertake thorough planning, so they can put together a carefully researched
business plan, the stage is set for business failure. Optimism will turn to despair as
the small business owner faces the grim reality. All SME owners must have a good
understanding of the:
• role of the business plan
• process of business planning.
FIGURE 12.1 A business plan is similar to a travel itinerary — it plots the route the business
will travel.
FIGURE 12.2 The main reasons for business owners’ failure to plan
Benefits of developing
a business plan
Resources
Weblink: business.gov.au
SUMMARY
• It is vital that a SME owner completes a business plan. Businesses do not plan to
fail, they fail to plan.
• A business plan is a written statement of the goals for the business and the steps
to be taken to achieve them. It is a summary and an evaluation of a business
concept in written form.
• A business plan will also assist the SME owner when arranging finance for the
business.
• A typical business plan may include, as a minimum, an executive summary, an
operations plan, a marketing plan, a financial plan and a human resource plan.
• The planning process acts as a link or bridge between the business owner’s ideas
and the actual operation of the business.
• Planning is the process of setting goals and deciding how to achieve them.
FIGURE 12.7 All of the facts and information that are relevant to the business plan must be
gathered. Some methods to use might simply be talking to people or completing surveys.
The external environment is also a source of ideas for planning. Economic, polit-
ical, social, technological, geographic and legal factors have an impact on the busi-
ness. The business must account for each factor during the planning stage and
gather information about each one. Specialists such as accountants, finance bro-
kers, consultants, bank managers and solicitors all provide knowledge to assist a
business in its planning.
S W O T
Strengths Weaknesses Opportunities Threats
What are our strengths? What are our weaknesses? What are our opportunities? What are our threats?
• What is the organisation • Do we have competent • What will new technology • What trends have been
good at? managers and staff? bring for us? evident in our markets?
• Is our product popular? • Is our computer system • Is the national economy • Are there new laws
• Are our customers loyal? obsolete? strong? regulating what we do?
• Do we have a skilled and • Have we experienced • Are interest rates low? • Are there new
motivated workforce? past failures? • What are our possible competitors?
• Do we function • Have we been upgrading new markets? • Are current
efficiently? our facilities to keep • What other businesses competitors taking
• Are we in a solid pace with others? can we acquire to over our market share?
financial position? expand the organisation?
• Is our equipment state
of the art?
SUMMARY
• The internal and external business environments are sources of planning ideas.
• Information is the essential ingredient needed to prepare a business plan.
• A situational analysis refers to a collection of methods that managers can use to
analyse a business’s internal and external environment. One method of analysis
is a SWOT analysis.
• A SWOT analysis can be used at all stages of the planning process.
IKEA
‘To create a better everyday life for the many people’
Westpac
‘To be one of the world’s great service companies, helping our customers, communities
and people to prosper and grow’
RSPCA
‘To be the leading authority in animal care and protection’
Oxfam
‘a just world without poverty’
Instructions
1. Arrange your class into groups of three to four.
2. Find a place where your class can set up to have shots at basketball rings.
You or your teacher may need to book the school gym or the basketball court.
Materials required
• Basketballs
• Basketball rings
• Space
Questions
1. How can you measure the effectiveness of your group’s performance in this
activity?
2. Can you think of a way to measure your group’s efficiency?
3. Complete the following table, using the results from your goal shooting. The table
has already been started for you.
Efficient Inefficient
Effective Score a goal from every
shot
Ineffective
FIGURE 12.10 The objectives established at each layer of the business’s hierarchy are
devised with the purpose of helping to achieve the strategic goal.
SUMMARY
• The vision statement broadly states what the business aspires to become.
• Vision statements guide and direct the business owners, managers and employees.
• Once the goals have been established, a SME owner determines the objectives.
• Objectives are specific statements detailing what a business needs to do to
accomplish its vision.
• Strategic goals, tactical and operational objectives are determined by different
levels of management.
• Many businesses strive to achieve goals relating to profits, market share, growth
and share price as well as social and environmental goals.
• Longer term growth is the ability of a business to continually expand.
• Longer term growth depends on a business’s ability to develop and use its asset
structure to increase sales, profits and market share.
Determine
activities Quality control Accounts Pricing Advertising
Step 3 Human
Operations Marketing Finance resources
Group Quality control Sales Accounts Recruiting
activities Machining Advertising Loans Training
Designing Pricing Debt control Compensation
Step 5
Design a hierarchy
of relationships
FIGURE 12.13 The five steps involved in the organising process (organising resources)
FIGURE 12.14 Melbourne City Rooftop Honey aims to help save honey bees by encouraging
them into the city and suburbs through the deployment of hives on the roof spaces of cafés,
restaurants and hotels in and around Melbourne. The business has received grants to assist
with starting up and for purchasing materials and equipment, including a $1000 grant from the
Awesome Foundation and a $28 000 City of Melbourne grant.
FIGURE 12.15 It is crucial that all businesses undertake some human resource planning
to accurately identify future staffing needs and help with organising their human resources.
Human resource planning includes the development of strategies to meet the business’s
future staffing needs, forecasting the future demand for employees and estimating the supply
available to meet that demand.
SUMMARY
• Once the SME owner has formulated the vision, goals and objectives, the next
stage in the planning process requires organising the resources — human effort,
time, money, equipment and materials — needed to fulfil the plan.
• Organising is a device that SME owners can use to gather resources for getting
things done.
• Resource allocation refers to the efficient distribution of resources so as to
successfully meet the goals that have been established.
• Each of the key business functions — operations, marketing, finance and human
resources — require specific resources which need to be effectively organised.
12.6 Forecasting
BizWORD A business needs more than just information about present business conditions. It
Forecasts (or projections) are the also needs information about possible future events. Forecasts (or projections) are
business’s predictions about the the business’s predictions about the future.
future. Students sometimes forecast the results they hope to achieve in an assessable
task. But just like weather forecasts, what is predicted and what actually hap-
pens may be quite different! Nevertheless, forecasts are needed to enable effective
planning. An owner may need to forecast the availability of labour, raw materials,
finance and building requirements. For this task, business owners rely on internal
and external information sources.
One very useful set of data is the forecast for total revenue and total cost.
Total cost
The costs involved in operating a business can be broadly classified as either fixed or BizWORD
variable costs. Fixed costs (FC) are costs that do not vary regardless of how many Fixed costs (FC) are costs that do
units of a good or service are produced. Variable costs (VC) are costs that depend on not vary regardless of how many units
the number of goods or services produced. Variable cost, therefore, will increase if of a good or service are produced.
more goods and services are produced and decrease when fewer goods and services Variable costs (VC) are costs that
depend on the number of goods or
are produced (see the BizFact in section 12.6.2).
services produced.
The total cost (TC) of producing a certain number of goods or services is the
The total cost (TC) of producing a
sum of the fixed costs (FC) and variable costs (VC) for those units. This can be certain number of goods or services is
represented mathematically as: the sum of the fixed and variable costs
for those units.
FC + VC = TC
It is possible to forecast total cost by estimating the change in variable costs at
different levels of production. Fixed cost, of course, will remain the same.
The forecast of total revenue and total cost make it possible to use the very
useful forecasting technique referred to as the break-even analysis.
Loss Profit
FIGURE 12.16 A break-even analysis is used to determine the number of items that need to
be sold to break even — that is, to cover all costs without making either a profit or a loss.
Sales 110
Loss
100
Examples of variable costs Variable costs
are direct labour and materials,
commission on sales, delivery, freight, 75
packaging.
ts
)
ue
50 c
al
v
t
re
Total costs 30
25
s
le
Costs
Sa
Isabella’s Sweets
Cash flow projection for January and February 2018
January ($) February ($) January ($) February ($)
Forecast Forecast Actual Actual
Opening cash balance 25 500 28 320 25 500 28 410
Cash inflows
• Cash sales 6000 6100 6100 6300
• Interest received 20 20 20 20
12.7.2 Evaluating
SME owners evaluate their business’s performance to determine whether the goals
have been achieved. They do this by constantly asking:
• how the business is performing in terms of profit etc.
• whether the business is performing as planned
• whether its performance has improved over time
BizWORD • how its performance compares to that of similar businesses.
Evaluation is the process of When a SME owner undertakes this task, he or she is engaged in evaluation —
assessing whether the business has that is, the process of assessing whether or not the business has achieved its stated
achieved stated goals. goals.
Once measurements have been collected, the SME owner can compare them
with the planned goals. The SME owner needs to ask whether the business oper-
ations achieved the desired results and, if not, where and why he or she failed. If
the business plan was successful, the SME owner should examine what strategies
made it a success and re-use them. By evaluating a successful business plan, the
SME owner may also identify weak spots that could be improved and modify the
plan to fix them.
MONTHLY SALE
J F S
M A M J
7 J A S O N D
6
($ million)
5
4
3
2
1
FIGURE 12.20 Sales records indicate whether the business is achieving its objectives.
Sales generate revenue for the business, so it is important that the sales manage-
ment control function be regularly performed. Sales management control involves
comparing budgeted sales against actual sales, and making changes where neces-
sary. For example, if a new selling technique is introduced, the level of sales will
need to be closely monitored to determine whether actual sales are above or below
what was forecast. The new selling technique will be deemed a success if the sales
are above what was forecast. If the figures are below what was forecast, the busi-
ness will need to take some type of corrective action.
FIGURE 12.21 Second quarter sales for DeltraWear Fashions Pty Ltd
Consider the sales figures for April, May and June — the second quarter of the
year — for DeltraWear Fashions Pty Ltd (see figure 12.21). The figures reveal that
total sales revenue increased by $11 000 or 7.1 per cent above what was forecast.
SNAPSHOT QUESTIONS
1. Outline the benefits of a budget.
2. State some problems businesses can face if they don’t have a budget.
3. Describe what business owners should do with their budgets once they’ve
created them.
4. Identify one of the most essential figures a business owner should know.
Sales
Less expenses
Advertising
Insurance
Wages
Rates
Electricity
Water
Once the budget has been completed, the business owner can determine the
extent and timing of financial requirements. This profit budget should then be
reviewed at least once per month, and the owner should compare the projected
amounts and the actual amounts. Modifications must be implemented if there are
any discrepancies.
SUMMARY
• Forecasts are the business’s predictions about the future.
• Total revenue is the total amount received from the sales of goods or services.
• The total cost of producing a certain number of goods or services is the sum of
the fixed and variable costs for those units.
• Break-even analysis determines the level of sales that need to be generated to
cover total production costs.
• The cash flow projection shows the changes to the cash position brought about
by the operating, investing and financial activities of the business.
• SME owners need to monitor and evaluate the business’s performance by asking
themselves:
–– Is my business performing as planned?
–– Has the performance of my business improved over time?
