Business Studies

A business is the organised effort of individuals to produce and sell, for a profit, the products that satisfy
individual’s needs and wants.

Roles of Business
1. Produce goods and services
- Goods
o Tangible outputs
o Could potentially be produced then
stored
- Services
o Intangible outputs
o Are consumed at the time they are
produced
2. Employment and income
- Employment promotes economic growth and gives workers money to meet their needs
- Income: money received by a person for providing their labour, or return from their investments
3. Profit
- Profit = revenue – expenses
4. Choice
- The art of selecting among alternatives
- Innovation leads to more product choices
5. Innovation
- New or improved products or processes
o Allows a competitive advantage  differentiation increases market share
6. Wealth creation and quality of life
- Wealth is the quantity of assets held by individuals (or society)
- Businesses create wealth for individuals and society
o Businesses allow individuals to increase personal wealth by investing profit or income
o They also allow society to increase its wealth of public goods (i.e. hospitals, schools,
roads etc) as these are built by government using the tax money paid by businesses
7. Entrepreneurship and risk
- Entrepreneurs are individuals that undertake the risk of starting and running a business
- They assist with the development of new ideas and products
- Act as a training ground for entrepreneurs to test out and refine their ideas leading innovations,
choice and other benefits for society

Impacts of a Business

Positive
• Provide a range of goods and services they could not do produce themselves
• Increase leisure time through labour saving products and appliances
• Provide social interactions
• Donate to charities and medical research funds

Negative
• Depletion of natural resource
• Degradation of the environment
Types of Businesses

Size

Micro Medium
- Less than 5 employees - Between 20 and 199 employees
Small - Market dominance in specific area or
- Between 5 and 19 employees region
- Less than $10m million in annual Large
revenue - More than 200 employees
- Tend to have incorporated legal - Turnover of more than $250 million
- structures - Tends to be multinational corporations
with large market share
Geographical Spread

Geographical spread: the presence of a business and the range of its products across a suburb, city, state,
country or the globe.

Local business – serves the surrounding area

National business – one that operates within just one country

Global businesses – commonly referred to as a multinational corporation, a large company that has
branches in many different countries

Industry Sector

When businesses are involved in similar types of production, they are grouped together in an industry

Primary Industry – includes those businesses involved in the collection of natural resources

Secondary Industry – includes all those businesses that take the output of firms in the primary sector and
process it into finished or semi-finished products

Tertiary Industry – involves people performing a vast range of services for other people

Quaternary Industry – includes services that involve the transfer and processing of information and
knowledge

Quinary Industry – includes all services that have traditionally been performed in the home

Legal Structure

The private sector

- Operated by private individuals and companies usually for the purpose of making a profit
- Businesses such as sole traders, partnerships and companies make up this sector

The public sector

- Operated by the government
 - Businesses operating in this sector are referred to as government enterprises
Incorporated businesses
- Incorporated refers to the process companies undertake to become a separate legal entity from
the owners
- The business now exists in its own right and its own legal entity
- Regardless of what happens to individual owners, the business continues to operate

Unincorporated businesses
- No separate legal existence from its owner
- Will either be a partnership or a sole trader
- The business entity and the owners are one and the same

Sole trader
- A business that is owned and operated by one person
- Unincorporated businesses
- Unlimited liability

Partnership
- A business that is owned and operated by between 2 and 20 people
- Unincorporated business
- Unlimited liability

Companies
- Incorporated businesses, either a proprietary or public company
- Perpetual succession
- Limited liability for shareholders (Ltd)

Proprietary companies
- Usually has between 2 and 50 shareholders
- Selling of shared must be approved by other directors
- Not listed on the ASX
- Must have the words Pty Ltd after its name

Public companies
- Must issue a prospectus when selling shares
- The word Ltd in its name
- Must publish its audited financial accounts each year

Privatisation

The selling of government-controlled businesses to private investors.

- Due to this process, organisation’s legal structures change from GBEs to public companies
Influences in the Business Environment
Business environment - set of factors in which the business operates
The factors or influences in the business environment can be classified as either:

External

External - outside of the business and therefore outside of the business's control

Economic Influences

Economic influences relate to the stage of the business cycle i.e., the cyclical movements in consumer and
business spending.