–– How does the performance of my business compare to that of similar
businesses?
• Budgeted sales should be compared against actual sales.
• The budget should regularly be compared with actual revenue and expense
amounts to detect any discrepancies.
400
Total revenue
350
250
200
150
50
0
50 100 150 200 250 300 350 400 450 500
Sales ($)
8 Why is a cash flow projection an important tool for cash flow management?
9 Distinguish between a cash flow projection and a cash flow statement.
10 Refer to figure 12.18 in section 12.6.3. Analyse the cash flow projection for Isabella’s
Sweets by comparing the forecast cash flow to the actual cash flow.
11 Distinguish between monitoring and evaluating. Discuss how the two processes
are linked.
(a) Explain how it is possible for sales revenue to decrease but market share to
remain the same.
(b) If you were the owner of Crystal Water, identify which year’s result you would find
most pleasing. Give a reason for your answer.
17 ‘No business should operate without monitoring and evaluating its profit levels.’
Discuss.
18 Explain why the budget should be regularly compared with actual revenue and
expense amounts.
19 A business’s profits have been declining over the past two years. Recommend
two modifications the business could take to correct the situation. Justify your
answer.
Anna and Bill are technicians working in a relatively small electronics factory. They
are trained and competent tradespeople, and live and work for new developments
in the electronics field. At home, both have accumulated journals and papers on
what’s new in the electronics field. They met by coincidence on an overseas trip
and their mutual interests brought them together, eventually to work with the same
company. Before joining the company, Bill worked with the government and Anna
was in a sales position for a retail firm. This was a position that really came about
by accident through personal contacts by her family. The sales position held no
real interest and this led to a change in employment.
For some time they have been thinking about an idea that would mean leaving
the company and setting up their own business. There are a number of electronic
Resources components currently imported from overseas that they believe they could man-
ufacture locally for a reasonable price and perhaps launch into the export arena.
Digital doc: Chapter summary
They have both talked with their spouses, immediate families and a number of
(doc-26104) friends about the possibility of branching out on their own. Together they believe
Interactivity: Chapter
they would have some $60 000 available through equity capital and loans. The
crossword (int-7233) amount of money required to establish a factory and various outlets is unknown at
Interactivity: Multiple choice
this stage, but they are assuming that individual funds would be available from
quiz (int-7234) banks or other sources.
(a) Identify what other personal factors Anna and Bill should consider before making
the final decision.
(b) Investigate what factors may be important in the preparation of their business
plan.
(c) If you were in their position, determine how you would go about analysing market
prospects.
4 (a) Determine what is the most important aspect of preparing a business plan.
(b) Explain why a financial institution would require a business plan before approving
a loan to the business.
(c) Explain why a business plan should be flexible and constantly revised.
5 Recall a situation in which you evaluated your performance. An example could be
an assessment task, a part-time job or sports event.
(a) Identify your goal for this activity.
(b) Assess whether you achieved your goal. Give reasons for your answer.
(c) Analyse what corrective action, if any, you were required to take.
13.1 Introduction
When a business commences operation, the SME owner/manager is optimistic of
Resources success. Most businesspeople are aware of the general pitfalls, but all businesses —
regardless of their size or function — must pay close attention to a number of
eLesson: Global Kidz Oz 2
(eles-2297)
critical issues. These issues include:
• having a business plan
• managing employees
• analysing trends
• identifying and sustaining competitive advantage
• avoiding overextension of financing and other resources
• using technology
• considering economic conditions.
While there are many reasons for business failure (see chapter 4), careful atten-
tion to the above factors will allow businesses to avoid failure and achieve success.
These critical issues form the basis for discussion in this chapter.
FIGURE 13.1 An effective business plan contains a number of important elements that will
make the plan an operating tool that assists in the management of the business.
FIGURE 13.2 Highly skilled employees can provide better service, potentially increasing the
business’s reputation and revenue.
It is the same for the management of a business. A manager’s skill is the most
critical factor in determining a business’s success or failure. For example, a business
may have the most up-to-date computer equipment, well-furnished offices, access
to adequate sources of finance, a committed and motivated group of employees,
an excellent location, and an outstanding range of goods or services backed up by
BizFACT
13.3.1 Staffing
‘Businesses are made by people.
If a SME owner wants the business to succeed, then it is essential to have employees We’ve proven time and again that
who are satisfied and motivated (as was outlined in chapters 6 and 8), as they will you can have a wonderful shop, and
be more productive. They also provide the business with a competitive advantage, put a bloke in there who’s no good,
especially if the business offers a service where the customers come into direct and he’ll stuff it up. Put a good bloke
in, and it just turns around like that.’
contact with the employees. Therefore, the management of the staffing function Gerry Harvey, Chairman of Harvey
— the recruiting, selecting, maintaining, training and separating of employees — Norman.
must be undertaken with care.
Case study: Filtered Media — going the extra mile for employees SNAPSHOT
Filtered Media is a content marketing and public relations agency that employs about
30 staff. This Sydney-based SME is going the extra mile — and then some — to
make sure their employees know how much they are valued. They have developed
a number of human resource policies that demonstrate their commitment to looking
after the needs of their employees.
Husband and wife team Heather and Mark Jones, who founded the agency, are
firm believers in creating a healthy business culture. For Heather and Mark, creating
this culture starts with respect for the individual and gratitude. They are grateful to
everyone who joins their company and chooses to spend their working hours with
them.
When it comes to end-of-year work celebrations, most businesses take their staff
out for dinner. In 2015, Heather and Mark Jones wanted to provide their employees
❛ … put people before
with a memorable experience so they took them to Dreamworld on the Gold Coast policy. ❜
for the day.
Heather and Mark also offer their staff two paid ‘YOLO’ (or ‘You Only Live Once’)
days a year, which employees can use in any way they like: to go to the beach on a
sunny day or as a mental health day. They have also embedded mental health care
into the culture and policies of the business. The pair recently organised training in
mental health first aid for their general manager and initiated ‘are you OK?’ one-on-
one conversations with some employees who didn’t seem themselves.
In addition to the two paid ‘YOLO’ days, Heather and Mark also provide one paid
‘Marilyn Day’ to celebrate birthdays. This term came about in honour of Marilyn
Monroe’s famous birthday serenade to US President John F. Kennedy. Under this
policy, employees are able to take an extra day of leave one week either side of their
birthday.
BizWORD One mistake that some SME owners often make is not providing enough time or
Recruitment refers to the process of financial resources to satisfactorily carry out the recruitment process. Making hasty
finding and attracting the right quantity recruitment and selection decisions often ends in misfortune for both the SME
and quality of staff to apply for a job owner and the employee. For this reason, many SME owners outsource this func-
vacancy.
tion and use an external recruitment agency.
Recruitment
It is time consuming to advertise, screen and interview potential employees. Many
businesses use recruitment agencies as a way of decreasing the time involved in
searching for a new employee. They pay an agency to interview candidates and
recommend a shortlist of potential employees or an employee suitable for the
available position. Outsourcing of staff recruitment is becoming popular with small
businesses, especially as the skill shortage worsens and owners see the advantage of
using an expert to make sure they hire the best people.
FIGURE 13.3 Many SMEs are using recruitment agencies to assist them with their staffing
needs. The main reason for this is related to the cost of a poor recruitment decision, which is
generally believed to be around two or three times the annual salary of the person recruited.
A poor recruitment and selection process leads to increased costs and lower productivity.
Skill 1 2 3 4 5
Skills inventory
An employee database is an important tool used by business owners for recording
personal and work details of their employees. This type of database should be
regularly updated as new employees join the business and existing ones leave. One BizWORD
particular type of employee database is the skills inventory. A skills inventory is a A skills inventory is a database
database containing information on the skills, abilities and qualifications of existing containing information on the skills,
staff. It is used to search for appropriate candidates to fill new positions within the abilities and qualifications of existing
staff.
business. For example, a business may be seeking a current employee with a
commerce or business-related tertiary qualification, at least 10 years’ experience,
fluency in Japanese, and with some knowledge of marketing. By accessing the skills
inventory, a search can quickly identify employees who match these specifications.
TABLE 13.1 Net profit results for OzTrack Logistics Limited 2015–18
On a quick inspection, you would say that net profit is increasing over the four
years. However, upon closer examination, you will detect that the rate of net profit
growth is decreasing; that is, net profit is increasing but at a decreasing rate. This
trend is best shown by graphing the net profit results (see figure 13.5). As a busi-
ness owner, such a trend could be cause for alarm because it could mean that
future net profit may fall.
80
40
20
2015 2016 2017 2018
Years
OzTrack Logistics Limited
BizFACT Trend analysis is a process of investigating changes over time and looking for a
Examinations of a business’s financial pattern (trend) in order to predict the future. Trend analysis is based on the idea
information or total sales are two of that what happened in the past provides an idea of what will happen in the future.
the most common applications of For example, as a student you probably keep a record of your grades for each
trend analysis.
assessable task or test. You do this to determine whether your grades are generally
rising, falling or stable. Analysing this information also allows you to predict what
mark you will receive for a future assessable task or test. You will base your predic-
tion on past performance. The more past grades you have to examine, the more
accurate your prediction will be.
Trend analysis is a powerful tool which, when used properly, will assist SME
owners to achieve business success by helping forecast such factors as:
• potential sales
• total revenue
• total operating costs
• gross and net profits
• availability of labour.
As was outlined in chapter 12, forecasts are needed to enable effective planning,
and trend analysis helps make forecasting more accurate. Overall, trend analysis
will provide more reliable information on which a SME owner can base decisions.
If, for example, a retailer’s trend analysis of past sales forecasts sales to decrease,
then appropriate strategies — such as new products or a revamped marketing cam-
paign — can be put in place to avoid the poor performance.
SUMMARY
• Business plans are essential for owners/managers because:
–– they allow the owner to clearly define the goals and future projections (e.g.
finance)
–– they assist in the securing of finance from banking institutions or investors
–– they reflect the skills and abilities of the business owner.
• Management:
–– must make the best use of limited resources
–– is responsible for the business achieving its goals.
• A manager’s skill is the most critical factor in determining a business’s success
or failure.
• If a SME owner wants the business to succeed, then it is essential to have
employees who are satisfied and motivated as they will be more productive.
• Outsourcing of staff recruitment is becoming popular with SME owners.
Ways organisations
Achieve economies can compete on cost Utilise technology
of scale
Many businesses attempt to reduce the cost of labour by decreasing the size of
their workforce and using machinery where possible. Other companies choose to
move their operations to countries where labour costs are low. Some c ountries, such
as China, require employers to pay only small wages, so a firm in a labour-intensive
industry (such as the clothing and textiles industry) may choose to relocate this
part of its operations overseas.
SUMMARY
• Business success and failure is linked (in the long term) to a business’s ability
to develop a strategy that allows it to gain a competitive advantage over other
competitors in the market.
• A competitive advantage refers to a business’s ability to gain an ‘edge’ over its
competitors.
• A competitive advantage is achieved through:
–– price/cost strategy. This is best accomplished by achieving the lowest production
costs, which in turn allow it to reduce the product price.
–– differentiation strategy. The concept behind this strategy is to offer customers
something that is not already offered by business rivals.
–– ensuring long-term success. This is assured if a business sustains its competitive
edge by limiting the advances of competitors.
• A price/cost competitive advantage is best achieved by:
–– efficiency of operation
–– low-labour costs
–– economies of scale
–– technology.
• For a business to sustain a competitive advantage, the actions of management
must be dynamic.
Technologies
available
to business
Logistics — for
Social media — for
example, drones,
example, Facebook,
autonomous vehicles,
Instagram, Snapchat
automation
Machinery and
equipment — for
example, robotic
machines,
3D printing, CAD, CAM
BizWORD E-business
E-business (electronic business) E-business (electronic business) is using the internet to conduct business. It occurs
is using the internet to conduct when a business:
business. • uses the internet to find information — such as suppliers, prices and product
details — and to keep track of delivery schedules
Satisfy customer
expectations of online
access, 24 hours a day,
seven days a week
FIGURE 13.8 E-business can bring a range of competitive advantages to the small business
owner.
SNAPSHOT QUESTIONS
1. Outline the reasons Mr Flanagan provides as to what is holding small
businesses back from embracing new technology.
2. State the percentage of customers Furry Godmother receives through online
sources.
3. Explain the benefits of digital technology for Furry Godmother.
BizWORD E-commerce
E-commerce is the buying and The term e-commerce (electronic commerce) has a narrower meaning than that of
selling of goods and services via the e-business. It refers to the buying and selling of goods and services via the internet —
internet. it is a part of e-business. Today consumers expect a business to have an online
presence. In response, more Australian small businesses are using the internet to
cover all aspects of e-commerce.
BizFACT Due to the perceived cost and complexity of e-commerce, some small business
A recent study by Sensis found that owners are tentative in their use of it. Apart from having an email facility and a
more than half of Australia’s SMEs website, they do not make full use of the technology and consequently do not
(54 per cent) are using eCommerce realise its full potential.
to drive growth. For those using
eCommerce, online sales account
for 43 per cent of their total sales
on average. Also, more than six in
13.8 Economic conditions
10 (61 per cent) SMEs now have a As outlined in chapter 3, section 3.3, a nation’s economy will go through fluctuations;
website and 43 per cent of those are
it will experience good times — booms — and downturns — recessions. The
optimised for mobile devices.
economic conditions are an aspect of the external business environment in which
the business has no control.
Changes in the economic conditions in the economy have the ability to impact
dramatically on a business in regards to success and failure.
SUMMARY
• A business can overextend financially by:
–– hire purchase or leasing overcommitments
–– purchasing excess stock
–– employing too many staff for the business’s current needs.
• Overextending expenditure can create a high degree of business risk.
• To avoid overextending financially, a business should:
–– undertake thorough planning
–– avoid overdependence on debt financing
–– engage in long-term financial planning
–– grow at a sustainable rate.
• Overextension of stock ties up a business’s cash and can lose revenue.
• Overextension of staff results in employing too many staff.
• The integration of technology into the business is essential to succeed in
contemporary society.
• E-business (electronic business) is using the internet to conduct business.
• E-commerce (electronic commerce) is the buying and selling of goods and
services via the internet.
• A nation’s economy will experience periods of boom and recession.
• In periods of strong economic activity, consumer spending, sales of goods and
services, production and profits are rising.
• In periods of weak economic activity, consumer spending, sales of goods and
services, production and profits are falling.
Business planning
MULTIPLE CHOICE QUESTIONS
1. Which of the following characteristics best describes an entrepreneur?
(a) An inventor
(b) A risk taker
(c) An academic
(d) A highly skilled employee
2. What legislation is designed to protect both consumers and businesses?
(a) Fair Work Act
(b) Small Business Act
(c) Consumer Affairs Act
(d) Competition and Consumer Act
3. Which statement is TRUE in relation to equity finance?
(a) Interest is charged.
(b) It doesn’t have to be repaid.
(c) It can be acquired at short notice.
(d) You don’t lose any ownership control.
4. The variable cost of producing yo-yos is $2 and management suggests that the
selling price be $5. The business expects to sell 50 000 yo-yos in the next year.
Fixed costs are $30 000. What is the break-even number of units of production of
yo-yos required for next year?
(a) 50 000
(b) 10 000
(c) 20 000
(d) 30 000
5. A business has been able to achieve long-term success by having lower costs of
production than their competitors.
Which critical issue in business success is this an example of?
(a) Trend analysis
(b) Economic conditions
(c) Avoiding overextension
(d) Sustaining a competitive advantage
6. Which of the following statements is FALSE in relation to a business plan?
(a) A business plan is prepared only when the business is initially established.
(b) A business plan is a statement of goals for the business and the strategies taken to
achieve them.
(c) A business plan allows stakeholders to determine the viability and profitability of the
business.
(d) Having a business plan is a critical factor determining business success and failure.
7. Which of the following is considered to be an on-cost for a business?
(a) Wages
(b) Superannuation
(c) Staff training costs
(d) Goods and services tax
8. What is an advantage of starting a business from scratch?
(a) Easier to obtain finance
(b) Equipment is available for immediate use
(c) Sales to existing customers will generate instant income
(d) The owner has the freedom to set up the business as they wish
Construct a report for Jane that will help her identify whether or not her business
is meeting its legal responsibilities to its customers, to other businesses and to the
community. Your advice should include the following:
• how to tell whether a business is conforming to the Competition and
Consumer Act
Mark allocation
The suggested marks used in these examples are specifically for short answer questions.
Essay questions may also include a number of key process verbs.
Time allocation
In order to complete each question, time allocation is very important. If a student does not
complete the examination in time, because they have not calculated the minutes/marks
correctly, they will lose marks. A formula for calculating minutes/marks is as follows:
Total exam time in minutes
Marks/minute = = minutes/mark
Total exam marks
In the above example, the student would need to allocate 1.8 minutes per mark in an
examination. Therefore, a 4-mark question should be allocated 1.8 minutes × 4 = 7.2 minutes
(or rounded to seven minutes). This ensures the allocation of an appropriate amount of
time for each question.
accountability: occurs when a business acts in the best best practice: refers to those business practices that are
and highest interests of its owners. Full and complete regarded as the best or of the highest standard in the
‘disclosure’, which means to be open and not hide industry. p. 309
the truth, ensures that the books of account are kept body language: is the use of gestures, facial expressions
accurately and that the information reflected in them, and posture to communicate. p. 129
and which is summarised in reports, is based on brand: a brand is a name, term, symbol or design that
the true and actual transactions. Another term for identifies a specific product and distinguishes it from
accountability is stewardship. p. 237 its competitors. p. 229
accounting: is a managerial and administrative tool for brand logo: a brand logo is a graphic representation that
recording financial transactions, so that a summary identifies a business or product. p. 229
of what has happened to business money can be break-even analysis: is used to determine the level of
traced. p. 235 sales that needs to be generated to cover the total cost
acquisition (takeover): an acquisition (takeover) occurs of production. p. 415
when one business takes control of another business budget: a budget is the business’s financial plan for the
by purchasing a controlling interest in it. p. 94 future. p. 421
acquisition (HR): is the process of attracting and bureaucracy: is the set of rules and regulations that
recruiting the right staff for roles in a business. p. 259 control a business. p. 171
assets: are items of value owned by the business that can business: a business can be defined as the organised
be given a monetary value. p. 249 effort of individuals to produce and sell, for a profit,
audit: an audit is an independent check of the the products that satisfy individuals’ needs and
accuracy of financial records and accounting wants. p. 7
procedures. p. 287 business activity statement (BAS): the business activity
Australian Business Number (ABN): the Australian statement (BAS) records a business’s claim for input tax
Business Number (ABN) is a single identifying number credits and accounts for GST payable. p. 389
that a business uses when dealing with government business (corporate) culture: refers to the values, ideas,
departments and agencies. p. 391 expectations and beliefs shared by members of the
autocratic leadership style: a manager using an organisation. p. 77
autocratic leadership style tends to make all the business environment: the business environment refers
decisions, dictates work methods, limits worker to the surrounding conditions in which the business
knowledge about what needs to be done to the next operates. It can be divided into two broad categories:
step to be performed, frequently checks employee external and internal. p. 49
performance and sometimes gives feedback that is business ethics: is the application of moral standards to
punitive. p. 179 business behaviour. p. 282
award: an award is a legally binding agreement that sets business information system (BIS), management
out the minimum wages and conditions for a group of information system (MIS): a business information
employees. p. 272 system (BIS), also referred to as a management
balance of payments (BOP): the balance of payments information system (MIS), gathers data, organises
(BOP) is a record of a country’s trade and financial and summarises them, and then converts them into
transactions with the rest of the world over time, practical information. p. 302
usually one year. p. 325 business life cycle: the business life cycle refers to the
balance sheet: a balance sheet represents a business’s stages of growth and development a business can
assets and liabilities at a particular point in time, experience. p. 86
expressed in money terms, and represents the net business opportunity: a business opportunity can be
worth of the business. p. 248 described as something an entrepreneur can see as
bankruptcy: is a declaration that a business or person is an avenue to success. It is often identified when a
unable to pay his or her debts. p. 106 person believes they can provide goods or services
behavioural approach: the behavioural approach to in a better or different way from those already on the
management stresses that people (employees) should market. p. 354
be the main focus of the way in which the business is business plan: a business plan is the ‘travel itinerary’ for
organised. p. 182 future growth and development within a business.