They are important for all businesses as they will impact the demand for their products through changes in
confidence and employment

Booms - high point of the cycle:

- periods of high employment, confidence and

spending
- business tend to increase production, have
higher sales and profits but also may face
stock shortages and rising wage costs

Recessions - represent the low point:

- periods of low employment, confidence and

spending
- businesses tend to reduce production, have
lower sales, stock surpluses but may benefit
from reduced labour costs

Government Influences

The policies and initiatives implemented by the levels of government and their regulatory institutions
Depend on the political party in power and their beliefs and agendas

Government policies will thus

impact businesses via:

- Demand for their products

- The relative cost of finance
(via interest rates)
- Employee rights and
entitlements
- Levels of competition in
markets
 - Regulation they must comply with

Technological Influences

Technological influences relate to changes in the machinery, equipment and processes used to run the
business or make their outputs

o Technology may create many opportunities to develop and competitive

advantage and achieve business goals
o It can also impose substantial costs and cause significant change in business activities

Technology may relate to changes in:

- The type of inputs available, how and where they are stored
- The production methods and machinery used
- How goods are sold and delivered to customers (e.g., social media-based marketing)

Technology can assist the business in:

- Improving quality
- Increasing efficiency resulting in quicker production
- Reduced costs and higher profits
- Increased innovations and customisation resulting in new products and higher rates of
customer satisfaction

Legal Influences

Legal influences define what is permissible and sets the minimum standards which the business must
comply with i.e., they promote fair business conduct

Laws seek to regulate behaviour to protect the interests of stakeholders

Social Influences

Social influences relate to changes in the culture, demographics, values and ideals applicable to Australian
society

These influences may relate to changes in the:

- Age, gender, education levels and ethnic background of the population

- Attitudes and expectations in relation to work, the environment, business practices and the
products produced

They will impact businesses in relation to:

- The products they are demand and a willing to buy

- The price they are willing to pay for products
- How they buy products and the level of service expected

Ethics relate to standards of behaviour or a moral position. They involve more than legal compliance i.e.,
something that may be legal may not be ethical
For businesses to be ethical they must not only follow their legal obligations but also act in a manner that is
consistent with the values and standards of society
Internal

Internal - inside the business and therefore within the business's control

Products
The types of outputs produced by the business – their volume, variety and degree of customisation
Impact:
- How products are stored and transported
- Whether goods can be produced in bulk
Location
Where the business is located
Impact: The potential trade-offs between the cost of the location and its impact on visibility, accessibility
and proximity to support services

Resources
The accessibility, quality and quantity of the financial, input and staff resources available to the business
Impact: The activities and strategies a business is able to implement within a given timeframe

Management and Business Culture

How managers communicate and disseminate decision making and the core principles of the business
Impact: The way the business responds to both internal and external influences. Levels of staff morale

Stakeholders

Stakeholders are those individuals, groups and institutions that interact with the business and have an
interest in its operations and outcomes

Types of stakeholders:

Customers o Support their position and

- people who buy the business’s decisions
outputs o Give the appropriate training
- Business responsibilities to them: and development
o Safe, quality products o Give them resources to
o Accurate disclosure and implement business plan
labelling Creditors
o Warranties and guarantees - Individuals or institutions that the
honoured business owes money to
- Business responsibilities to them:
Employees o Honour debt and interest
- People who work for the business payments in a timely manner
- Business responsibilities to them:
o Provide a safe and rewarding
work environment
o Provide training and
promotional opportunities Shareholders
o Fair and ethical treatment, - Part owners of the business
right to privacy - Business responsibilities to them:
o Protection of their
investment
o Provide them with accurate
Managers timely information on
- People who are responsible for business performance
coordinating business activities to
achieve goals Suppliers
- Business responsibilities to them: - Individuals or businesses that
o Recognition of efforts provide the business with inputs
 - Business responsibilities to them: - The wide community who are
o Do not place under undue impacted by business activities
pressure and time constraints - Business responsibilities to them:
o Pay debts on time and in full o Obey laws
Society o Participate in community
projects and activities

Business Growth and Decline

The Business Life Cycle

1. Establishment
2. Growth
3. Maturity
4. Post-maturity
- Renewal. Steady state. Decline

Phases of the Business Life Cycle

Establishment

Establishment is the stage where the business is set up and first enters the market

Characteristics of this stage include:

- Limited customer awareness
- High set up and production costs
- Key decisions regarding products, location, staff etc are made
- Little or negative profits (due to costs being greater than revenue)

Challenges:
- Limited customer awareness
- High set up costs
- Little to no profits
- Cash flow problems
- High degree of uncertainty in the market

Growth

The trigger for entry into this stage is an increase in customer awareness, customer loyalty and sales

Characteristics of this stage include:

- Rapid increase in sales
- Promotion is based on trying to broaden the customer
- Expanded production and business size
- Improved profitability
- Improved product quality
- Development of new products
- Businesses face less risk, have greater certainty and financial security

Challenges:
 - Meeting increased demand
- Accessing funds for expansion
- Managing the expansion
- Maintaining control and direction

Maturity

A business enters the maturity stage when growth in its sales begins to level out

Reasons for this include:

- Increased competition
- A successful product being copied
- Market saturation
- Loss of interest in the product

Key characteristics of this stage include:

- Sales have reached their peak, still growing but at a slower rate and eventually begin to level out
- Reorganising and formalising structures
- Increased competition and market saturation may near
- Look to introduce new products and delete underperforming ones i.e., differentiate from
competitors through improved quality or service

Challenges:
- Increased competition
- Maintaining profit levels
- Cutting costs and maximising efficiency

Post-Maturity

What happens in this stage depends on how the business has responded to the characteristics and
challenges encountered in the growth and maturity stages

Challenges:
- Continuing to deliver what the market demands
- Identifying trends and changes in the market
- Entering into renewal
- Cutting costs

Possible outcomes in the post-maturity stage include:

Steady State

In this situation business sales remain at the same level as in maturity.

The difference between maturity and steady state is that research and development is stopped.

The business will eventually be forced out of this state by changes in the business environment
- Effective responses lead into renewal
- Ineffective responses lead to decline

Renewal
Businesses may attempt to regenerate itself and products.
A business thus enters renewal when it experiences a new increase in sales

A business can enter renewal by:

- Adding new products
- Finding new uses for their products
- Entering a previously untapped market

The key to entering and remaining in renewal is meeting customers changing needs

Decline

A business enters decline when it experiences a decrease in sales.

Management will need to decide if:

- The business can be saved (what can they do to turn the business around?)
- The business is doomed to fail (try to salvage as much as they can)

Internal reasons for business decline include: External reasons for business decline include:
- Lack of management knowledge - Unexpected competition
- Inadequate planning - Government policies
- Lack of finance and poor cash flow - Natural disasters
- Poor location - Significant changes in the market

Cessation

Business cessation – occurs when a business stops operating

Cessation may be a decision by the owners of the business or forced on them by stakeholders when the
business fails and is unable to achieve its goals

Voluntary Cessation – when a business is still solvent and able to pay its debts, but the owner decides to
stop operating

Involuntary Cessation – when a business is forced to stop operating

Usually due to action by creditors as the business is unable to pay their debts – the business is insolvent

Unincorporated entities are not separate from their owners and hence the cessation process may require
the owner to be declared bankrupt and they may lose personal assets due to unlimited liability

Incorporated entities are separate from their owners and hence the cessation process will thus be limited
to declaring the business insolvent and liquidating business assets but not those of the owner in order to
pay business debts

Methods of Expansion

Methods used to expand

business sized and increase
production during this stage
include:
Mergers and Takeovers

Merger - two businesses agree to join forces and create a new entity

Takeover - a business buys a controlling interest in another; the other business is now part of the first one

Types of mergers and takeovers:

1. Horizontal Integration

- Occurs when a business mergers or takes over a business in the same industry
- Benefits include:
o Less competition
o Possible economies of scale
o Increased production size

2. Backwards Vertical Integration

- Occurs when a business takes over a business that supplies it with inputs
- Benefits include:
o Guaranteed supply
o Control over input quality

3. Forwards Vertical Integration

- Occurs when a business mergers or takes over a business that buys their outputs
- Benefits include:
o Guaranteed sales

4. Diversification

- When a business mergers with or takes over a business in a completely unrelated field
- Benefits include:
o Can act as a safety net
o Allow to take advantage of new trends in the business environment

Nature of Management
Effective Management

Without effective management a business could not:

- Make profits
- Respond to changes
- Maintain its direction and focus
- Grow and expand
- Survive in the long term

Effectiveness – achieving set goals

Efficiency – gaining maximum output from inputs

A successful manager will be one that gets the balance correct between effectiveness and efficiency

Functions of Management

Planning – deciding what the business wants to

achieve and how this will be done

Organising – grouping and allocating business

resources to various departments and activities to
facilitate goal achievement

Leading – motivating employees to work towards

goal achievement

Controlling – comparing actual results to what was

planned or expected and modifying strategies as
necessary in order to fix any discrepancies