benchmark: a benchmark is a standard by which It sets out the desired goals and direction of the
something can be measured or judged. p. 145 business. p. 394
462 GLOSSARY
cash flow: is simply the money coming into the business contingency approach: stresses the need for flexibility
in the form of cash receipts, and the money leaving the and adaptation of management practices and ideas to
business as cash payments. p. 90 suit changing circumstances. p. 193
cash flow projection: the cash flow projection shows continuous improvement: involves an ongoing
the changes to the cash position brought about by commitment to achieving perfection. p. 215
the operating, investing and financial activities of the control process: the control process involves establishing
business. p. 416 standards in line with the goals of the business,
cash flow statement: a cash flow statement is a financial measuring the performance of the business against
statement that indicates the movement of cash receipts those standards or benchmarks, and making changes
and cash payments resulting from transactions over a where necessary to ensure that the goals of the
period of time. p. 238 business have been met. p. 175
chain of command: a chain of command is a system controlling: is the process of evaluating performance by
that determines responsibility, supervision and comparing what was intended to happen with what
accountability of members of the organisation. p. 177 has actually occurred, and then taking corrective
change: is any alteration in the internal or external action to ensure that the set objectives are being
environments. p. 291 achieved. pp. 122, 175
change agent: a change agent is a person or group of Corporate Code of Conduct: a Corporate Code of
people who act as catalysts, assuming responsibility for Conduct is a set of ethical standards for managers and
managing the change process. p. 308 employees to abide by. p. 287
change management: is a methodical approach to cost of goods sold (COGS): The cost of goods sold
dealing with change, both from the perspective of a (COGS) is the value of stock that a business has sold
business and on the individual level. p. 309 to its customers. p. 244
choice: is the act of selecting among alternatives. p. 12 creditors: are those people or businesses who are owed
classical approach: the classical approach to management money. p. 106
stresses how best to manage and organise workers so curriculum vitae or résumé: a curriculum vitae or résumé
as to improve productivity (output). p. 169 is a summary of a person’s previous employment
closing stock: is the value of stock on hand at the end of experience. p. 263
the financial year. p. 244 data: are unprocessed facts and figures such as sales
commercial bills: are short-term loans issued by financial figures and customer complaints. p. 302
institutions, for larger amounts for a period of debentures: are issued by a company for a fixed rate of
generally between 30 and 180 days. p. 374 interest and for a fixed period of time. p. 374
common law: refers to law developed by courts and debt finance: relates to the short-term and long-
tribunals. p. 270 term borrowing from external sources by a
communication: is the exchange of information between business. p. 373
people; the sending and receiving of messages. p. 127 decision making: is the process of identifying the options
Competition and Consumer Act 2010: the Competition and available and then choosing a specific course of action
Consumer Act 2010 (Cwlth) is a law that protects both to solve a specific problem. p. 134
consumers and businesses. It protects consumers from delegation: is the handing over of certain tasks or
deceptive or misleading practices, and it regulates the responsibilities to an employee who is suitably capable
trade practices of businesses. p. 380 and qualified to carry them out. p. 185
competition: is rivalry among businesses that seek to deregulation: is the removal of government regulation
satisfy a market. p. 355 from industry, with the aim of increasing efficiency and
competitive advantage: refers to the strategies used by a improving competition. p. 52
business to gain an ‘edge’ over its competitors. p. 439 development: refers to activities that prepare staff to take
complementary business: a complementary business is greater responsibility in the future. p. 266
one that sells a similar range of goods and services. p. 72 dismissal: a dismissal is when the behaviour of an
conflict of interest: a conflict of interest occurs when employee is unacceptable and it then becomes
a person takes advantage of a situation or piece of necessary for a business to terminate the employee’s
information for his or her own gain rather than for the employment contract. p. 278
employer’s interest. p. 286 distribution channels: are ways of getting the product to
consumer buying behaviour: refers to the decisions and the customer. p. 231
actions of consumers when they purchase goods and diversification: (or conglomerate integration) occurs when
services for personal household use. p. 224 a business acquires or merges with a business in a
contingencies: are unanticipated events that can lead to completely unrelated industry. p. 96
financial difficulty. For a business to be well managed, dividend: a dividend is part of a business’s profit that is
it needs to have saved money for such events. p. 235 divided among shareholders. p. 11
GLOSSARY 463
division: refers to the separation of key business functions costs (direct and indirect) associated with managing
into specialised units or departments. The business is all aspects of the sales of that good or service. p. 245
divided into functional areas. p. 201 external environment: the external environment includes
driving forces: are those forces that support the those factors over which the business has very little
change. p. 307 control. p. 49
e-business: (electronic business) is using the internet to external recruitment: involves filling job vacancies with
conduct business. p. 446 people from outside the business. p. 261
ecological sustainability: occurs when economic growth factoring: is the selling of accounts receivable for
meets the needs of the present population without a discounted price to a finance or factoring
endangering the ability of future generations to meet company. p. 374
their needs. p. 84 Fairtrade: is a trading partnership that seeks greater
e-commerce: is the buying and selling of goods and equity (fairness) in international trade. It promotes
services via the internet. p. 448 the rights of marginalised workers, especially in low-
economic cycles: (or business cycles) are the periods of income countries. p. 284
growth (‘boom’) and recession (‘bust’) that occur as a finance: refers to how a business funds its activities —
result of fluctuations in the general level of economic for instance, where it gets the money to trade,
activity. p. 50 why it chooses to use certain lenders — as well as
economic growth: occurs when a nation increases the real the costs, risks and benefits of different types of
value of goods and services over a period of time. p. 324 borrowings. p. 237
economy: an economy is a system used to determine financial resources: are the funds the business uses to
what to produce, how to produce and to whom meet its obligations to various creditors. p. 74
production will be distributed. p. 323 financial statements: are reports that summarise
effectiveness: measures the degree to which a goal has transactions over a period of time. p. 238
been achieved. p. 119 finished product: a finished product is one that is ready
efficiency: compares the resources needed to achieve a for customers to buy and use. p. 7
goal (the costs) against what was actually achieved (the fixed costs (FC): are costs that do not vary regardless
benefits). p. 119 of how many units of a good or service are
employee selection: involves gathering information produced. p. 415
about each applicant for a position, then using flatter organisational structures: have evolved due to
that information to choose the most appropriate
a ‘de-layering’ of management structures resulting
applicant. p. 263
in the elimination of one or more management
employee training: generally refers to the process of
levels. p. 189
teaching staff how to perform their job more efficiently
flexible: refers to being responsive to change and able to
and effectively by boosting their knowledge and
adjust to changing circumstances. p. 135
skills. p. 165
float: a float is the raising of capital in a company
employment contract: an employment contract is
through the sale of shares to the public. p. 45
a legally binding, formal agreement between an
employer and an employee. p. 270 forecasts or projections: are the business’s predictions
enterprise agreements: are collective agreements made at
about the future. p. 414
a workplace level between an employer and a union, franchise: a franchise involves buying the rights from
acting on behalf of its employees, or between the another business to distribute its products under its
employer and a group of employees, about terms and name. p. 359
conditions of employment. p. 273 franchisee: a franchisee is an individual or business that
entrepreneur: an entrepreneur is someone who starts, purchases a franchise. p. 359
operates and assumes the risk of a business venture in franchisor: a franchisor is an individual or business that
the hope of making a profit. p. 15 grants a franchise. p. 359
entrepreneurship: is the ability and willingness to start, geographical spread: is the presence of a business and
operate and assume the risk of a business venture in the range of its products across a suburb, city, state or
the hope of making a profit. p. 15 country or the globe. p. 23
equity finance: is the funds contributed by the business globalisation: is the process that sees people, goods,
owner(s) to start and then expand the business. p. 374 money and ideas moving around the world faster and
evaluation: is the process of assessing whether the more cheaply than before. p. 54
business has achieved stated goals. p. 418 goal: a goal is a desired outcome (target) that an
expenses: are simply costs. Specifically, expenses are individual or business intends to achieve within a
the costs incurred in the process of acquiring or certain time frame. p. 144
manufacturing a good or service to sell and the goods: are items that can be seen or touched. p. 7
464 GLOSSARY
goods and services tax (GST): The goods and services information resources: include the knowledge and data
tax (GST) is a broad-based tax of 10 per cent on required by the business, such as market research,
the supply of most goods and services consumed in sales reports, economic forecasts, technical material
Australia. p. 389 and legal advice. p. 74
goodwill: is the monetary value attached to the reputation innovation: is either creating a new product, service
of a particular business. p. 358 or process, or significantly improving an existing
government enterprises: are government-owned and one. p. 13
operated businesses. p. 41 input tax credit: an input tax credit is an allowable tax
grant: a grant is any monetary or financial assistance that deduction that a business can claim for any GST
does not generally have to be repaid. p. 412 included in the price of business inputs. p. 389
gross domestic product (GDP): is the total money value inputs: are the resources used in the transformation
of all goods and services produced in Australia over a (production) process. p. 206
one-year period. p. 324 insolvent: being insolvent occurs when a company is not
gross profit: is the term given to the revenue less cost of able to pay its debts as and when they fall due. p. 107
goods sold (COGS). p. 244 intangibles: include services that cannot be touched. p. 205
holistic: a holistic approach looks at the whole
interdependence: refers to the mutual dependence
picture. p. 302
that the key functions have on one another. The key
horizontal integration: occurs when a business acquires or
business functions work best when they overlap, and
merges with another firm that makes and sells similar
employees work towards common goals. For each
products. p. 95
function area to perform at capacity, it depends on the
human resources: are the employees of the business and
support of the others. p. 200
are generally its most important asset. p. 74
interest: is the cost of borrowing money. p. 375
human resource/employment cycle: the human resource/
internal environment: the internal environment includes
employment cycle covers all stages in the process
of employing staff, from initial planning through those factors over which the business has some degree
to recruitment, selection, induction, training and of control. p. 49
development, performance management, and eventual internal recruitment: involves filling job vacancies with
separation of employment. p. 256 present employees, rather than looking outside the
human resource management (HRM): in its simplest business. p. 260
terms, is defined as the effective management of the interpersonal (people) skills: are those skills needed to
formal relationship between the employer and the work and communicate with other people and to
employees. p. 254 understand their needs. p. 126
income: is money received by a person for providing intrapreneur: an intrapreneur is an individual who takes
his or her labour, or a business from a return on its on the entrepreneurial roles within a business. p. 161
investments. p. 10 involuntary cessation: occurs when the owner is forced to
income statement or statement of financial cease trading by the creditors of the business. p. 106
performance: the income statement, or statement of involuntary separation: occurs when an employee is
financial performance, is a summary of the income asked to leave the business against their will. p. 277
earned and the expenses incurred over a period of job analysis: is a systematic study of each employee’s
trading. It helps users of information see exactly how duties, tasks and work environment. p. 259
much money has come into the business as revenue,
job description: a job description is a written statement
how much has gone out as expenditure and how much
describing the employee’s duties, tasks and
has been derived as profit. p. 243
responsibilities associated with the job. p. 260
incorporated: refers to the process companies go
job specification: a job specification is a list of the key
through to become a separate legal entity from the
owner/s. p. 33 qualifications needed to perform a particular job in
incorporation: is the process that companies go through
terms of education, skills and experience. p. 260
to become incorporated, i.e. to become a registered labour productivity: measures how much an employee
company and a separate legal entity. p. 37 can produce in a set period of time. p. 160
industry: an industry consists of businesses that are large business: a large business is a business with 200 or
involved in similar types of production. p. 28 more employees. p. 21
inertia: refers to an unenthusiastic response to proposed leadership: is the ability to influence people to set and
change. p. 306 achieve specific goals. p. 132
information: is processed data that have been deliberately leadership style: a manager’s leadership style is essentially
selected and organised to be useful to an individual their way of doing things — their behaviour and
manager. p. 302 attitude. p. 178
GLOSSARY 465
leading: is the process of influencing or motivating people • a monopoly — is complete concentration by one
to work towards the achievement of the organisation’s firm in the industry, e.g. Australia Post
objectives. pp. 122, 184 • an oligopoly — where a small number of larger
learning organisation: a learning organisation monitors firms have a greater control over a market, e.g. car
and interprets its environment, seeking to improve its manufacturers
understanding of the relationship between its actions • monopolistic competition — where there is a large
and its environment. p. 267 number of buyers and sellers in a particular market,
leasing: is a long-term source of borrowing for businesses. e.g. local retailing shops
It involves the payment of money for the use of • perfect competition — where there is a large
equipment that is owned by another party. p. 444 number of small firms that sell similar products.