Roles of Managers

1. Interpersonal
- Working with others

2. Decisional
- Selecting the best option from a
range of alternatives

3. Informational
- Gathering, analysing and
communicating information
with stakeholders

Skills of Management
Decision making Interpersonal
- The ability to selecting the ‘best’ course of - The ability to work with, understand,
action from a range of alternatives i.e., to motivate and communicate with others
make timely, appropriate and considered
decisions Communication
- The ability to explain ideas to others and
Reconciling conflict of interest ensure that they understand the information
- The ability to foresee and solve conflicts of you are presenting to them
interest before they occur or have an impact
on the business Flexibility
- The ability to be open to different options
Vision and alter strategies and decisions as
- The ability to create a clear, shared sense of appropriate
direction for people within the organisation
allowing them to work towards common Adaptability to change
goals. - The ability to perceive the need for change
and make the necessary changes within the
Strategic thinking business and its activities
- The ability to think about the business
holistically and make decisions based on the Problem solving
long-term outcomes rather than short term - The ability to search for, find, develop and
gains implement solutions to unworkable
situations

Business Goals
Strategic Goals – whole business targets that the business hopes to achieve

The key strategic goals of a business include:

Financial
- Profit
- Market share
o The total proportion of revenue or sales a business has in a market
- Growth
o Increasing the size of the business and its operations
o Can be achieved by
 Expanding production
 Merging with other businesses
 Diversifying
- Share price
o Reflects a business’s current market value

Corporate social responsibility

- Social
o Businesses seek to bring benefit to the wider community e.g., supporting diversity
- Environmental

Objectives – benchmarks that the business aims to achieve in each of the key business functions which will
assist in the achievement of strategic goals
Management Approaches
Behavioural management – focused on the people (motivating)
- Flat management structure

Classical / Scientific management – focused on the job (one best way)

- Traditional management structure – layers of management
- long chain of command but a narrow span of control

Contingency management – focused on flexibility (no one best way)

Operations
Operations is the key business function concerned with producing the business’s outputs

Role and Approaches

Operations can assist the business in achieving business goals through the adoption of one of the following
approaches:

Cost Leadership

- If the business were to adopt a cost leadership approach in operations, they would be aiming to
develop a competitive advantage based on price
- Under this approach the operations function would aim to reduce production costs so that the
business can lower it’s selling price but still continue to make a profit. This may involve:
o Negotiating deals with suppliers
o Increasing production volumes
o Outsourcing
o Utilising technology

Goods / Services Differentiation

- The operations function would seek to produce outputs that had better or more unique features
than other businesses. This may involve:
o Improving the quality
o Increasing the level of customisation
o Increasing the speed of delivery
Inputs

Inputs are the raw materials, components, skills, creativity and knowledge used to create the business’s
outputs

Operations needs to plan and acquire the right inputs required that are in alignment with business strategy,
ethical considerations and legal requirements

This will involve consideration of the quality, cost and type of inputs available

Inputs can be classified as either:

- Transformed resources
o Resources that are changed or converted as part of the production process
o They will be part of the finished output but not in their original state
o E.g., raw materials

- Transforming resources
o Resources that change or convert other resources during the production process
o They remain in the business and are not part of the finished output
o E.g., human resources

The four V’s

- Volume
o Volume flexibility is essential in managing lead times
- Variety
o The greater the variety, the more the operations process needs to allow for this variation
- Variation in demand
o Businesses can try to forecast demand to make necessary adjustments in the operations
- Visibility
o Maximising sales requires customer contact and then shape the processes accordingly

Sequencing and Scheduling

Sequencing involves determining the order in which activities should occur within the operations process.

Scheduling focuses on the duration of time that each activity will take to complete.
- When dealing with transformation-related activities, different scheduling tools, such as Gantt
charts and critical path analysis (CPA), may be utilised to help with planning

Technology, Task Design and Process Layout

Technology is the practical application of scientific knowledge that enables individuals to accomplish new
tasks or execute established ones more efficiently

Task design is the process of breaking down a job into manageable activities that can be successfully
performed and completed by employees

Process layout is when machines and equipment are grouped together based on the function or process,
they perform
Monitoring, Control and Improvement

Monitoring involves measuring all aspects of operations and using KPIs to assess performance

Control involves comparing actual performance to predetermined targets and taking corrective action if
necessary

Improvement involves reducing inefficiencies, waste, poor work processes and eliminating bottlenecks

Quality Management

Quality management strategies are used to maintain consistent product quality, improve customer
satisfaction and enhance a business’s reputation

- Quality control
o Conducting inspections to identify and address issues or defects

- Quality assurance
o a strategy that prevents defects or issues from arising by achieving set standards
throughout the production process

- Total quality management

o A management philosophy that aims for excellence and emphasises continuous
improvement in all aspects of a business’s operations by sharing responsibility among all
members of the organisation

Finance
The finance function has the role in a business to source and manage the financial resources of the
business.

They need to ensure:

- Funds are available to other functions fund activities
- Expenses are paid in a timely manner
- Financial risks are minimised
- Timely and accurate communication the business’s financial performance to stakeholders

In fulfilling this role, the finance function seeks to achieve the objectives of:

- Profitability
- Liquidity
- Efficiency
- Growth
- Solvency

Sourcing funds
- Debt
- Equity

Communicating financial performance

- Financial statements
- ratios
Financial Statements

Financial statements provide a summary of the financial transactions undertaken by the business in a
period of time

Balance Sheets

Balance sheets show the financial position of a

business at ONE point in time
- they show what the business owns (assets) and
how they paid for them (liabilities and owners’
equity)

This means that BOTH sides must equal:

Accounting Equation

Assets = Liabilities + Owners Equity

Assets – items of value the business owns or controls

- Current assets
o a type of asset that you can sell off within 12 months
- Non-current assets
o An asset that you could not sell within 12 months

Liabilities – funds that are borrowed from outside the business that must be repaid

- Current liabilities
o A loan that must be repaid within 12 months
- Non-current liabilities
o Funds that must be repaid in longer than 12 months

Owners’ Equity – funds from the owner of the business

Income Statements

Income statements are used to calculate a

business’s operating result by matching
income with expenses incurred over a
specified period.

They may also be called:

• Revenue statements
• Profit and loss statements

Gross profit = Sales - (COGS)

Net profit = Gross profit - Other expenses

COGS = opening stock + purchases - closing stock

Features:

Sales – the revenue earned by selling the Admin Expenses – expenses related to running
business’s products the whole business

COGS – the cost of making the business’s Financial Expenses – expenses related to
products acquiring finance

Gross Profit – the money that is available out of Net Profit – the amount of money left out of sales
sales to pay for other expenses after all expenses have been deducted

Selling Expenses – expenses related to generating

sales of the business’s products

Cash Flow Statements

CF statements summarise cash transactions over a period of time

Flows included on a cash flow statement:

- Operating– associated with producing and selling the business’s output

- Investing– associated with the sale and purchase of non-current assets

- Financing– associated with the sourcing and servicing of funds

Closing cash balance = Opening cash balance + Inflows – Outflows

Sources of Funds

Debt – the short and long-term borrowing from external sources by a business

- Short-term:
o Overdraft
 Where the bank allows a business to overdraw their account up to an agreed limit for a
specified time to overcome a temporary cash fall
o Commercial bills
 Primarily short-term loans issued by financial institutions for larger amounts for a
period of generally between 30 and 180 days when repaid in full + interest
o Factoring
 The selling of accounts receivable for a discounted price to a finance or factoring
company rather than waiting for consumers to pay

- Long-term:
o Mortgage
 A loan secured by the property of the borrower
o Debentures
 Issued by a company for a fixed rate of interest and a fixed period of time. Holders
receive regular interest payments, but the value of the debenture is repaid on maturity
o Unsecured notes
  A loan from investors for a set period of time. Interest and the entire amount is repaid
on maturity
Equity – the funds contributed by the business owners to start and then expand the business

- Capital
o Funds contributed by the owner
- Retained profits
o Profits that are earned by the business but are reinvested back into the business

Human Resources

Acquisition

Acquisition involves activities to fill job vacancies

It includes:

- Identification of staffing needs

- Determining the number and type of employees
required
o Involves preparing job descriptions and job specifications
o Consideration of the type of employment contract to be offered

- Recruitment
- Activities to attract a pool of suitably qualifies people to apply for identified job vacancies

o Internal recruitment

 Employees presently employed by the business in a different role. Through:

 Promotions
 Transfers
 Advantages
 No external costs of advertising
 Already adapted to business styles
 Disadvantages
 May be a limited pool of suitable candidates
 Can lead to conflict or jealousies between employees
 Applicant may need to be replaced leaving a job vacancy anyway

o External recruitment

 People from outside the business. Through:

 Advertisements
 Head hunting
 Advantages
 Wider range of applicants to choose from
 Outsiders may bring new ideas and approaches to the task
 Allows for rapid growth of the business – increase in staff numbers
 Disadvantages
 Costs associated with advertising the position
 More time-consuming
  Applicants are unknown – element of risk

- Selection
- Involves activities to choose the best candidate from the pool of recruited applicants

It is a screening process to ensure the selected employee has the skills to complete the job and will fit with
the culture and values of the organisation.