They are unable to differentiate products from
liabilities: are items of debt owed to other organisations
each other and so can only use price as a way of
(e.g. suppliers, banks) and include loans, accounts to
achieving market share, e.g. fruit and vegetable
be paid by the business, mortgages, credit card debt
growers. p. 65
and accumulated expenses. p. 249
market segmentation: occurs when the total market is
limited liability: is a feature of corporate ownership that
subdivided into groups of people who share one or
limits each owner’s financial liability to the amount more common characteristic. p. 223
of money he or she has paid for the business’s market share: refers to the business’s share of the total
shares. p. 37 industry sales for a particular product. pp. 21, 148
liquidation: occurs when an independent and suitably
marketing: is a total system of interacting activities
qualified person – the liquidator – is appointed to take designed to plan, price, promote and distribute
control of the business with the intention of selling products to present and potential customers. p. 219
all the company’s assets in an orderly and fair way in marketing mix: refers to the combination of the four
order to pay the creditors. p. 107 elements of marketing, the four Ps — product, price,
liquidity: refers to the amount of cash a business has promotion and place — that make up the marketing
access to and how readily it can convert its assets into strategy. p. 227
cash so that debt can be paid. p. 238 marketing strategies: are actions undertaken to achieve
local business: a local business has a very restricted the business’s marketing goals. p. 226
geographical spread; it serves the surrounding mass markets: in mass markets the seller mass-produces,
area. p. 23 mass-distributes and mass-promotes one product to all
long-term growth: is the ability of a business to buyers. p. 222
continually expand. p. 407 mass production: is the process of manufacturing
management: a more contemporary definition of standardised goods on a huge scale by
management views management as the process of automation. p. 169
working with and through other people to achieve medium business: a medium business is a business with
business goals in a changing environment. Crucial to 20–199 employees. p. 21
this process is the effective and efficient use of limited mentor: a mentor is someone — usually a more
resources. p. 119 experienced employee — who helps develop a less
management consultant: a management consultant is experienced employee (the protégé). p. 164
someone who has specialised knowledge and skills mentoring: is the process of developing another
within an area of business. p. 309 individual by offering tutoring and coaching, and
management hierarchy: is the arrangement that modelling acceptable behaviour. p. 164
provides increasing authority at higher levels of the merger: a merger occurs when the owners of two separate
hierarchy. p. 176 businesses agree to combine their resources and form a
manager: a manager is someone who coordinates the new organisation. p. 94
business’s limited resources in order to achieve specific micro business: a micro business is a business with fewer
goals. p. 119 than five employees. p. 21
market analysis: involves collecting, summarising modifying: is the process of changing existing plans, using
and analysing information about the state of the updated information to shape future plans. p. 424
market, customers, the threats and opportunities monitoring: is the process of measuring actual
that the market presents, and any advantages or performance against planned performance. p. 418
disadvantages that the business is likely to have over mortgage: a mortgage is a loan secured by the property
its competitors. p. 365 of the borrower (business). p. 374
market concentration: refers to the number of motivation: refers to the individual, internal process
competitors in a particular market. There are four that directs, energises and sustains a person’s
main types of market concentration: behaviour. p. 162
466 GLOSSARY
multinational corporation: a multinational corporation participative or democratic leadership style: a
is a company that has branches in many different participative or democratic leadership style is one in
countries. pp. 21, 24 which the manager consults with employees to ask
multiskilling: allows employees to develop skills in a wide their suggestions and then seriously considers those
range of tasks through ongoing training. p. 165 suggestions when making decisions. p. 191
national business: a national business is one that operates partnership: a partnership is a legal business structure
within just one country. p. 23 that is owned and operated by between two and 20
net profit: is the difference between the gross profit and people with the aim of making a profit. p. 35
operating and non-operating expenses. p. 245 performance standard: a performance standard is a
niche market: a niche market is a narrowly selected target forecast level of performance against which actual
market segment. p. 225 performance can be compared. p. 418
nonverbal communication: is any message that is not physical resources: include equipment, machinery,
written or spoken. p. 129 buildings and raw materials. p. 74
objective: an objective is a specific statement detailing place or distribution: are activities that make the products
what a business (or individual) needs to achieve in available to customers when and where they want to
order to accomplish its vision. p. 405 purchase them. p. 231
on-costs: are payments for non-wage benefits. p. 384 planning: is the preparation of a predetermined course of
opening stock: is the value of stock (or inventory) that the action for a business. pp. 122, 174, 399
business has at the start of the financial year. p. 244 primary industry: includes those businesses involved in
operating expenses: are all the costs of running the the collection of natural resources. p. 28
business except the cost of goods sold. p. 9 primary target market: the primary target market is
operational objectives: focus on short-term issues and the market segment at which most of the marketing
describe the course of action necessary to achieve the resources are directed. p. 224
tactical objective and strategic goal. p. 405 privatisation: is the process of transferring the
operational planning: provides specific details about the ownership of a government business to the private
way in which the business will operate in the short sector. p. 41
term. p. 175 proactive: refers to a management style that incorporates
operations: refers to the business processes that involve dynamic action and forward planning to achieve
transformation or, more generally, ‘production’. p. 202 particular objectives. p. 135
operations management: consists of all the activities proactive: to be proactive is to initiate change rather than
in which managers engage to produce a good or simply to react to events. p. 291
service. p. 202 problem solving: is a broad set of activities involved in
organisation process: the organisation process is the searching for, identifying and then implementing
range of activities that translate the goals of a business a course of action to correct an unworkable
into reality. p. 175 situation. p. 134
organisational structure: an organisational structure is the product: a product is a good or service that can be
framework in which the business defines how tasks bought or sold. p. 7
are divided, resources are used and departments are product life cycle: the product life cycle describes the life
coordinated. p. 410 of a product over four stages: introduction, growth,
organising: is the structuring of the organisation to maturity and decline. p. 227
translate plans and goals into action. pp. 122, 175 production: refers to those activities undertaken by the
outputs: refer to the end result of a business’s efforts — business that combine the resources to create products
the service or product that is delivered or provided to that satisfy customers’ needs and wants. p. 7
the consumer. p. 210 profit: is what remains after all business expenses have
outsourcing: is the use of external sources or businesses been deducted from sales revenue. p. 9
to undertake business functions or activities for the profit maximisation: occurs when there is a
business. p. 199 maximum difference between the total revenue (that
overdraft: with an overdraft, the bank allows a business is, the number of sales made multiplied by the price)
to overdraw their account up to an agreed limit coming into the business and total costs being paid
for a specified time, to overcome a temporary cash out. p. 147
shortfall. p. 374 promotion: describes the methods used by a business
owner’s equity: is the funds contributed by the owner(s) to inform, persuade and remind a market about its
to establish and build the business. It is also called products. pp. 151, 229
‘capital’. p. 250 proprietary (private) company: A proprietary (private)
packaging: involves the development of a container and company is an incorporated business and usually has
the graphic design for a product. p. 228 between two and 50 private shareholders. p. 38
GLOSSARY 467
prospectus: a prospectus is a document giving details of a salary: A salary is a fixed regular payment, usually paid
company and inviting the public to buy shares in it. p. 45 on a fortnightly or monthly basis but often expressed
quality: refers to the degree of excellence of goods or as an annual sum, made to a permanent employee of a
services and their fitness for a stated purpose. p. 212 business. p. 11
quality assurance: involves the use of a system so that a scientific management: is an approach that studies a job in
business achieves set standards in production. p. 213 great detail to discover the best way to perform it. p. 170
quality circles: are groups of workers who meet to solve secondary industry: involves taking a raw material
problems relating to quality. p. 215 and making it into a finished or semi-finished
quality control: involves the use of inspections at various product. p. 28
points in the production process to check for problems secondary target market: a secondary target market
and defects. p. 212 is usually a smaller and less important market
quality management: is the strategy which a business segment. p. 224
uses to make sure that its products meet customer separation: is the ending of the employment
expectations. p. 212 relationship. p. 276
quality of life: refers to the overall wellbeing of an services: are things done for you by others. p. 7
individual, and is a combination of both material and share: a share is a part ownership of a public
non-material benefits. p. 18 company. p. 151
quaternary industry: includes services that involve shareholders: are people who are part owners of a
the transfer and processing of information and company because they own a number of shares. p. 11
knowledge. p. 30 sigma-six: a sigma-six process is one in which 99.99 per
quinary industry: includes all services that have cent of all manufactured products are defect free. p. 408
traditionally been performed in the home. p. 30 skill: is the ability that comes from the knowledge,
reactive: to be reactive is to wait for a change to occur practice and talent to do something well. p. 123
and then respond to it. p. 291 skills audit: a skills audit is a process that establishes
realisation: is the process of converting the assets of a the current skills levels of employees and future skills
business into cash. p. 106 requirements. p. 435
receivership: is where a business has a receiver take skills inventory: a skills inventory is a database containing
charge of the affairs of the business. Unlike liquidation, information on the skills, abilities and qualifications of
the business may not necessarily be wound up. p. 107 existing staff. p. 435
recruitment: is the process of finding and attracting the right small business: a small business is a business with 5–19
quantity and quality of staff to apply for employment employees. p. 21
vacancies or anticipated vacancies. p. 260, 434 small to medium enterprises: are defined by the
redundancy: occurs when a person’s job no longer exists, Australian Bureau of Statistics as firms with fewer than
usually due to technological changes, an organisational 200 full-time equivalent employees and/or less than
restructure or a merger or acquisition. p. 277 $10 million turnover. p. 21
regulations: are rules, laws or orders that businesses must social justice: in business is about adopting a set of
follow. p. 59 policies to ensure that employees or other community
research and development (R&D): is a set of activities members are treated equally and fairly. p. 152
undertaken to improve existing products, create new socialisation: is the process a new employee undergoes in
products and improve production. p. 13 the first few weeks of employment through which he
resignation: is the voluntary ending of employment by or she learns how to cope and succeed. p. 164
the employee ‘quitting’ their job. p. 276 sole trader: A sole trader is a business that is owned and
resource allocation: refers to the efficient distribution of operated by only one person. p. 34
resources so as to successfully meet the goals that have specialisation of labour: refers to the degree to which
been established. p. 410 tasks are divided into separate jobs. p. 177
restraining forces: are those forces that work against the staff involvement: means involving employees in the
change. p. 307 decision-making process and giving them the necessary
retirement: occurs when an employee decides to give up skills and rewards. p. 160
full-time or part-time work and no longer be part of stakeholder: a stakeholder is any group or individual
the labour force. p. 276 who has an interest in or is affected by the activities of
retrenchment: is when a business dismisses an employee a business. p. 81
because there is not enough work to justify paying him stakeholder engagement: refers to businesses sharing
or her. p. 277 information with and seeking input from stakeholders,
revenue: is the money a business receives as payment for and involving them in decision making. p. 140
its products. p. 9 strategic goals: focus on long-term, broad aims and
risk: refers to the possibility of loss. p. 15 apply to the business as a whole. p. 405
468 GLOSSARY
strategic planning: is planning for the following three total quality management: is an ongoing, business-wide
to five years. This level of planning will assist in commitment to excellence that is applied to every
determining where in the market the business wants to aspect of the business’s operation. p. 213
be, and what the business wants to achieve in relation total revenue (TR): is the total amount received from the
to its competitors. p. 174 sales of a good or service. p. 414
strategic thinking: allows a manager to see the business traditional definition of management: The traditional
as a whole and to take the broad, long-term definition of management is the process of coordinating
view. p. 130 a business’s resources to achieve its goals. p. 119
strategies: are the actions that a business takes to achieve training: generally refers to the process of teaching staff
specific goals. p. 198 how to perform their job more efficiently and effectively
superannuation: is a scheme set up by the federal by boosting their knowledge and skills. p. 266
government. It requires all employers to make a transformation: is the conversion of inputs (resources)
financial contribution to a fund that employees can into outputs (goods or services). p. 206
access when they leave or retire from a job. The transformed resources: are those inputs that are changed
percentage an employer must contribute will increase or converted in the operations process. p. 206
gradually to 12 per cent by 2025. p. 385 transforming resources: are those inputs that carry out
support services: are the activities needed to assist the the transformation process. p. 206
core operations or prime function of a business. p. 74 triple bottom line: refers to the economic, environmental
sustainable competitive advantage: A sustainable and social performance of a business. pp. 139, 283
competitive advantage refers to the ability of a undercapitalisation: occurs when there is a lack of
business to develop strategies that will ensure it has sufficient funds to operate a business normally. p. 104
an ‘edge’ over its competitors for a long period of unfair dismissal: occurs when an employee is dismissed
time. p. 64 by their employer and they believe the action is harsh,
sustainable development: occurs when the needs of unjust or unreasonable. p. 278
the present population are met without endangering unlimited liability: occurs when the business owner is
the ability of future generations to meet their own personally responsible for all the business’s debt. p. 34
needs. p. 155 unsecured note: an unsecured note is a loan from
SWOT analysis: a SWOT analysis involves the investors for a set period of time. It is not secured
identification and analysis of the internal strengths and against the business’s assets. p. 374
weaknesses of the business, and the opportunities in, variable costs (VC): are costs that depend on the number
and threats from, the external environment. p. 402 of goods or services produced. p. 415
tactical objectives: focus on mid-term, departmental venture capital: is money that is invested in small and
issues and describe the course of action necessary to sometimes struggling businesses that have the potential
achieve the business’s strategic goals. p. 405 to become very successful. p. 46
tactical planning: is flexible, adaptable planning, usually vertical integration: occurs when a business expands
over one to two years, that assists in implementing the at different but related levels in the production and
strategic plan. p. 174 marketing of a product. p. 95
tangibles: are goods that can be touched. p. 205 vision: is the clear, shared sense of direction that allows
target market: A target market is a group of customers people to attain a common goal. p. 132
with similar characteristics who presently, or who may vision statement: a vision statement broadly states what the
in the future, purchase the product. p. 222 business aspires to become in the future. pp. 303, 403
taxation: is the compulsory payment of a proportion of voluntary administration: occurs when an independent
earnings to the government. p. 387 administrator is appointed to operate the business
teamwork: involves people who interact regularly in the hope of trading out of the present financial
and coordinate their work towards a common problems. p. 107
goal. p. 188 voluntary cessation: occurs when the owner ceases to
tertiary industry: involves people performing a vast range operate the business of their own accord. p. 106
of services for other people. p. 29 voluntary separation: occurs when an employee chooses
time and motion study: A time and motion study to leave the business of their own free will. p. 276
is a process of examining each of the steps in a wage: a wage is money received by workers, usually on
production procedure and the time taken to perform an hourly or daily basis, for services they provide to an
them. p. 170 employer. p. 11
total cost (TC): The total cost (TC) of producing a certain zoning: is a means by which local councils allocate land
number of goods or services is the sum of the fixed for different uses, such as residential, commercial,
and variable costs for those units. p. 415 recreational and industrial. p. 366
GLOSSARY 469
INDEX
Note: Entries in bold type in this index indicate businesses featured in Snapshots throughout this book.
470 INDEX
profits 423–4 teams and 436–7 Coca-Cola 192
sales 419–20 technology use and 445–8 Coca-Cola Amatil 157, 353
business planning trend analysis 437–8 Coles 23, 55, 87–8, 148
failure to plan 396 business types 4–5 Coles Myer Limited 86
forecasting 414–17 classification 20 collaborative workplaces 75
goals and/or objectives 404–7 company types 37–43 CommBank 183
monitoring and evaluating 417–24 geographical spread 23–6 commercial bills 374
organising resources 410–13 industry sector 28–31 Commonwealth Bank 41, 42
process 398–401 legal structure 33–6, 40–1, 44–6 communication
sources of planning ideas 401–3 quantitative measures and qualitative as management activity 187
taking corrective action 434–5 descriptions 22 truthful communication 287
vision statements 403–4 size 21–2 communication skills 127–9
business plans businesses company tax 387
advice on developing 400 activities undertaken 7 company types 37
benefits of 397–8 definition 7 government enterprises 41–2
elements 397 economic and social importance 9 incorporation 37
importance of 430–1 functions 9–18 limited liability companies 37–8
modification of 424–5 nature of 6–8 proprietary (private) companies 38–9
nature of 396–7 number in Australia 5, 22 public companies 39–40
presentation and preparation 431–2 role 3 competency-based training 269
role 394–6 competition
business resources 74–5 Cannon-Brookes, Mike 151, 158 and business environment 64–7
allocation 410 capital gains tax 387 and business ideas 355
avoiding overextension of 444–5 capital markets, and business as driver of organisational change
finance 412 environment 67 296–7
human resources 412–13 carbon tax 297 Competition and Consumer Act 2010
marketing 411–12 cash flow 90 (Cwlth) 58, 380–1
operations 410–11 cash flow projections 416–17 competition-based pricing 229, 365
organising 410–13 cash flow statements 238–42 competitive advantage
business start-ups cash flow management 239–40 definition 439
business idea 352–5 larger businesses 240 differentiation strategy 441–2
buying existing business 358–9 SMEs 241 ensuring long-term success 443
buying a franchise 359–62 Cav & Co. 91 identifying and sustaining 439–43
establishment options 356–7 Cavallaro, Amanda 91 price/cost strategy 439–41
establishment stage of business Cavallaro, Michael 91 complementary businesses 72
lifecycle 90–2 celebrity endorsements 442 conflict resolution 127
finance 371–6 CEOs, management skills 124, 128 conflicts of interest
goods and/or services 365 cessation of businesses 105 ethical practices 286
legal considerations 377–81 bankruptcy 106 reconciling 136–42
market considerations 364–70 involuntary cessation 106 consumer buying behaviour 224
pricing methods 365 liquidation 107–8 consumer groups 83
sources of information 348–52 problems for stakeholders 108 consumer markets, changes in 68
staffing 382–6 voluntary administration 107 Consumer Sentiment Index 448
starting from scratch 357–8 voluntary cessation 105–6 contingencies 235
business structure chain of command 177 contingency approach to
and control 40 chambers of commerce 352 management 193
cost and complexity of formation 40 change adapting to changing
factors influencing choice 44–7 adaptability to 135–6, 193–4 circumstances 193–4
finance and 46 driving forces 307 advantages and disadvantages 195
and future needs 40 Force Field Analysis 307–9 compared to classical and behavioural
incorporated businesses 33 resistance to 305–9 approaches 196