Methods used include:

- Interviews
- Background and reference checks
- Testing (psychological, intellectual)
- Demonstrations / workplace scenarios

Effective acquisition processes will help to:

- Reduce acquisition costs

- Reduce development costs as employees already have the skills
- Improve quality and speed of production due to acquisition of highly skilled staff
- Improve flexibility and innovation through bringing new ideas and experiences into the business
- Improve productivity and reduce time lags of employees adjusting to the business

Development

Development is a HRM process that focuses on improving job performance and the skills / capabilities of
existing employees

It seeks to ensure:

- New employees are aware of business systems and procedures and can perform duties in the
required manner
- Employee skills and work practices are up to date
- Areas of weakness and future training needs are identified

Development programs will include:

- Induction programs
o Involves introducing new employees to the business and its culture
o Makes the new employee familiar with the business’s values and work practices

- Training programs
o Involves activities to enhance employee skills, capacity and job performance
o May be classified as either:
 On the job training
 Off the job training

- Performance appraisal
o A systematic, formal process to assess employee job performance
o Provides feedback as to how well and employee is fulfilling their role
Benefits:

- Improving job performance

o resulting in higher quality outputs, speed and levels of service and productivity

- Improving flexibility and adaptability

o to changes in the work and business environment by expanding employee skills

- Increasing motivation levels

o as employees feel valued and supported that the business would invest in them

- Helps to prevent injuries and accidents

o as employees know how to safely complete their work

- Increases business capacity

o as employees know how to use their skills effectively within the business

Maintenance

The process of maintenance in HRM involves activities to retain staff and keep them motivated, satisfied
and loyal and are working towards achievement of business goals

It involves:
- Creating a safe and supportive work environment
- Setting competitive working conditions and remuneration packages
- Preventing and resolving conflicts

Developing remuneration packages

Any package offered must comply with minimum pay and working conditions set in awards.

However, when constructing packages that seek to motivate and retain competent and committed staff
consideration needs to be given to:

- Monetary and non-monetary rewards

- Use of performance pay
- Use of group and individual rewards

Monetary rewards that may be offered as part of a remuneration package in this process include:

- Wage / salary
- Commission
- Bonuses
- Fringe benefits e.g. low interest loans, expense accounts, phones, additional superannuation

Non-monetary rewards aim to motivate by reducing stress associated with jobs or give a sense of extra
status or prestige:

- Greater job variety

- More flexible work hours
 - Greater autonomy
- Subsidised services e.g. childcare, gyms, food
Communication and Grievance Procedures

Maintenance processes will also establish clear communication channels within the business.

They should allow:

- Employees to make suggestions and participate in decision making
- Employers to give directions and feedback

Additionally, communication processes should highlight grievance procedures i.e. the steps that can be
taken to resolve conflicts in the workplace either between individual employees or employees and the
business

Maintenance processes are important as they are key to retaining and motivating staff

Benefits:

- Increased level of staff morale and motivation

o resulting in higher service, quality, flexibility and innovation

- Reduced conflict
o resulting in reduced disputation and disruptions

- Reduced turnover and absenteeism

o lowering costs to the business

- Greater return on the development funds

o invested in employees

Employment Contracts

An employment contract is a legally binding, formal agreement between an employer and employee.

All workers will have some form of employment contract that will be based on either:

- The national ‘safety net’ (minimum wage and NES)

o The FWA created 10 minimum pay and entitlements that must be met in all contracts

- A modern award
o Set the minimum pay and wor4king conditions for all employees in an industry
o Established by large employers, unions and FWC

- A workplace agreement
o Enterprise agreements are specific workplace agreements between an employer and a
group of employees
o The main method for determining pay and conditions
o Must pass BOOT and be approved by FWC

- Individual contract
 o Common law contracts are private agreements that are between one employee and
employer

Separation

The separation process involves managing the end of the employment relationship

Separation may be either:

- Voluntary
o Occurs as a result of the employee deciding to leave the business
o HRM will be involved primarily in terms of ensuring all entitlements are paid out as well
as ensuring a smooth exit and transition occurs

- Involuntary
o Occurs when the business makes that decision to end the employment relationship due
to the skills or specific employees no longer suiting the needs of the business

Examples include:

Dismissal

Dismissal occurs when the employment contract is ended due to unacceptable conduct or behaviour of an
employee.

It may be:

- Instant / summary dismissal i.e., the contract is ended without notice due to reasons such as
theft, gross negligence or severe misconduct

- Dismissal after warnings i.e., the employee has been informed that they have been failing to
complete their duties adequately and given an opportunity to change their conduct but have
not done so

Redundancy

As a result of mergers, takeovers, changes in business direction or changes in the business environment
businesses may no longer need and have work for particular employees.