and legal liability 40 restraining forces 307 managing change effectively 195
ownership and 45 change agents 308 continuous improvement 215–16
partnerships 35–6 change management see organisational control, as management activity
selecting most appropriate 40–1 change management 175–6
size of business and 45 classical approach to management 169 control processes 175
sole trader businesses 34–5 advantages and disadvantages 172 corporate codes of conduct 287
tax implications 40 classical–bureaucratic approach corporate culture see business culture
unincorporated businesses 33–4 171–3 corporate social responsibility 137,
business studies 5–6 classical–scientific approach 169–71 140, 285
business success compared to behavioural and corporate universities 269
avoiding overextension of contingency approaches 196 Corporations Act 2001 (Cwlth) 37
resources 444–5 hierarchical organisational cost of goods sold (COGS) 244
business plans and 430–2 structure 176–7 cost-based pricing 229, 365
competitive advantage and 439–43 leadership styles 178–9 Costco Australia 92
economic conditions and 448–9 management as controlling 175–6 court (involuntary) liquidation 108
management and 432–3 management as organising 175 creditors 106
staffing and 433–5 management as planning 174–5 creditors’ (voluntary) liquidation 108
INDEX 471
crisis management 295 employees economy 49–52
Crumpler bags 3 annual leave loading 386 environmental sustainability 55
cultural background, and business dismissal 278–9 family-friendly workplaces 55–6
ownership 344–5 as innovators 161 financial markets 52
Cumberland Realty Group 436–7 on-costs 384–5 geographic influences 53–5
current assets 249 redundancy 277 globalisation 53–5
current liabilities 249 resignation 276–7 government regulations 59–60
curriculum vitae 263, 264 retirement 276 institutional influences 59–61
Currie, James 395 retrenchment 277–8 legal influences 57–8
customer feedback 407 rights and obligations 270–1 market changes 67–8
customers, as stakeholders 83–4 as stakeholders in business 82 political issues 58–9
superannuation 385–6 regulations 59–60
Daoud, Anthony 241 unethical practices 286 regulatory bodies 60–1
Darrell Lea 212 unfair dismissal 278–9 social issues 55–7
data 302 wage and non-wage costs 384–6 technological innovation 61–4
David Jones 24 employer associations 61 workplace diversity 57
debt finance 373–4 employers, rights and obligations 270–1 external recruitment 261
decision making 134–5 employment
decline of businesses 88, 103–4 in Australia by industry sector 10 factoring 374
delegation 185 automation and 62–4 Fair Work Act 2009 (Cwlth) 56,
Deming, W. Edwards 215 businesses and 3, 10–11 270, 278
democratic leadership style 178, contribution of SMEs 10, 21, 22, 324 Fair Work Commission 273, 274, 279
191–3 employment agencies 261–2, 434 Fairfax Media Ltd 62, 87
demography, and business employment contracts fairness 285
environment 53 awards 272–3 Fairtrade certification 284
deregulation 52 common law rights and false or misleading representations 381
differentiation strategy 441–2 obligations 270–1 family-friendly workplaces 55–6
Digital Business Kits (DBKs) 351 enterprise agreements 273–4 Farquhar, Scott 151, 158
digital marketing 230 individual common law contracts 274 federal government
dismissal of staff 278–9 minimum employment standards 271–2 business information
distribution channels 231 nature of 270 resources 350
diversification 96 enterprise agreements 273–4 taxes on business 387–91
dividends 11–12 entrepreneurial ability, assessment of 337 FedEx Express 83
domain names 377–8 entrepreneurs 15, 342 Fernwood 354
Dulux 380 entrepreneurship Filtered Media 433–4
benefits of 343 finance
e-business 326, 446–7 burdens of 343–4 accounting 235–7
e-commerce 377, 447, 448 and business ownership 341–4 assessing for a business 373
Eclipse Publishing and Design 16 millennials 337 for business owners 371–6
Eco Office Supplies 155 and risk 3, 14–17 cost of 375
ecological sustainability 84 environment, as stakeholder 84 debt finance 373–4
economic cycles 50 environmental activism, by equity finance 374–5
economic systems 323–4 companies 138–9 ethical practices 286–7
economy environmental goals of businesses 154–7 as key business management
of Australia 323 environmental management 59 function 234–5, 237
and business environment 49–52 environmental sustainability, and business record keeping 243
conditions leading to business environment 55 sources 372–5
failure 449 equity finance 374–5 financial markets, and business
conditions promoting business establishing a business see business start-ups environment 52, 67
success 448–9 establishment stage of business financial performance 254
contribution of business 9 lifecycle 90–2 financial resources 74, 412, 444
contribution of SMEs 323–8 ethical business behaviour 282–5 financial statements 238
Ecotricity 138, 139 conflict of interest 286 balance sheets 248–51
effective management 122 encouraging 287–8 cash flow statements 238–42
electronic information services 446 ethical dilemmas 284 and financial performance 254
Eling, James 398 ethical issues 284–7 income statement 243–6
Ellis, Jon 217 fairness and honesty 285 purpose 236
employee selection 263–4 financial management 286–7 financial system, deregulation 52
employee skills 383 respect for people 286 finished products 7
skills audit 435 truthful communication 287 fixed costs (FC) 415, 416
skills inventory 435 ethical business strategies 84 Flanagan, Richard 447–8
employee skills databases 435 Etiko 3, 283–4, 285 flatter organisational structures 75–7,
employee training 165–6 Expedia 79 189–90
and human resource development 266–8 expenses 245 flexibility 135–6, 195
technological change and ongoing exporting 324–5 Flight Centre 189
training 268 external influences on business 49, 50 Flip Out Trampoline Arena 94
types 268–9 competition 64–7 Flow Hive 326
employee turnover 263 demography 53 Flowrite Plumbing 241
472 INDEX
Food Act 2003 (NSW) 378, 379 Hawthorne studies 182–3, 186 innovation
Force Field Analysis 307–9 health regulations 378–80 Boosting Business Innovation
Ford Australia 266 hierarchical organisational structure Program 350
Ford, Henry 139, 170 176–7 businesses and 3, 13–14
Ford Motor Company 133 holistic approach 302 by intrapreneurs 161
forecasting 414 home-based businesses 369 contribution of SMEs 325–6
break-even analysis 415–16 honesty in business 285 input tax credits 389
cash flow projections 416–17 horizontal integration 95 insolvency 107
total cost 415 human resource/employment cycle, institutional influences on business
total revenue 414–15 elements 256–9 environment 59
foreign competitors 65–6 human resources government 59–60
formal business training 269 as assets of business 74 other 61
Fox, Jodie 327–8 organising 412–13 regulatory bodies 60–1
Fox, Michael 327-8 reducing staff numbers 445 intangible assets 249
Foxtel 98 sources of employees for a intangibles, services 205
franchisees 359 business 382–3 interest 375
franchises 359–62 human resources management (HRM) internal influences on business 49, 70–1
franchisors 359 employment contracts 270–5 business culture 77–80
Franji, John 241 human resource cycle 257–9 location 72–4
free-to-air television networks 425 as key business function 254–7 management 75–7
Friends of the Earth 138 recruitment 259–64 product 71
fringe benefits tax (FBT) 387 separation of human resources 275–80 resources 74–5
Fujitsu 156 training 266–9 internal recruitment 260–1
Furry Godmother 447–8 International Organization for
THE ICONIC 442 Standardization (ISO) 213
Gates, Bill 15, 16 income statements 243–4 internet applications 446
Gates, Melinda 119 cost of goods sold 244–5 interpersonal skills 126–7
gender, and business ownership 345–7 expenses 245 intrapreneurs 161
generic strategies approach to change gross profit 244–5 inventions 325–6
management 300–1 net profit 245–6 Investorist 217
Get Qualified Australia (GQA) 108 operating income/revenue 244 involuntary cessation 106
GitHub 190 role in describing financial involuntary redundancy 277
Glad Group Pty Ltd 279 performance 254 involuntary separation 277–80
Global 100 list 84, 154 income tax 387
global businesses 24–5 incomes, generated by businesses 11–12 JB Hi-Fi 67
Global Footprint Network 155 incorporated businesses 33 job analysis 259–60
Global Innovation Index 14 incorporation 37 job descriptions 260
Global Reporting Initiative (GRI) 140 individual common law employment job resignations 276–7
globalisation, and business contracts 274 job rotation 269
environment 53–5 Industrial Revolution 169 job specifications 260
goal-setting theory 303–4 industry sectors Jobs, Steve 128
goals impact of external influences on Johnson & Johnson 284
importance of 145 growth 31 Jones, Heather 433–4
nature of 144–5 main sectors 28–30 Jones, Mark 443–4
see also business goals primary industry 28 Josh’s Rainbow Eggs 342–3
goods 7, 205, 365 quaternary industry 30, 31
goods and services tax (GST) 387, 389–91 quinary industry 30, 31 kaizen 215
Google 78 secondary industry 28–9 Kathmandu 101–2
government, influence on business tertiary industry 29, 31 Kidzcationz 17
environment 59–61 inertia 306 Kitnas, Ali 5
government business enterprises information 302 Knapp, Michael 327
(GBEs) 41–2 information resources 74, 349 Kola, Steve 317
grants 412 Australian Bureau of Statistics 352 Kola, Violetta 317
Greenpeace 138, 139 chambers of commerce 352 Kotter, John 299
Grocon 61 electronic information services 446 Kutargi, Ken 296
gross domestic product (GDP) 324 federal government 350–1
gross profit 244 government agencies 350–1 labour, specialisation of 177
growth of business libraries and reference materials 352 labour market reforms 59
as business goal 151, 407–8 local government 351 labour markets, changes in 67–8
long-term growth 407–8 professional advisers 349 labour productivity 160
as stage in business lifecycle 92–6 Small Enterprise Association of land tax 388
Grundy, Brent 94 Australia and New Zealand large businesses 21, 22
(SEAANZ) 352 leaders
Hair to Toe 23 sources of help and advice for SME distinguished from managers 184–5
Harvey, Gerry 257, 433 owners 349 humility 184
Harvey Norman 257 state governments 350 leadership
Havaianas 212 technological advice 351 definition 132
Hawthorne effect 182, 183 trade associations 352 as management activity 132, 184–5
INDEX 473
leadership styles interpersonal (people) skills 126–7 Mortgage Choice 360–2
autocratic or authoritarian 178, 179 problem-solving skills 133–4 mortgages 374
behavioural approach to reconciling conflicting interests of motivation of employees
management 191–3 stakeholders 136–7 business goals and 408
classical approach to management 178 strategic thinking 130, 185 by managers 127, 186–7
participative or democratic 178, 191–3 strategies for reconciling conflicting carrot or stick approach 162
leasing 44 interests 137–42 financial rewards 162–3
leasing finance 375 vision 132–3 intrinsic motivation 162, 186
legislation, and organisational management strategies 198 millennials 186
change 297–8 managers non-financial rewards 163–4
Lego 100 definition 119 tips for 163
Levi Strauss 84 distinguished from leaders 184–5 Mulally, Alan 133
liabilities 249 as stakeholders 82 multinational corporations 4, 21, 24–5
limited liability 37 10 commandments for modern multiskilling 165–6
Limited Liability Act 1855 (UK) 37 managers 194 Murray, Josh 342–3
limited liability companies 37–8 manufacturing businesses, transformation Musk, Elon 133, 295
limited partnerships 36 process 208, 210
liquidation 107–8 market analysis 364, 365 Narayen, Shantanu 133
liquidity 238 market capitalist economies 323–4 NASA 134
loans 375 market concentration 64–5 National Australia Bank (NAB) 84,
local businesses 23 market entry, ease of 65 264, 317
local competitors 65 market segmentation 223–5 National Broadband Network 42
local government market share 21, 148–51 national businesses 23–4
business information market-based pricing 229, 365 National Employment Standards
resources 351 marketing (NES) 56, 271–2
rates and charges 391 definition 219 NBN Co Limited 42
location see business location fundamentals 218 net profit 245–6
losses 10 identification of target market 222–6 Netflix 66, 98
Luccitti, Francesca 436–7 as key business function 217–18 niche markets 225
Lush 138, 139 nature of 219–20 non-current assets 249
organising resources 411–12 non-current liabilities 249
Macarthur Centre for Sustainable role of 220–1 non-operating income 243
Living 156 tips for marketing-driven customer- non-verbal communication 129
McDonald’s 170, 260, 395 oriented business 221 Northrop Aircraft 215
McGrath Estate Agents 24 marketing mix 226–7 NSW Environment Protection Authority
management case study 231–2 (EPA) 60
and business environment 75–7 four Ps 218, 227 NSW Fair Trading 60
as communicating 187 place 231 NSW Food Authority 378, 379–80
contemporary definition 119–20 price 229 Nudie Jeans 138
as controlling 175–6 product 227–9
effectiveness and efficiency 119–20 promotion 229–30 objectives 405–6
features of effective management 122 7 Ps 227 Observatory hotel, Port Macquarie 210
as leading 184–5 marketing strategies 67, 216, 218, 226–7 off-the-job training 268–9
as motivating 186–7 Marketing4Restaurants 398 oligopolies 65
myths and realities 121 mass marketing approach 222–3 on-costs 384–5
nature of 118–21 mass production 169 on-the-job training 269
as organising 175 maturity stage of businesses 97–9 oniomania 6
as planning 174–5 medium businesses, definition 21, 22 online businesses 367–9
traditional definition 119 Melbourne City Rooftop Honey 412 online presence 377
within businesses 121 mentoring of staff 164–5, 269 opening stock 244
management approaches mentors 164 operating expenses 9
behavioural approach 182–93, 196 Mercy Health 118 operating income/revenue 244
classical approach 169–80, 196 mergers 94–6 operational objectives 405
comparison of approaches 196 Mibu Medispa 317 operational (short-term) planning 175
contingency approach 193–5, 196 Micallef, Nicole 345–6 operations 202–4
development 169 Micallef, Rebecca 345–6 goods and/or services 205
timeline of management micro businesses 21, 324 organising resources 410–11
thought 193 Microsoft Corporation 15 production process 206–11
management consultants 349 millennials, small business ownership 337 operations management 202–3
management hierarchy 75, 176–7 millennipreneurs 337 Optus 41
management information systems miscommunication 129 organisation process 175
(MIS) 302 misleading or deceptive conduct 381 organisational change
management skills 123–6 misleading practices 380–1 competition as driver 296–7
in Australian businesses 125–6 modern awards 272–3 employees as driver of 295–6
communication skills 127–9 monopolies 65 external influences 296–8
decision-making skills 134–5 monopolistic competition 65 internal influences 295–6
flexibility and adaptability to Montague, Judith 279 legislation as driver of 297–8
change 135–6 Moregolf 225 management as driver of 295
474 INDEX
nature of 291 product branding 229 health regulations 378–80
pressures for 294 product influences on business 71 regulatory bodies 60–1
social influences driving 298 product life cycle 227 The Reject Shop 100
technology as driver of 298 product packaging 228–9 relationship marketing 230
organisational change management production 7 renewal of businesses 100–2
identifying need for change 302 production process research and development (R&D) 13
management consultants 309–10 inputs 206 Reserve Bank of Australia (RBA) 52
nature of 291–3 key elements 206 resignation 276–7
need for 299–300 outputs 210 résumés 263, 264
Porter’s Generic Strategies quality management 212–16 retail shopping strips 366
approach 300–1 transformation processes 206–10 retirement 276
resistance to change 305–9 products retrenchment 277–8
setting achievable goals 303–4 definition 7 revenue 9
strategies 302, 309 finished products 7 risk, and entrepreneurship 14–17
organisational structures professional advisers 349 Ryan, Beau 219–20
definition 410 profit 9–10
flatter structures 75–7, 189–90 profit levels, monitoring and
hierarchical structure 75, 176–7 evaluating 423–4 salaries 11
new and emerging structures 75 profit maximisation 147–8 sales performance 419–20
traditional structures 75 projections see forecasting sales promotion 230
organising, management as 175 promotion 151, 229–30, 232 Samsung 213
Otaris Marketing 320–1 proprietary (private) companies 38–9 Savaidis, Nick 3, 285
outsourcing 199 public companies 41 Schaeffler Group 215
overdrafts 374, 375 Public Health Act 2010 (NSW) 378 scientific management 170
owner’s equity 250, 375 public relations 230 secondary industry 28–9
Oxfam 292–3 public sector businesses see government secondary target markets 224
business enterprises (GBEs) self-management 126
packaging 228–9 publicity 230 separation of human resources 275–6
Palace Cinemas 441 PricewaterhouseCoopers (PwC) 255–6 dismissal 278–9
Parkar, Rahim 344–5 involuntary separation 277–80
participative leadership style 178, 191–3 Qantas 3, 41, 42, 294–5 redundancy 277
Partnership Act 1982 (NSW) 36 quality 212 resignation 276–7
partnerships, with suppliers and quality circles 215 retirement 276
customers 407 quality of life, businesses and 3, 18 retrenchment 277–8
partnerships (business structure) 35–6, 41 quality management types 276
Patagonia clothing 138 benefits 212 voluntary separation 276–7
Path to Health 357 case study 214–15 service businesses, transformation
PAYG tax 387 continuous improvement 215–16 process 208, 209–10
payroll tax 388 as key business function 212 services 7, 205, 365
PCCA 176 quality assurance 213, 214 share prices, improving 151–2
Pennicott, Robert 283 quality control 212–13, 214 shareholders
Pennicott Wilderness Journeys 283 quality improvement 213 dividends 11–12
people skills 126–7 total quality management (TQM) maximising returns for 151–2
perfect competition 65 213, 215 in private companies 38
performance standards 418 quaternary industry 30, 31 protection 37–8
personal loans 375 quinary industry 30, 31 as stakeholders in business 82
personal selling 230 Shoes of Prey 327–8
physical resources 74 reactive management 291 shopping centre complexes 366
Pitt Street Mall 366 realisation of assets 106 Siemens 154, 155
planning 174–5, 399 receivership 107 sigma-six process 408
Polasports 219–20 recessionary cycles 50 situational analysis 402
political issues, and business record keeping 243 skills audits 435
environment 58–9 recruitment skills inventories 435
Porreca, Tiz 441–2 employee selection 263 Small Business Friendly Councils (SBFC)
Post-it Notes 161 external recruitment 261 Program 351
post-maturity phase of internal recruitment 260–1 small businesses, definition 21, 22
businesses 99–102 job analysis 259–60 Small Enterprise Association of Australia
PracticeManager247.com 339–40 new approaches 264 and New Zealand (SEAANZ) 352
price 229, 232, 365 online advertising 262 small to medium enterprises (SMEs) 4
price/cost strategy 439–41 outsourcing of 434 in Australia 21, 318, 321
primary industry 28 through employment agencies budgeting 420–1
primary target market 224 261–2, 434 cash flow 241
private companies 38–9, 41 redundancy 277 challenges for owners 329
privatisation 41–2 referral selling 381 characteristics 319–20
proactive management 135, 291 regulation of business 59–60 coordination of key business
problem solving 133–4 business names 377 functions 200–1
product, as element of marketing Competition and Consumer Act 380–1 definition 21, 319–21
mix 227–9 domain names 377–8 economic contribution 323–8
INDEX 475
effect of changes in business stock 445 triple bottom line 139, 283
environment 333 strategic goals 405 truthful communication 287
employment in 10, 21, 22 strategic (long-term) planning 174 2Step Dance 345–6
establishment options 356–62 strategic thinking 130, 185 Typefi Systems 325
failure 331–3 superannuation 385–6
global expansion 326–8 Sustainability Reporting 140 unconscionable conduct 381
influences in establishing 317 sustainable competitive advantage 64 undercapitalisation 104
innovation by 13–14 sustainable development 154–7 unfair dismissal 278–9
legal compliance costs 57 SWOT analysis 402–3 Unilever 137
management 432–7 Szoke, Helen 292–3 unincorporated businesses 33–4
number in Australia 321 unlimited liability 34
regulations 377–81 tactical (medium-term) planning 174 unsecured notes 374
resilience 52 tactical objectives 405
role 322 tangibles 205
Valve 190
staffing 382–6, 433–5, 445 target markets
variable costs (VC) 415, 416
success of 330–1 definition 222
identification 222–6 venture capital 46
survival 329
work-life balance programs 56 market segmentation approach 223–5 vertical integration 95
S.M.A.R.T. goals 145–6 mass marketing approach 222–3 Viagogo 58
social goals of businesses 152–4 niche markets 225 Virgin Australia 83
social issues, and business primary and secondary target vision, relationship with goals and
environment 55–7 markets 224 objectives 406
social justice 152 taxation 59 vision skills 132–3
social media advertising (SMA) 230 Australian Business Number (ABN) 391 vision statements 403–4
Social Progress Index 18 federal and state taxes 387–9 Visy 203–4
social reforms 59 goods and services tax (GST) 389–92 Volkswagen 138
socialisation 164 taxation law 389 voluntary administration 107
socially responsible businesses 84 teams 188–90, 436–7 voluntary cessation 105–6
society, as stakeholder 84 teamwork 188 voluntary redundancy 277
sole trader businesses 34–5, 41 technological advice 351 voluntary separation 276–7
solicitors 349 technological innovation 61–4, 298
specialisation of labour 177 technology, use in business 445–8 wages 11
Sportsgirl 24 Telstra 41, 42, 295 Walmart 223
Spotify 79 Temporary Skill Shortage (TSS) visas 68 Waratah Press 165
staff development 266 Temporary Work (Skilled) visas 68 wealth, generation and distribution
staff involvement 160–6 tertiary industry 29, 31 3, 17–18
Stahl, Jack 192–3 Tesla Motors 133 Web 2.0 446
stakeholder engagement 140–2 3M 161 Weber, Max 171
stakeholders time and motion studies 170 Wesfarmers 88, 152
accounting information and 236 Topshop Australia 104 Westfield Group 25
customers 83–4 total cost (TC) 415 Williams, Diana 354
definition 81 total quality management (TQM) 213 Williams, Melanie 320–1
employees 82 total revenue (TR) 414–15
Wilson Asset Management
environment 84 Tourism Australia 408
(WAM Capital) 3
main stakeholders of a business 81 Toyota 190, 215
managers 82 Women’s Network Australia 347
trade associations 352
problems arising from liquidation of trade and industry associations 61 Wong, Amanda 16
businesses 108 Trade Marks Act 1995 (Cwlth) 377 Woolworths 55, 148
reconciling conflicting interests of trade practices 380–1 workforce engagement 127
136–42 trade unions 61 workplace culture see business culture
shareholders 82 trading bank loans 375 workplace diversity, and business
society 84 traditional organisational environment 57
stamp duty 388 structure 75, 76
state government training technologies 269 Yo-get-it 330–1
business information resources 350 transformation processes 206–10
taxes on business 387–9 transformed resources 206 Zappia, Maria 360–2
statement of financial performance 243–6 transforming resources 206 Zara 66
steady state 99 trend analysis 437–8 zoning 366, 378
476 INDEX