As a result employees who perform these jobs are no longer needed and will be made redundant

Benefits:

- Reducing costs
o associated with overstaffing or incompetent /unproductive / unmotivated employees

- Maintaining staff morale and minimising disruptions

o through clear and transparent processes

- Avoiding negative publicity and litigation

 - Creating a flexible workforce
o that is responsive to changes in the business and its environment

Marketing
Marketing is a total system of interacting activities designed to plan, price, promote and distribute products
to current and future customers

The total market is often too large to be a viable target market for a firm’s marketing intentions.

- Thus, businesses tend to select a target market – a group of customers with similar
characteristics who currently, or who may in the future, purchase the product

If the total market is selected this is referred to as a mass marketing / undifferentiated approach. This
approach seeks a large range of customers e.g., coca cola

Market segmentation

Most businesses select specific groups of customers as a focus for their marketing efforts.

- Market segmentation occurs when the total market is subdivided into groups of people who
share one or more common characteristics.
- Once the market has been segmented, the business selects one of these segments to become
the target market (a concentrated approach)

Niche markets – a narrowly selected target market segment

A differentiated approach is when businesses break the market up into segments and focus on multiple
segments each with their own marketing mix

Marketing managers can segment target markets based on any of the following:

- Age - Income - Religion - Personality

- Gender - Occupation - Geographic - First-time user,
- Ethnicity - Education level location loyal customer

Methods of segmentation include:

Demographic
- Population characteristics

Geographic
- Where people live

Psychographic
- Personality characteristics

Behavioural
- Loyalty to a product
Marketing Mix

Product

Packaging includes the material wrapped around a consumer item with the purpose of preserving,
protecting, informing, communicating information and promoting the product.

Branding

Branding refers to the use of a distinguishing name or logo

Family branding – use of the same brand for all products

Individual branding – use of a different brand for each product or group of products offered

Importance:
- Encourages the instant recognition of the business or product
- Assist in entering new markets, broadening product range as customers are more willing to try
based on past experiences

Price

Price relates to the amount goods and services are sold to customers

Implications of pricing:
- The level of sales
- The profit margin per unit sold
- The perception of the quality of the product

Pricing Methods – Long-Term

These are used to set the regular price of the product

Cost based Competition based Market based

- Set with reference to - Set with reference to - Prices are set using the forces
costs of production prices of competitors of demand and supply

Pricing Methods – Short-Term

Penetration pricing – Loss Leader – sell the Market Skimming – Price Points –
start with a low price product at a loss in the start with a high having a range of
and raise over time hope of selling other price and reduce products at a set
higher profit margin items over time price level

Promotion

The role of promotion is to inform, persuade and remind consumers about a business’s products.

Aims:
- Attract new customers
 - Increase brand loyalty
- Encourage existing customers to purchase more of the products
The Promotional Mix

The mix of just promotional strategies used by the business – part of the marketing mix

Advertising
- Refers to a paid non personal message communicated through a mass medium
- Primary purpose is to attract potential customers, create a demand for the product and
communicate essential information

Personal Selling
- The activities of a sales representative directed to a customer in an attempt to make a sale
- Points out product features and how they meet customer’s needs
Relationship Marketing
- Refers to the development of long-term, cost-effective and strong relationships with customers
- Makes use of cheaper, targeted promotional material to existing customers (loyalty programs)

Sales Promotions
- Activities or materials used by the business to attract interest and support for the product

PR and Publicity
- Relates to activities that are designed to gain mainstream attention and coverage

Place

Place or distribution strategies refer to activities that make the products available to customers when and
where they want to purchase them

Channel – the steps to get the product from the producer to the consumer
- Direct distribution
- Indirect distribution
o The use of intermediaries e.g., wholesalers or retailers

Intensity – the number of stores or chains of stores where the product is available
- Intensive distribution
o Available at all possible outlets
- Selective distribution
o Available at a limited number of outlets
- Exclusive
o Available at one outlet

Ethical Business Behaviour

Business Ethics
- The moral principles, policies and values that govern the way businesses and individuals engage

Business ethics ensures businesses offer:

- Transparency (e.g., animal rights) - Environmental concern
- Honesty - Fairness - Responsibility
- Compassion (fair wages, no child labour) - Respect for laws
 - Integrity - Respect for others

SMEs
Small to medium enterprises

Characteristics:
- Personalised service
- Independently owned
- Independently owned and operated
- Locally based

Role:
- Make a profit for owners / shareholders
- Creating employment
- Provide income and wealth for business owners, shareholders and employees
- Create choice for consumers
- Innovation in new products, production methods, new markets and forms of business organisations
- Quality of life i.e. provides structure and social integration for employees

Keys to success:
1. Flexibility
2. Reputation
3. Focus on market niche
4. Entrepreneurial abilities
5. Access to information

An SME has failed when it is:

- Unincorporated and declared bankrupt
- Incorporated and either forced into liquidation
or voluntary cessation

Causes of failure:
- Managerial inexperience and incompetency.
- Undercapitalisation
- Lack of planning

Influences in establishing an SME:

- personal qualities
o qualifications, skills, motivation, entrepreneurship, cultural background, gender
- sources of information
o the business idea
- competition
- establishment options
o new, existing, franchise
- market
o goods and/or services, price, location
- finance
o source, cost
 - legal
o business name, zoning, health and other regulations

Critical Issues in business success and failure

Importance of a business plan

The business plan sets out the desired goals and direction of the business

Components of the business plan include:

1. The prime function of the business
2. The mission statement
3. Plans and strategies
4. Budget projections

Management – staffing and teams

Management must make the best use of limited resources. It is responsible for the business achieving its
goals. A manger’s skill is the most critical factor in determining business success / failure.

Specific key tasks include:

‐ Problem solving
‐ Creating a positive business culture
‐ Co‐ordinating and monitoring employees and staff teams
‐ Developing and implementing plans and schedules.

Staffing – in relation to staff management is responsible for recruiting, selecting, maintaining, training and
separating employees.

- Many SMEs use recruitment agencies to assist them in finding the right employees.
- Once staff are employed an employee skills data can be developed.

This may involve the use of:

- A skills audit
- Skills inventory

Teams – are replacing individuals in many businesses, especially businesses adopting flatter organisational
structures.

Trend analysis

A process of investigating changes over time and looking for a pattern (trend) in order to predict the future.
Financial information or total sales are 2 common applications of trend analysis.

It can help SMEs forecast factors such as :

‐ Potential sales
‐ Operating costs
‐ Profitability
‐ Availability of labour

Identifying and sustaining competitive advantage

A competitive advantage ‐ the strategies used by a business to ensure it has an edge over its competitors

Strategies include:

1. Price/cost Strategy
o the main ways in which to develop a lower price /cost advantage over competitors can include:
 Improved efficiency of operation
 Reducing labour costs
 Technology
 Economies of scale

2. Differentiation Strategy – the business offers customers something that is not already offered by
business rivals.
o This differentiation could be based upon:
 acknowledged value
 better quality
 innovative and new design
 positive brand image
 strong service reputation
 reliability

Ensuring long-term success

Sustaining a competitive advantage is as important as developing that advantage. A business must protect
itself and reduce opportunities available to the competitors.

This may be achieved through:

- Research and development
- Patents / copyrights
- Exclusive contracts with suppliers
- Lobbying government to limit foreign competition

- Most importantly actions of management must be dynamic by staying in front of competition.

Resistance to Change
Reasons for resistance to change:

- Financial costs
o New equipment
o Retraining the workforce
o Reorganising plant layout

- Inertia of managers and owners

o Unenthusiastic response from these stakeholders

- Cultural incompatibility in mergers and takeovers

o May experience a culture clash

- Staffing considerations
 o Impact on the level and type of staffing
o Employees fearful of change

Strategies for reducing resistance to change

- Offer support
- Build trust among employees
- Make sure the changes are reasonable
- Allow employees to participate in the process
- Discuss any upcoming change
- Support change with new learning
- Clearly articulate the purpose of the change
- Follow a sensible timeline
- Avoid threats if possible
- Provide constant feedback
- Communicate both ways

TAX DESCRIPTION LEVIED BY GOV

PAYG (PAY AS YOU GO) - Income tax Federal

- Amount increases as income increases.
- E.g., salary, rent, investments

FBT (FRINGE BENEFITS - A tax on the prevision of benefits to an employee e.g., Federal
TAX) car, accommodation
GST (GOODS AND - Goods and services tax (10%) Federal
SERVICES TAX)
COMPANY TAX - Slightly lower for small business Federal
- 30%
- 25% if the company’s turnover is less than $50 million.
- (Income tax for a company)

CAPITAL GAINS TAX Calculated on the profit made from the sale of an asset Federal
e.g., land or shares
STAMP DUTY Paid when ownership is transferred e.g., car State

LAND TAX Tax paid on a property (not home)- when valued over State
$822000
COUNCIL RATES Property owner pays council rates to cover services like Local
garbage collection.